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Executives

Lori Wittman

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

Raymond J. Lewis - President

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

Analysts

Jana Galan - BofA Merrill Lynch, Research Division

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

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

Ross T. Nussbaum - UBS Investment Bank, Research Division

Michael Carroll - RBC Capital Markets, LLC, Research Division

Michael Bilerman - Citigroup Inc, Research Division

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

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

Philip J. Martin - Morningstar Inc., Research Division

Nicholas Yulico - Macquarie Research

Todd Stender - Wells Fargo Securities, LLC, Research Division

Ventas (VTR) Q3 2012 Earnings Call October 26, 2012 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Ventas Earnings Conference Call. My name is Janina, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Lori Wittman, Vice President, Capital Markets. Please proceed.

Lori Wittman

Thank you very much. Good morning, and welcome to the Ventas conference call to review the Company's announcement today regarding its results for the quarter ended September 30, 2012.

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 the 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, 2011, 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 the 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. Welcome Ventas' third quarter 2012 earnings call. Today, I'm pleased to share an overview of our excellent results, investment activities and outlook for the balance of the year, Ray Lewis will discuss our portfolio performance and Rich Schweinhart will review our financial results. We'll be delighted to answer your questions following our remarks.

The Ventas business continues to thrive, demonstrating our ability to grow because of our high-performing diverse portfolio driven by demographic demand and our robust disciplined investment activities. We are executing on our 3 pillars of excellence: Capital raising, capital allocation and asset management, which are producing consistent superior results. Quarter-after-quarter, year-after-year, we have put great numbers on the board with minimal volatility.

Ventas posted outstanding third quarter results. Normalized FFO this quarter with $0.96 per share, up 9% from last year and total FFO grew 12%. Year-to-date cash flow from operations grew 60%. Our growth rate is especially impressive because this is the first quarter of year-over-year comparisons that include the NHP and Atria acquisitions in the prior period. Internal and external growth drove our superior result. We enjoyed fantastic performance in our Sunrise and Atria assets, which grew NOI 10% and occupancy 300 basis points, as well as robust accretive investment activity.

Since the beginning of 2011, we have completed about $13 billion of acquisitions, including $1.7 billion year-to-date. Our unlevered yield on these high-quality year-to-date acquisition exceeds an outstanding 7.5%. In addition, our average cash debt costs continue to improve. We issued $275 million and 10-year bonds at 3/4. And just yesterday, closed a new $180-million 5-year funded term loan with the current rate of under 1.5%.

Since the second quarter call, we've closed over $400 million of investments in mostly private pay assets, including 36 high-quality medical office buildings or MOBs, on-campus or affiliated with AA-rated hospital system. With access to an outstanding combination of internal and external sources, we are well-positioned to take advantage of opportunities in the highly fragmented and growing $1 trillion healthcare real estate market.

Our acquisition pipeline is very active with potential deals emanating from Ventas, Lillibridge and NHP legacy relationship, as well as from new sellers eager to enter a market that can produce win-win outcomes for buyers and sellers. We began our acquisition charge 2 years ago, and the benefits of our strategy are clear today. Our focus is, as it always has been, on creating shareholder value. The strategy we articulated over a decade ago to become a leading player in our consolidating, dynamic sector with a disciplined approach to building a diversified portfolio with a private pay focus is serving us and our shareholders well. Ventas' need-based business continues to generate reliable demographic demand, furthered by policy shifts to lower-cost setting. These benefits translate into property performance that is the most positive and least volatile of all real estate asset classes.

At quarter end, we maintained a fortuitous balance sheet at 29% that's enterprise value. We currently have $1.6 billion in available liquidity. Our strength in liquidity allow us to take advantage of opportunities and be a safe haven for investors in a disrupted market. We are raising our full-year normalized FFO guidance to $3.76 to $3.78 per share, representing 12% per share normalized year-over-year FFO growth if achieved. Excluding non-cash items in both periods, the growth rate would be 9% per share.

Finally, we view our dividend and dividend growth as an important component of delivering consistent superior total return to shareholders. Our annual dividend growth has been 10% over the past 10 years, market-leading performance. Our current dividend represents just 66% of our updated 2012 normalized FFO per share guidance and 70% excluding non-cash items. We have confidence in our team and our balanced business model.

Now, I'm happy to turn the call over to Ray to discuss this quarter's portfolio results.

Raymond J. Lewis

Thank you, Debbie. Our diversified portfolio, 1,428 properties, turned in another quarter of excellent performance. We now derive 81% of our revenues and 70% of our NOI from private pay assets. Once again, our high-quality, higher growth seniors housing assets and our stable MOBs and triple net leases provided the winning combination of growth and defense that has been the centerpiece of our strategy.

In the quarter, our same-store cash NOI grew 3.5% versus the third quarter of last year, and 4.4% normalizing for last year's reduced Sunrise management fee.

Starting first with our 212 property seniors housing operating portfolio. This segment contributes 26% of our NOI, and is comprised of high-quality, independent and assisted-living communities in affluent markets around major Metropolitan areas managed by Sunrise and Atria. Our seniors housing operating portfolio turned in an exceptionally strong performance in the third quarter with positive sequential and year-over-year increases in occupancy, NOI and RUG-IV.

