Ventas Inc (VTR) — Q3 2017 Earnings Call Transcript

Thanks, Liane. Good morning and welcome to the Ventas conference call to review the company's announcement today regarding its results for the third quarter ended September 30, 2017. 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. The projections, predictions, and statements are based on management's current beliefs, as well as on a number of assumptions concerning future events. These 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, 2016 and the company's other reports filed periodically with the SEC, for discussion of these forward-looking statements and other factors that could affect these forward-looking statements. Many of these factors are beyond the control of the company and its management. The information being provided today is as of this date only and Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations. Please note that quantitative reconciliations between each non-GAAP financial measure referenced on this conference call 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.

Thank you, Ryan. And good morning to all of our shareholders and other participants, and welcome to the Ventas third quarter earnings call. We are very pleased with our results this quarter, our prospects for the full year and the accelerated execution on our strategic priorities. Today, I'll touch briefly on our positive performance and full year guidance, highlight the extraordinary recent efforts of our leading care providers to keep residents and patients safe during natural disasters, introduce some exciting opportunities we are pursuing and conclude with a few words on public policy and the excellent cohesive Ventas team. Following Bob's review of our financial results, we will be delighted to take your questions. At Ventas, we continue to focus on delivering reliable cash flows from a diversified portfolio of high-quality assets on a strong balance sheet. The third quarter continued our patterns of resilient results as we grew normalized FFO to $1.04 per share, driven principally by increased property NOI and accretive investments. During and following the quarter, we recognized over $500 million in gains and sales mostly from our accelerated exit from the skilled nursing business with attractive pricing. Our financial strength improved as well with enhanced liquidity and even better credit stats sequentially. We are also delighted to improve our full year expectations for company-wide same-store NOI growth by 25 basis points to 2% to 2.5%. This improvement in property NOI growth expectations enables us to maintain the midpoint of our normalized FFO per share guidance range, despite the previously announced $0.04 reduction in earnings impact from our accelerated SNF sales. Our resilient diverse portfolio gives us confidence. Now, I'd like to take a moment to focus on the recent natural disasters and the tremendous efforts of our operating partners whose employees and executives kept residents and patients safe. Thanks to the excellent preparation and actions taken by care providers including Atria, Kindred, and Brookdale, all residents, patients, and personnel remain secure through evacuations, flooding, hurricanes, and wildfires. Emergency preparedness and evacuation for seniors and acutely ill patients is logistically complex, complicated further by dangers and impediments faced by on-the-ground caregivers and their families. In the face of extreme conditions, the level of heroics and personnel sacrifice by employees of our business partners was overwhelming and humbling. Successful disaster preparation, effective evacuations, and secure sheltering in place are examples of why we place such a high emphasis on doing business with financially strong, capable, and caring business partners. I am happy to report that virtually all of our communities and facilities are back to normal and on behalf of all of us at Ventas, I'd like to thank those in the executive offices and on the front line who kept residents and patients safe. The natural disasters also highlight the value proposition and health wellness advantage of senior housing. That message seems to be resonating as demand and penetration rates nationally continue to rise, and more individuals are choosing to live in community-based senior housing. We are also encouraged by other positive trends. In the third quarter, construction starts in senior housing fell to about half their level from two years ago at the cyclical peak. In fact, this was the third consecutive quarter where starts improved significantly from the same period two years ago. As we work through the timing mismatch in certain markets between deliveries and operator execution, we know there is a powerful upside in senior housing when the growth rate of the senior populations accelerates. Turning to strategic decisions, we want to give you early insight into two exciting opportunities we are actively working on. Our proposed venture with an institutional investor and the creation of a new relationship with an experienced and highly regarded senior housing management team. First, we intend to form a new joint venture with an institutional partner on a senior living portfolio we currently own, consisting of over 70 communities. The portfolio is currently operated by Elmcroft Senior Living under a master lease with the company. We are in detailed preliminary discussions and look forward to partnering with a leading global capital source on a successful joint venture. The joint venture will continue diversifying our capital sources and could provide a competitive advantage as the company continues to grow. Second, we have formed a strategic relationship with Kai Hsiao and his long-time colleagues on the creation of a new senior housing operator. With over 50 years of combined experience across senior housing, this management team has a demonstrated track record of success and value creation. To see the new company, we intend to transition operations of the Elmcroft portfolio to Kai and his team, whose company will be a valuable addition to our existing operator relationships. While we still have a lot of work to do to finalize these attractive potential transactions, we are well down the path and expect to complete them in early 2018. We believe the benefits to Ventas will include further diversification of capital sources, capital recycling for either debt pay down or reinvestment, expansion of our relationships with excellent operators, and the ability to capture this powerful upside from the portfolio over time. Turning to our attractive office portfolio of university-based life sciences and medical office buildings, which now comprises 25% of our NOI, it is a fantastic example of Ventas value creation and our continued investment opportunities. Bob will discuss the good performance and outstanding metrics of our medical office buildings and I'll highlight the momentum and our exciting institutional life sciences vertical. Since our initial investment of $1.5 billion in September 2016, we have already expanded this business by over a third, and our pipeline of attractive opportunities continues to grow. University-based life sciences and innovation centers remain a number one capital allocation priority. Here are some key updates. Recently we welcomed anchor tenants and top-tier research universities Duke and Brown to our Class-A Chesterfield and South Street Landing buildings. The Chesterfield is already 85% leased and South Street Landing is 100%. It is really awesome to see buildings that began as tobacco factories and power plants experience world-class renovations that repurpose them for cutting-edge health, innovation, and research uses. We are further building out our institutional life science business through development and acquisition with existing university relationships and newly created ones. Recently we committed $60 million to develop a research and innovation center that is 80% pre-leased to Brown University, Johnson & Johnson Cambridge Innovation Center. The project recently broke ground on the development site we own near South Street Landing. We expect this market to continue gaining traction as a medical research and innovation hub, spearheaded by increasing interest from universities, academic medical centers, entrepreneurs, and major companies. In addition to growth with our existing university base, we are also expanding to other university campuses in our life science business. We expect to acquire another cash-flowing Class-A life science and innovation center affiliated with a AA-rated university that is a top recipient of NIH funding and a recent awardee of a Gates Foundation grant to support its groundbreaking work. This property is 82% occupied and we expect occupancy and NOI to further increase. As I discussed in our last few calls, healthcare and senior housing assets are highly coveted by investors of all types including REITs, pension funds, private equity firms, sovereign wealth funds, and other institutional capital. Global demand for cash-flowing real estate with strong forward demographic demand continues unabated. As a result, there is a strong bid across the board for assets in our verticals, making them more valuable than they have ever been. The low cap rates paid in several recent medical office building transactions is a strong point. Within that environment, we are happy to note that we've already invested $1.4 billion this year at unlevered going-in cash yields in the mid-sevens. And our investment pipeline is robust not only in life science but across other asset classes. Consistent with our recent approach, we are carefully picking our spot and allocating capital where we have a strategic objective, a competitive advantage, or a customer relationship. We also continue to invest in our future growth by funding selective ground-up developments and redevelopment projects at attractive risk-adjusted returns. I'm also delighted to report on the significant strides we have made on environmental, social, and governance matters where Ventas' leadership was recently recognized by two prominent organizations. We're included for the first time in the Dow Jones Sustainability Index ranking in the upper quartile of all North American real estate companies across a broad spectrum of ESG metrics. Ventas ranks first among three listed healthcare REIT participants in the 2017 GRESB real estate ESG assessment. Turning to public policy, as I stated last quarter, Washington's focus has moved squarely and almost exclusively to tax reform which could have significant consequences for public and private real estate companies. As an industry associated with 20% of the country's GDP, real estate has an important role to play in furthering sustainable economic growth, capital formation, and job creation. At Ventas, we are focusing principally on passthrough rates in the treatment of REITs and their shareholders, potential limits on interest expense deductibility, state and local tax treatment, 1031 exchanges, and reform or repeal. We are highly engaged in the policy debate and closely monitoring the tax legislation as it evolves. I believe that tax reform or tax cuts have a higher chance of passage than major healthcare reform did or does. While the specific outcomes of tax reform are too early to call, we are ready to optimize our opportunities as soon as the final framework emerges. And that brings me to my final point. Ventas has successfully managed through different capital markets, healthcare, and political and economic cycles successfully for nearly 20 years. That's because of our aligned and skilled teams, whether with macro forces like the financial crisis, industry trends like changes in reimbursement, investment opportunities in emerging areas like medical office, Canadian senior housing, or university life science, or specific cases like our Kindred 2013 and 2015 lease maturities. The Ventas team has consistently stayed ahead of the curve and driven superior outcomes for shareholders. Undoubtedly, our strong culture and excellent experienced people create a winning competitive edge and underpin our long-term growth, reliability, and performance. With that, I am happy to turn the call over to our CFO, Bob Probst.