The total seniors housing operating portfolio delivered $100.2 million of NOI after management fees in the third quarter, and $118.3 million before management fees, growth of 15.3% and 19.4%, respectively versus the prior year. NOI before management fees for the 194 properties same-store portfolio increased 9.7% in the third quarter to $108.6 million, compared to $99 million in the third quarter of 2011. And NOI after management fees was $92.3 million, up about 6.3% year-over-year. Same-store unit occupancy continued this upward trend, increasing 300 basis points year-over-year to 90.6%. Same-store sequential unit occupancy grew 140 basis points.

The occupancy gains in the lease up portfolio have likewise been very strong. For example, the Atria-managed business at Longmont, which we acquired in March at approximately 82% occupancy is now 98% occupied. Atria of Hudson, which reopened in April of last year, is now fully occupied, and Atria of Glen Cove, which reopened in October of last year is now 84% occupied. So we continue to add cash flow growth and value through our portfolio redevelopment plan and acquisition strategy with Atria. Consistent with what we said on our last call, expenses increased slightly this quarter, and we expect this trend to continue into the fourth quarter. And consistent with historical trends, we expect that occupancy will start to decline in the back end of the fourth quarter.

So our highly productive best in class seniors housing operating portfolio continues to perform extremely well. And we have increased our NOI expectations for the full year to $383 million to $385 million from $375 million to $381 million.

Let me turn to the performance of our triple-net lease portfolio, which is diversified across seniors housing, skilled nursing and hospital assets with over 70 quality tenets. These assets are generally in pooled multi-facility long-term master leases with credit and structural support. Cash flow coverage in our same-store triple-net lease portfolio for the second quarter of 2012 was strong at 1.7x. And our Kindred coverage remains strong at 2x.

In late July, CMS published its final increase in Medicare reimbursement rates for the 2013 fiscal year. Skilled nursing will receive a net increase of 1.8%, and LTACs will go up by 1.7%. These increases took effect at the beginning of October 2012 but do not reflect the impact of sequestration, should it occur.

Before leaving the triple-net lease portfolio, let me touch on the releasing process on our Kindred skilled nursing facilities. As a reminder, there's a total of $126 million of rent -- of Kindred rent up for renewal in 2013, of which we have already replaced approximately $75 million. We have been marketing the remaining 54 properties for releasing since the mid-second quarter of this year. The process is going very well, and we are moving into the selection phase. Interest in the portfolio is strong, and we have multiple bids to lease the assets from both existing and new relationships for Ventas. We expect to complete the releasing in stages or clusters and that the total rent on the assets up for renewal should approximate the current rent level. We are excited about the opportunity this process provides Ventas to expand its tenant base and diversify its tenant relationships with multiple quality operators. We are confident that we will execute the releasing process to a successful outcome and look forward to providing you with more information through the end of this year.

Finally, I'd like to discuss Ventas' MOB portfolio of 292 consolidated properties spanning 15.7 million square feet, which accounts for 17% of our annualized NOI. These well-occupied, on-campus properties affiliated with highly rated health systems have core-like characteristics, but provide above core returns.

Here are a few of the MOB segment highlights for the second -- for the third quarter. Cash NOI in the 173 same-store consolidated MOBs that we owned in both third quarter of 2011 and 2012 increased 4.7% year-over-year, driven primarily by increases in rate and expense controls offset by a slight decrease in occupancy. Occupancy in our 279 stable MOBs was 91.6% in the third quarter. Also, during the quarter we delivered 2 MOBs totaling 302,000 square feet and over $80 million in total development costs. Both are 100% leased. One in Mission Hills, California, is silver lead eligible and affiliated with a AA-rated hospital system.

The second, developed by Cogdell, is on the campus of a leading hospital in Duluth, Minnesota. These developments provide great risk-adjusted returns of 7% to 7.5%. So our medical office business is providing excellent performance, and we are continuing to see good development in leasing activity.

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

Richard A. Schweinhart

Thank you, Ray. The following significant events occurred in the third quarter. After August 1, we made $368 million of investments including acquiring 80% to 95% share in 2 medical office buildings JVs. These joint ventures were previously partially owned and included in investments in unconsolidated entities on the balance sheet and income from unconsolidated entities on the statement of income. They are fully consolidated, beginning on the acquisition date.

On August 3, we issued $275 million of 10-year 3/4 senior notes. That same day, we prepaid a 200 million, 4% term loan maturing in September of 2013.

On July 2, we repaid that maturity $73 million of 8 1/4% senior notes, which were fair valued when acquired at a GAAP effective rate of 1.6%. On September 28, we repaid $153 million of 5.9% mortgage debt with a scheduled maturity of January 1, 2013, which was fair valued when acquired and a GAAP effective rate of 3.1%.

Please note that improved cash interest rates on refinanced debt don't always translate into FFO or net income pickups because the Atria and NHP debt was marked-to-market at GAAP rates averaging less than 4% versus almost 6% cash coupons. The positive benefits from refinancing higher cash coupon bonds and mortgage debt with more favorably priced debt has begun to show up in our cash flows.

Our revolver balance at quarter-end was $705 million. Currently, we have unrestricted cash of $63 million, $435 million outstanding on the revolver and approximately $1.6 billion of capacity available.

Now, let me focus on third quarter results, which, for the first time, contained both NHP and Atria in the prior comparison period. Third quarter 2012 normalized FFO was $0.96 per diluted share, an increase of 9%, compared to the third quarter of 2011 per share results of $0.88. Normalized FFO increased 12% to $285 million, compared to last year's third quarter of $255 million. We have detailed the non-cash items included in normalized FFO on Page 18 of the supplemental. Normalized FFO in the third quarter excludes the net benefit totaling $22 million from real estate activity, gain on extinguishment of debt and non-cash income tax benefit, offset by a merger expenses related to expenses -- excuse me, merger-related expenses and deal costs, mark-to-market adjustment for derivatives and amortization of other intangibles.

Third quarter normalized FFO increased from last year's third quarter due to NOI increases in all 3 of our segments: Triple-net, Senior Housing Operating and Medical Office. And our $1.7 billion year-to-date acquisitions, offset somewhat by higher G&A expenses, interest expense due to higher debt balances from our acquisition activity and increases in the Sunrise management fee.

Income from loans and investments was $9 million this quarter, down $1 million from $10 million per last year's third quarter due to repayments in our loan portfolio. On the expense side, consolidated interest expense increased to $75 million this quarter from $69.5 million last year, reflecting the assumed debt due to the Cogdell and MOB JV acquisitions as well as all the debt activity in the last 4 quarters.

Our average interest rate improved 60 basis points to 4.4% from 5.0% last year. Looking at sequential results, normalized FFO increased $7.1 million to this quarter's $284.9 million primarily due to third quarter acquisitions and third quarter NOI increases in all 3 of our segments, partially offset by increases in interest due to acquisitions.

Since July, we have closed or collected about $87 million of the asset sale proceeds and our loan repayments we discussed on our second quarter call. The weighted average cash yield on these dispositions and loans was 6.8%, and the GAAP yield was 8.4%. We are forecasting an additional $56 million or so of disposition or loan receipts by the end of the year.

We continue to focus on maintaining a strong balance sheet and increasing cash flows from operations. Net cash provided by operating activities increased 60% to $709 million in the 9-month year-to-date in 2012 from $444 million in the first 9 months of last year. Our weighted average share count for the same period increased less than 40%.

At September 30, our credit stats were outstanding with a net debt to pro forma EBITDA at 5.0x. Our fixed charge coverage ratio in excess of 4x and debt to enterprise value of 29%. Weighted average shares outstanding in the quarter were 297 million shares, up 2%, compared to the third quarter of last year, and up compared to the second quarter this year, reflecting the issuance of almost 6 million shares in June of 2012.

We are raising our 2012 normalized FFO per diluted share guidance to $3.76 to $3.78 from $3.70 to $3.74. This increase in guidance, since we spoke last to you, is primarily the result of stronger performance from our portfolio and additional acquisition accretion. Guidance does not include the impact of additional capital transactions or acquisitions.

Operator, if you would, please open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jeff Spector with Bank of America Merrill Lynch.

Jana Galan - BofA Merrill Lynch, Research Division

This is Jana for Jeff. I wanted to ask you, you had very strong impressive occupancy growth in the operating senior housing assets, but the triple-net senior housing portfolio lost a little occupancy. I was curious if you could comment on the differences between the portfolios, and why one is performing at a better level in terms of occupancy?

Raymond J. Lewis

It's Ray. Remember that the triple-net is reported on a quarter leg, so you're looking at the second quarter statistics for the seniors housing portfolio. It's actually seasonally fairly common for the seniors housing to decline at the beginning of the second quarter, and then start to build towards the end of the second quarter. And I think the other thing to note in there is that, that performance is fairly consistent with declines that we saw in some of the public operators during the second quarter. So that sort of explains it.

Debra A. Cafaro

Yes, and again, as we've emphasized them, we have our senior housing operating portfolio, which is more than a quarter of our business and these are very strategically selected to be the best assets in the best markets and we have the benefit of that growth in the Ventas portfolios. So that -- we're very happy to have that growth directly flow through to our shareholders.

Jana Galan - BofA Merrill Lynch, Research Division

And bigger picture, do you think the senior housing business will change as you and your peers own more of the senior housing real estate out there. Would there be opportunities, you think, to take market share from some of the private owners?

Debra A. Cafaro

Well, I mean, again, this market is a very good market. It's being driven by demographics. I think in general, if you own really good assets and good markets and you operate them professionally, you will outperform the averages. And that's really how we're thinking about our portfolio and our acquisition activity.

Operator

Your next question comes from the line of James Milam with Sandler O'Neill.

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

I wonder if -- first off, can you just give us a little bit more color on the 36 MOBs that you acquired? Or maybe just tell us what the implied valuation for the portfolio is, the yield, and if there's any additional debt that you consolidate with that?

Debra A. Cafaro

The transactions that we closed kind of since we spoke to you last, which included those assets was on average above between kind of a 7% and a 7.5% yield. And so it's very attractive, they're 90% occupied, 100% affiliated or on-campus. And there was a mortgage debt that we consolidated with that.

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

Can you, I guess, how much was the -- of the 420, how much of that was the MOB assets? And then can you give the dollar amount and yield on the debt? And maybe also, the square footage for the full 36?

Debra A. Cafaro

Yes, it was -- I would tell you it was a lion's share of the acquisition activity. And Rick will give you the amount of the assumed debt.

Richard A. Schweinhart

Yes, the assumed debt is about $116 million, $117 million.