Thanks, Debby. Our high-quality portfolio showed continued momentum in the third quarter with all segments contributing to a 2.1% overall growth rate versus the prior year. With solid year-to-date performance, we are updating and improving our same-store growth outlook for the year by 25 basis points at the midpoint. Let me unpack these results for the quarter. Starting with our triple-net business, which represents 38% of our NOI. The triple-net portfolio grew same-store cash NOI by an attractive 3.8% for the third quarter of 2017, driven primarily by in-place lease escalations. Cash flow coverage in our overall stabilized triple-net lease portfolio for the second quarter of 2017, believe its available information, health study at 1.6 times sequentially. In our triple-net seniors housing portfolio, trailing 12 months, same-store EBITDAR coverage was steady at 1.3 times. With the majority of our NOI clustered around the portfolio coverage average. We view seniors housing triple-net coverage of 1.2 to 1.4 times to be within normal market ranges through cycles. Our strong lease protections and diversification also provide additional security. As Debby mentioned earlier, given our intention to enter into a joint venture for over 70 senior housing assets currently leased to Elmcroft, we are now excluding these assets from our triple-net coverage and same-store supplemental reporting in current and prior periods. In our post-acute business, IRF and LTAC coverage declined in the quarter by 10 basis points sequentially to 1.6 times, driven by rent increases, the continued impact of the LTAC reimbursement change, and labor wage pressures. We expect to realize the benefits of patient criteria mitigation in our coverage ratio starting in the first half of 2018. Having now received the majority of the proceeds from the sales of our Kindred SNFs, skilled nursing will soon represent just 1% of Ventas' NOI. SNF industry volume and mix headwinds continue to lower coverage in the segments. However, our remaining SNF portfolio has very healthy lease protections that provide additional security and rent reliability. Finally, Ardent delivered terrific performance in the first half of 2017 with volume, revenue, and EBITDA improvements ranking among the top performers in the industry. At the asset level for the Ventas properties, rent coverage remained stable at three times in Q2. Ardent's integration of the LHP Hospital is right on track, and budgeted synergies are being realized. With encouraging year-to-date triple-net results, we are raising our full year 2017 triple-net same-store NOI guidance by 25 basis points at the midpoint to now grow between 3% and 3.5%. Moving on to our senior housing operating portfolio. We are pleased with our SHOP results in the third quarter, growing same-store cash NOI by 0.6% versus the prior year. Continued profit growth in the context of industry-wide challenges underscores the quality and resilience of our portfolio and the strength of our operators. Looking at the SHOP P&L, occupancy increased sequentially by 40 basis points to 88.7% in the third quarter. As expected, the Q3 year-over-year occupancy gap widened to 230 basis points versus the 200 basis point gap we saw in the second quarter, driven by the impact of continued new competition in select markets. Encouragingly, rate growth was solid in the quarter at nearly 4%, which was ahead of our expectations. Rate increases in high barrier-to-entry markets continue to trend favorably relative to our portfolio average, while rates in markets with new supply are also growing overall despite price competition. Our operators also did an excellent job of cost containment in the third quarter. Overall expense increases were held to just 1.7% despite continued wage pressures. In addition to flexing labor with occupancy, our operators held non-labor costs essentially flat. Reduced performance incentives also benefited the quarter. At a market level, we continue to see momentum in high barrier-to-entry locations such as Los Angeles, Boston, and Toronto which drove very strong top and bottom line results. Performance in Canada continues to grow from strength to strength, growing NOI approximately 10% in the quarter, the second consecutive quarter of double-digit gains. Partially offsetting this strength was performance in geographies affected by new competition, most notably within secondary markets. While still at elevated levels, new openings in the third quarter were delayed relative to prior projections. At the same time, new construction starts in our trade areas were flat in the third versus the second quarter. As a result of both of these factors, new construction as a percentage of inventory in our trade areas picked up by 20 basis points in the third quarter, underscoring that the impact of new deliveries will carry forward into 2018. From a demand perspective, we were very pleased to once again see greater than 3% absorption gains in the third quarter, suggesting a continuing trend of increased penetration rates for senior housing. The security of our residents during the hurricanes is yet another example of the value proposition of senior housing and the potential to raise the penetration rate among seniors above the current 11% level. For the full year 2017, we're updating and narrowing our SHOP portfolio same-store NOI guidance to now grow between 0.5% and 1.5% versus the previous range of 0% to 2%. The new guidance midpoint implies a modest year-over-year NOI decline in the fourth quarter. That said, our SHOP operators are sharply focused and incentivized to positively close out the year. Rounding out the portfolio view is our highly valuable office reporting segment, representing 25% of Ventas' NOI and comprised of our