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

And the rate on that?

Richard A. Schweinhart

I believe it's around 5% something, right at 5% [ph].

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

Okay. And then also, can I ask -- on the senior housing portfolio, obviously, a very strong performance this quarter, and Jana touched on it a little bit. I'm curious, the same-store cash flow growth, obviously benefits from some occupancy increase. But maybe could you talk a little bit more about what you're seeing in rate, and what sort of a sustainable long-term growth rate is after the occupancy builds back up? And then maybe, Ray, to the extent that its specific if you're seeing anything in the housing market that is benefiting that portfolio?

Raymond J. Lewis

Yes, so on the rate side, if you look at our RUG-IV in our same-store total portfolio year-over-year, rates were up about 2.1%. And so, I think we're starting to get closer to that sweet spot of the cycle where occupancies start to get into the mid to upper 90s where you can really start to push rate, discounting will start to abate and we hope that we can continue to drive cash flow growth going forward through rate increases. Certainly, that will be tied to the performance of the general economy and the housing market to a lesser extent. Certainly, as the housing market continues to improve, that's another benefit to our seniors housing operating portfolio at the margin. So I think, we're at a pretty good point in the cycle with limited new supply, pretty strong occupancies and pretty good general underlying economic fundamentals.

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

So assuming that we don't have any major blips in the general economy, is this kind of a 3 to 5-year window, where you think you can get mid-single-digit same-store growth? Or do you think it's longer than that?

Raymond J. Lewis

My crystal ball doesn't go out that far, James. But I do like the near-term outlook for the industry. So I think next year looks pretty good. So, again, barring any changes in the general underlying economy.

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

Last one. You guys did another 5-year term loan in the quarter. Debbie and Rick, maybe, could you just talk about how you're thinking about interest rates now and why, I guess, why not go more tenured debt, obviously, you did some of that as well, but what your thoughts are on the term loan market versus the unsecured market right now?

Debra A. Cafaro

Sure. We are very focused on Capital Market's excellence. It's one of the things that we really spend a lot of time on. I would say that we want to have a foot in every capital market including the bank term loan market, which is very attractive right now. And we've done both, as you mentioned. And so we're -- we have very kind of rigorous internal metrics in terms of how we manage our balance sheet. And most of it will continue to be long-term fixed-rate debt, which is also very attractive at the 3 1/4% that we mentioned.

Operator

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

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

So I would like to get back to the same-store results in the operating senior housing. I think this is semantics, but is it fair, do you think, to include the unstabilized assets in that 10% number? Because really the stabilized pool grew by about 4.3%, if you look at Slide 12 in your supplemental. And I'm curious if you've always included non-stabilized in your same-store calculation?

Debra A. Cafaro

Well, we do it both ways. And in the shop portfolio, I would say we do same-store stable and we do the whole portfolio. I mean we bought the whole portfolio and so we've been looking to that high single-digit growth rate, which was our expectation and that's what we're getting. So that you can look at it, all different ways and all of them are valid.

Richard A. Schweinhart

And, Rich, if you looked at the same-store stabilized portfolio year-over-year on an EBITDARM basis, so if you were to take out the impact of the increase in the Sunrise management fee, you're looking at like an 8% year-over-year increase. So it's important to remember that.

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

Okay, I mean, I guess that just -- the 10% is certainly not going to be a number that you'll be able to replicate over the long-term. I just wondered if maybe you should be highlighting the other number and...

Debra A. Cafaro

Okay, good suggestion. So the SHOP was up 8% on a stabilized basis. I think that's a good data point.

Richard A. Schweinhart

SHOP being the acronym for the Seniors Housing Operating Portfolio.

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

Rick, can I ask a question about that -- you told me about the Kindred process for 2013. $126 million of rent that we had to be renewed -- we're going to renew in or expire in 2013. I remember the 64 assets being something like $77 million, am I right about that? And can you reconcile the $126 million to the $77 million for me?

Debra A. Cafaro

Can you ask the question, again?

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

There's 64 assets in total that you're going to have to market, right? 10 you took care of that, you would credit [ph] the LTAC Master Lease, 54 are remaining. The 64 in total were $77 million of rent. Isn't that correct? Not $126 million.

Debra A. Cafaro

Yes.

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

Maybe I'll take this off-line with you. I'm -- maybe...

Debra A. Cafaro

No, that's okay. My guess, honestly, is we've replaced somewhere between $75 million and $77 million. It could be the difference between an escalated number and an unescalated number, something like that.

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

I'll take that question off-line, maybe a little bit too much detail.

Debra A. Cafaro

It's okay. No problem.

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

Okay, so maybe a little bit more bigger picture on the Kindred process. You said that's going well. To what degree, do you think, the elections or the fiscal cliff or whatever are having an effect on a hesitation on the part of potential replacement operators to take over some of those assets?

Raymond J. Lewis

Yes, so Rick, as we said, that the process is going well. We've got a lot of interest. We're on schedule. So we're happy about the way things are going. And I'll tell you, the operators are looking at the same thing that everybody else is looking at. They understand that sequestration is out there. They understand there's the election coming up, and that depending upon which way that goes there could be various impacts. And they're underwriting that into their numbers. So we haven't seen any -- as we get closer to those events, any changes in the appetite for the assets.

Debra A. Cafaro

Yes, we did get the positive of a rate increase starting October 1, so that was good, too.

Raymond J. Lewis

But it's been out there since the beginning of the process.

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

At what point you start getting a little nervous as getting close to, is it May 2013? That you have to -- or April 30, is that right?

Debra A. Cafaro

Yes. I mean we're confident in the releasing process. We're way on schedule, and we think we're, as Ray said, into the selection phase. And we're pretty excited about the opportunities that this process is presenting for the Company.

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

Okay, last question for me. If you deploy $1.6 billion of your current liquidity, most of it being the line balance or availability, where does that take you in terms of leverage from 29% to what? And what are you comfortable with being at before you would have to go back to raise equity?

Debra A. Cafaro

Yes, I mean, we typically -- the 29% obviously, is a wonderful statistics and we're at about 5x debt to EBITDA and over 4x fixed charge coverage. So I think we have, even as we do manage our balance sheet conservatively, but we have some significant acquisition capability without really any additional need for equity capital. Remember, we're also selling some assets. We're generating really significant excess cash flow in our portfolio over and above the dividend. And so we have some significant capacity to do acquisitions.

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

So we should assume that, that 29% number stays in that range for the foreseeable future, despite what activity you might take on?

Debra A. Cafaro

Yes. I mean the way we look at it, is we're at about -- the net debt to EBITDA number is about 5x as we've said consistently that we see plus or minus return on that. So given -- that's where. EBITDAs let's call it, a little under $1.5 billion.

Operator

Your next question comes from the line of Ross Nussbaum with UBS.

Ross T. Nussbaum - UBS Investment Bank, Research Division

I'm here with Derek Bower. If we think about acquisition and consolidation activity going forward, in particular 2013, do you think it's reasonable to assume that we're going to see a bit of a coming down period after what has been nothing short of a feeding frenzy for the past 24 months, or do you -- does Ventas personally remain sort of as open eyed as it has for the last 2 years, and how do you think about how your competitors are looking at it as well?

Debra A. Cafaro

Well, as you point out, I mean, we were -- we are kind of at the leading edge of this activity. We've closed $13 billion in the last -- since the beginning of '11. What I would tell you is we are and continue to be a disciplined investor. Capital allocation is another important aspect of our activities. And we have, I think, been proven ourselves to be good capital allocators. And so we have lots of opportunities. The pie is large. It's a fragmented industry. And we believe we can drive value for investors by continuing to acquire in a thoughtful way. And as I mentioned, the $1.7 billion that we've acquired year-to-date, we are getting about a 7.5% unlevered yield, and they're very high-quality private pay assets. So if we can continue to do that, whether it's from new business, whether it's from existing NHP, Ventas, Lillibridge relationship, I think that would create value for our investors. So as and when we can continue to do that, we will do so. So I hope that answers your question.

Ross T. Nussbaum - UBS Investment Bank, Research Division

No, it does, I guess, I'd have a follow-up as well, which is I think it's no secret that you were the cover bid on the Sunrise transaction. How do you now feel about having a number of your owned assets effectively operated by one of your competitors? Does that cause you to think that maybe you should think about restructuring that relationship?

Debra A. Cafaro

I didn't see any company vie in there.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Well you can choose not to answer the first part of the question. How about the second one?

Debra A. Cafaro

Look, we have, as we've said, we've got great assets, they're performing extremely well, they're in great markets. And we have excellent contracts that provide alignment and have protective -- significant protective rights in them. And so the situation at Sunrise continues to evolve. And I think, that's what -- we feel happy with our assets and the performance of those assets.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Can you elaborate on what you mean by those protective rights? Are you suggesting that the relationship has existed historically, might be changing?

Debra A. Cafaro

All I'm suggesting is that we do have great assets, they're in great markets, they're performing well, and we have really good contracts that we worked hard on to create alignment and protection for Ventas in all circumstances. And we feel good about that.

Ross T. Nussbaum - UBS Investment Bank, Research Division

Okay. I'm trying to interpret that. There's a lot of legalese in that comment, but it doesn't sound like you want to tell us any more than what you've just said.

Debra A. Cafaro

We're good. Let's keep talking.

Operator

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

Michael Carroll - RBC Capital Markets, LLC, Research Division

Ray, in your comments, you said if sequestration should occur, what areas would you see that not occurring?

Raymond J. Lewis

Well, I mean obviously, if something were to happen in the lame-duck session, where there were to be some resolution outside of the sequestration process. You've heard the President himself say, that's not going to happen.

Debra A. Cafaro

Let's push it off.

Raymond J. Lewis

So they could push it off. I mean, there's a number of different things that could play out. Now certainly, the expectation in the underwriting that you go through right now as sequestration is what we have in place and what we are looking at. But that could change.

Michael Carroll - RBC Capital Markets, LLC, Research Division

Okay, great. And then I believe Rick alluded to this, but how much of the $429 million of acquisitions closed in the third quarter versus what closed subsequent to quarter end?

Debra A. Cafaro

Everything that's about $70 million, I think, closed in the third.

Michael Carroll - RBC Capital Markets, LLC, Research Division

Okay, great. And then last question. The 36 medical office building acquisition, was that a portfolio transaction?

Debra A. Cafaro

It was.

Operator

Your next question comes from the line of Quentin Velleley with Citi.

Michael Bilerman - Citigroup Inc, Research Division

It's Michael Bilerman. I just want to sort of follow-up a little bit on the acquisition side as well. Because I think in your opening comments, Debbie, you talked a bit about things like, it appeared almost that things were slowing down a little bit more judicious. You're being cognizant of sort of discipline on your capital in getting those returns. And I didn't know if you were trying to comment that things would be a little bit lower from an acquisition standpoint.

Debra A. Cafaro

I think what we're trying to communicate is that we have always invested as we believe we could create value for shareholders. One of the things that I would say is that this market is drawing a lot of sellers to the market, and we have this big portfolio of existing relationship. And so there continue to be really, thoroughly plentiful investment opportunities. But I would also say we really have been disciplined investors. I think our year-to-date yields and quality of acquisitions speak to that. And I can't project the acquisitions. We never have. We take opportunities that we think will create a good risk-adjusted returns for shareholders when they're available and -- but we are disciplined investors.

Michael Bilerman - Citigroup Inc, Research Division

What sort of pipeline, I guess, what they call the former NHP sort of regional platform? Where does that sort of stand on a quarterly basis, and what sort of volumes are you seeing on that front?

Debra A. Cafaro

I mean, again, our deals are coming -- as we put this unified platform together, I think the opportunity for us is really to get -- use the tools available to us to really drive performance in the company. And we are seeing good acquisition volume from the NHP legacy relationships. And we also believe that a lot of our existing tenant base is interested in the Kindred releasing process as well. So we're getting lots of benefits from, again, Lillibridge, NHP and our own historical business.

Michael Bilerman - Citigroup Inc, Research Division

Are you seeing any opportunities on the debt side at all?

Debra A. Cafaro

To be a lender?

Michael Bilerman - Citigroup Inc, Research Division

Correct.

Debra A. Cafaro

Is that what you're asking?

Michael Bilerman - Citigroup Inc, Research Division

Yes.

Debra A. Cafaro

We are seeing some opportunities, yes.

Michael Bilerman - Citigroup Inc, Research Division

And how about across -- outside the U.S. Is that taking up any of your time at all?

Debra A. Cafaro

We invested in Canada in 2007, as you know. And we have continued to look at opportunities outside the U.S. And over time, could see making some reasonably sized investments, but nothing short-term on the horizon.

Operator

Your next question comes from the line of Daniel Bernstein with Stifel, Nicolaus.

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

I presume the acquisitions on the MOB side came out of Lillibridge JVs. Can you remind us of what rights of first refusal or offer you have on those, and maybe talk about the motivations of the sellers? Is it motivated by a possibility of increased capital gains tax or is it something else that may be motivating the sellers?

Debra A. Cafaro

We had 3 pools of joint venture assets on the Lillibridge side. And we have acquired 2 of those pools, and so we have one remaining. And I think, like everything, investors hold assets at various points in time. They make decisions whether they're a company, a pension fund, a private equity shop or what have you. They make a decision at a certain point in time that they'd like to recycle their capital. And so, I think, there's nothing more notable than that.

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

And you have rights of first refusal or offer on the other JV, I assume?

Debra A. Cafaro

We have, in our joint venture deals, we do have rights of first refusal. And that would be typical in joint ventures, yes.

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

And then are you -- just think in terms of priorities for acquisitions and property types. It seems seniors housing cap rates have been compressing. Do you view that the acquisition running for seniors housing is being a little heated, and is the risk reward better now for, say, medical office or skilled nursing or some other asset class? How are you prioritizing what property types you're looking to buy?

Debra A. Cafaro

Well, again, we'd have a strategic plan to diversify our portfolio, create a balanced business model and to be active in all the different sectors. We have differentiated our strategy over the past couple of years by really emphasizing the private pay assets. And, again, as we allocate capital, if we are ahead of the curve, what we would see is our investors will make money if either cash flows go up or cap rates come down. And that's how we create -- it's very simple. That's how we create value for our shareholders. And so we look at all the asset types. Our strategy has been clearly articulated. And each deal really should make sense on its own. And we should believe that it fits well into the whole, and therefore, create additional enterprise value. And so that's how we assess transactions, and we continue to look across the spectrum of health care and senior housing assets. But we have focused more on private pay.

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Okay, you don't think seniors housing cap rates have bottomed yet or is there still room for cap rates to move down there?

Debra A. Cafaro

I think, again, every deal stands on its own in terms of quality, in terms of what the structure of the transaction is and markets and so on.

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Okay. On the dispositions, can you just describe kind of what you were selling, and maybe what the yields on those assets were?

Debra A. Cafaro

Right. I think we've talked about it. Rick mentioned that the GAAP yields was in the 8s on the sales and loan. Remember, its loan repayments as well, and it was in the 6s on the cash -- high 6s on the cash basis for the almost $90 million that we talked about since July 1.

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Just consistent with what you've said before.

Debra A. Cafaro

Totally consistent, yes.

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Okay, and then one other question I had, just want to go back to Sunrise. Did you have any rights to go -- Sunrise management contracts, some of those are being reset. Do you have any rights to reset management contract fees upon change of control of Sunrise?

Debra A. Cafaro

We have contracts that are -- that again, give us good alignment and give us various protective rights under different circumstances.

Operator

Your next question comes from the line of Tayo Okusanya with Jefferies.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Quick question on the MOB side. I mean, I get this whole idea of more procedures being done in an out-patient setting. But the recent trend of doctors not becoming employees of hospitals, physician groups also kind of breaking apart and those physicians joining hospitals. Just wondering if you're starting to see that impact demand for MOB space in any way, shape or form?

Raymond J. Lewis

With respect to demand for the space, we're definitely seeing the trend. So there are a number of doctors' groups that are, as you say, being acquired by hospitals as they start to anticipate the Accountable Care Organizations and the impacts of those changes on the healthcare industry. The benefits of that, obviously, for us are that we get stronger alignment with a hospital in certain circumstances, perhaps a better credit to the extent the hospital actually acquires the practice. So that's clearly a benefit. The other thing for us is because our MOBs are predominantly on-campus, that tends to drive more demand for space in our buildings. So we would expect to see that translate into demand as that trend really starts to take hold. But we're kind of in the early stages right now, a little too early to sort of report a big impact from that.

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

Got it. And then second question, just in regards to disposition. You did $87 million this quarter, you've added another $60 million to guidance for the fourth quarter. Just kind of curious, strategically, what you're getting rid of and why you kind of made the decision. Is that the right time to kind of call the portfolio?

Debra A. Cafaro

Well, we projected about, maybe $150 million for the second half of the year in our second quarter call. And this is really consistent with that. And it's really across asset types. And we have a very large, very diverse portfolio now. And I think you'll see us become a little bit more active capital recyclers.

Operator

Your next question comes from the line of Jeff Theiler with Green Street Advisors.

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

I have a question on skilled nursing[ph]. We've seen the trailing 12-month EBITDAR coverages kind of tick down across your portfolio and your peers, as last year's Medicare cuts work through the system. Curious as to what you're hearing from your operators in kind of the second half of this year, if they have been able to adjust their operations in any way that will see kind of a leveling out next quarter in this EBITDAR coverage statistic or do you think we kind of see the same pace of decline?

Raymond J. Lewis

Well, I think as you look at the coverages that we've reported in our portfolio at 1.8x, I think it's consistent with what we had projected when the cuts were announced in October of last year. We said we would expect to see the rates decline by about 10 basis points every quarter, as another quarter of the cuts were rolled into the trailing coverage statistics. And that's pretty much how it played out. With respect to the operators that we're talking to and what they're seeing going forward, I think, a lot of the operators have identified ways to mitigate the cuts and to adjust their operations to maintain profitability. So I think the operators are looking at the forward environment and saying, this is an environment we can operate in and that's sort of what we're hearing right now.

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

Okay, so it kind of continued another 10 basis points of decline next quarter. At what point do you start getting concerned when you look at your leases on an after CapEx basis? I mean, maybe describing a little bit for the G&A of the operator. At what point do you start to get concerned about the health of those sniff [ph] leases?

Raymond J. Lewis

So I mean, as we look at our portfolio and underwrite management fees and CapEx, we're still very comfortable that the properties are profitable for the operators. So we're not at that point at all.

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

But there's no kind of, I guess -- I guess the other problem is that you have the dispersion of the portfolio, right? You have an average statistics that's reported. Can you give any color around the dispersion around that statistics? In other words, the bottom 10% of your leases are covering it 10x, or can you give any more clarification on that?

Debra A. Cafaro

Well we obviously have the Kindred leases, which are the biggest part of it detailed in the supplemental. And everything else is -- doesn't have -- we don't have a wide dispersion.

Operator

Your next question comes from the line of Philip Martin with Morningstar.

Philip J. Martin - Morningstar Inc., Research Division

Just when you thought you're off the hook. Can you characterize the turnover and even acuity of care makeup across your senior community portfolio? For example, what is the difference, if any, in your senior living communities and smaller markets where household income is, maybe a bit more average as compared to larger metro markets where income and demographics may be a bit stronger?

Debra A. Cafaro

Yes, that's a good question. As we've owned the -- our seniors housing operating portfolio for over a year now, and obviously, Sunrise back to '07, we started providing more information on both a regional and a MSA bases in our supplemental. And I think what we found this quarter, is that -- what we have found is that the larger markets have been outperforming. And they came out really strong and continued to be strong. I think what we're seeing now, and you can see it in the supplemental is that the smaller markets are actually doing quite well now. And you'll see that all the regions are also doing well. And obviously, the industry data set that's put out by NYX also slices and dices the portfolio that way. So I think we are seeing the smaller MSAs start to catch up, and the larger MSAs where we own most of our senior housing operating portfolio really have led the way with great growth last year and great growth again this year that's continuing.

Philip J. Martin - Morningstar Inc., Research Division

Are you seeing any difference -- meaningful difference in turnover? Are you seeing an average length of stay, differential in the larger markets versus smaller markets or a higher turnover rate larger versus smaller?

Raymond J. Lewis

Phillip, I guess anecdotally, the answer to that is, no. I think it's fairly consistent. I think the acuity level in general and the seniors housing industry is up. The average age at entry is up. And I think that's consistent in smaller markets and in larger markets.

Operator

Your next question comes from the line of Nic Yulico with Macquarie.

Nicholas Yulico - Macquarie Research

Can you remind us on Atria and Sunrise, where those portfolio's were occupancy basis back at the peak. And where the rents today are in relation to the peak?

Debra A. Cafaro

The Atria portfolio was acquired in parts, and so that's a difficult answer. I would say in general, and remember, occupancy statistics have changed over time to go from residents to unit occupancy. So you have to be careful when you compare historic periods. But I think back in '97 or so, resident occupancy was in the 93, 94 range. And we're getting, approaching that now, I would say. That's if memory serves.

Raymond J. Lewis

I think that's right.

Nicholas Yulico - Macquarie Research

So roughly still call it 300 basis points of off peak occupancy, which sort of mirrors what's going on.

Debra A. Cafaro

No, no.

Raymond J. Lewis

No, that's resident not units.

Debra A. Cafaro

That's was what I was saying at the beginning. You have to be careful when you do your comparison. So resident occupancy in the '07-ish time period, I think, was in the 93, 94 range in Sunrise. And I think the resident occupancy now is approaching that.

Nicholas Yulico - Macquarie Research

Okay, and then as far as rents on these portfolios, I mean, they're up since 2007?

Raymond J. Lewis

Yes, I mean the rents have consistently risen year-over-year in the Sunrise portfolio. We've had good rent growth even through the downturn.

Debra A. Cafaro

Remember that the senior housing industry was the only real estate asset class that showed positive NOI through the downturn. And that was because they were able to have some stable to even slightly growing rate growth with good expense controls and then some occupancy decline. So that's how it played out.

Nicholas Yulico - Macquarie Research

So on the occupancy side, Sunrise is kind of back to -- close to peak type occupancy levels or close to it. And Atria still has some occupancy upside or is that also getting closer to the peak type occupancy levels that they enjoyed?

Debra A. Cafaro

I would just say that, again, Sunrise and Atria have grown 10% year-over-year before management fees. 8 percentage, as Rich pointed out on the stabilized portfolio. And I think that they're still at the mid-90% unit occupancy level. And so I would suggest that industry trends continue to be positive. If you look at NYX data, you would see that they are projecting continued positive absorption well into 2013. And so I would characterize what we think about the forward environment, which we still think is attractive differently from what you said. And we view the forward absorption and growth rate to be fairly positive.

Nicholas Yulico - Macquarie Research

Yes, now I'm just trying to figure out where these portfolios are in relation to the peak. Because the industry overall is still running 300 basis points below peak occupancy. So it's just helpful to try and figure out what -- where these portfolios are in relation to the industry and industry recovery cycle at this point.

Debra A. Cafaro

Right. Well just be sure you're comparing apples to apples. But again, if we're at mid-90% unit occupancy levels, I would say that we think there will be positive absorption going forward.

Nicholas Yulico - Macquarie Research

Okay, helpful. And then just one other question on Kindred. You talked about getting some multiple bids there, moving to selection phase. You talked about rents, I think about, should approximate sort of current rents likely. What about CapEx? I mean, are operators requiring CapEx? Are you guys expect to have to spend anything on CapEx? I mean presumably, these are some older facilities that might need some CapEx?

Raymond J. Lewis

No, Nick. We -- Kindred has invested a lot of money in these buildings over the years and maintained them very well. We're not really expecting any material CapEx requirements on the releasing.

Operator

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

Todd Stender - Wells Fargo Securities, LLC, Research Division

I apologize if you already covered this, I hopped on late. I was hoping to just get some color as best you can share of how you and PMB are kind of looking at the world right now just in terms of your comfort level with new supply, and how they're thinking about things as well?

Debra A. Cafaro

Okay, well just as a reminder to everyone, one of the benefits to the NHP transaction was we got the exclusive development pipeline with PMB. And we, in fact, opened one of the developments this quarter, as Ray pointed out, in California fully leased. And that was an important benefit we got from the transaction. I would turn it over to Ray to talk about the view of the world.

Raymond J. Lewis

Right. And so supply remains very well in check in the medical office space. We are seeing interest from Hospital systems in developing new properties. We target on-campus developments, and there are a handful of those things that we and PMB are working on. So I would say that the market is consistent. I wouldn't say it's awash in opportunity, but I wouldn't say it's devoid as well.

Debra A. Cafaro

And I would point out too, that our Lillibridge business has a development business that's quite good, and we are developing a view assets as well that we're excited about.

Todd Stender - Wells Fargo Securities, LLC, Research Division

Any difference between the 2, whether it's Lillibridge or PMB or you at the top? The comfort with building on spec versus these MOBs have to be pre-leased.

Debra A. Cafaro

Well, yes. We are very disciplined about that.

Raymond J. Lewis

We require a minimum pre-leasing level in the buildings. So we don't build on spec and so, no. There's no difference between the way that we view it or PMB would view it.

Debra A. Cafaro

I think it's really -- this is demonstrated by the fact that the 2 that opened this quarter were 100% pre-leased, and another one that we expect to come on maybe, in January is 100% pre-leased to a AA hospital. So those you can get really good risk-adjusted returns because -- and you get new buildings in your portfolio. So that's how we look at the business. Again, on a very disciplined way. So we're going to have to wrap up the call. And I want to thank everyone and the operator and all of our participants. We sincerely appreciate your interest in Ventas. And we look forward to seeing everyone in San Diego. I hope you all realize that we continue to pursue our goal of delivering consistent superior total returns to our shareholders and using all the tools we have at our disposal to do so. So thanks again, and we'll see you soon.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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