university-based life science portfolio and our high-quality medical office business. To help bring the quality of our office portfolio to life for investors, we have expanded our disclosures on tenant diversification and credit strengths in this quarter's supplemental reporting. Our life science operating portfolio continued to perform very well through the third quarter. Sequentially, total occupancy remained excellent at 97.5%. We have been really pleased with the reliability of our life science cash flows. In fact, 75% of our rent is derived from investment-grade credits for companies with a billion-plus in equity market capitalization. In our medical office business, same-store cash NOI in the third quarter increased by 1.5%. We delivered 91.8% occupancy through new leasing and tenant retention that exceeds 80% year-to-date. This retention rate underlines the strength of our diversified medical office building portfolio. A few other quantitative examples include that over 95% of our NOI is affiliated with leading health systems and our portfolio is well diversified, with our top five health systems representing less than 20% of our medical office building base rents. And our tenants' credit profiles are attractive, with 75% of NOI affiliated with a health system that is rated single A or better. These attributes help drive third quarter revenue up over 2%. Expenses outpaced revenue growth in the quarter principally from lapping a real estate tax credit in the prior year's third quarter. Adjusting for this item, expenses grew modestly below revenues. With solid year-to-date results on a valuable platform, we have raised the midpoint of our guidance by 25 basis points to a range of 1.5% to 2% for same-store medical office assets in 2017. Before diving into our company's overall financial results, I note on the financial impact of hurricanes Harvey and Irma in the quarter. Total direct costs for Ventas resulting from the hurricanes including property damage and other costs approximated $10 million or $0.03 per share in the third quarter of 2017. These expenses reduced our income from continuing operations and NAREIT FFO in the quarter but have been excluded from the company's reported NOI and normalized FFO. So we have appropriate coverage. We have not recognized any insurance proceeds in the quarter or in our guidance, because the timing and amount are still uncertain. With that, let's review our overall Q3 financial results. We are pleased to report another quarter of earnings growth together with even more robust financial health. Third quarter 2017 income from continuing operations per share grew 5% to $0.44 compared to the third quarter of 2016. Normalized FFO per share in the third quarter grew 1% to $1.04 compared to the third quarter of 2016. Third quarter results were driven principally by accretive investment and improved property performance versus prior year, partially offset by the impact of dispositions in loan repayments. Ventas funded investments of over $80 million during and immediately after the quarter, notably including life science development spend for projects currently underway. We are excited to have received $570 million of the $700 million of value-creating Kindred SNF sales at a 7% cash and 8% GAAP yield. Thereby reducing our SNF NOI exposure to nearly 1%. We have recognized gains exceeding $500 million on these sales. The accelerated SNF disposition timing represents a $0.04 reduction from the high end of our prior normalized 2017 FFO guidance range, and a $0.07 incremental reduction to FFO in 2018 relative to 2017 due to the sales and use of proceeds for debt reduction. We also increased our liquidity and flexibility to renew an innovative $400 million revolving credit facility to fund our exciting development pipeline anchored by our life science business. The result of this cumulative activity is a robust financial position at quarter end, including improvement in net debt-to-EBITDA to 5.7 times, lower total indebtedness to gross asset value of 39%, and steady fixed charge coverage at an exceptional 4.6 times. Let me close out our prepared remarks with our updated 2017 guidance for the company. Specifically, total portfolio same-store cash NOI is anticipated to grow 2% to 2.5%, an increase of 25 basis points at the midpoint. We expect income from continuing operations to range from $63 million to $74 million, and NAREIT FFO to range from $4.07 to $4.12 per fully diluted share. Both are modestly lower than previous guidance primarily due to the $0.03 per share hurricane-related expenses. Our normalized FFO per share is forecast to range from $4.13 to $4.16. The midpoint of our narrowed normalized FFO per share range remains unchanged from previous guidance because improved property performance offsets the accelerated completion of the Kindreds SNF sales. Consistent with previous practice, we have not included any further material investments, dispositions, loan repayments, or capital activity in our outlook. We assume approximately 359 million weighted average shares for the full year 2017. To close, we're pleased with the excellence we have delivered thus far in 2017. However, this track record of Ventas excellence extends over decades not just years and the team that has delivered it remains tight, collaborative and cohesive. And of course, that's Debbie. We are particularly proud that Debbie was once again recognized by the Harvard Business Review as one of the best performing CEOs in the world. She is one of 23 CEOs named to the Harvard Business Review list for two consecutive years and one of only two women on this year's list. Ventas's financial performance ranks 32nd out of nearly 900 companies globally for over 18 years, and that is truly excellent to stand.

Hi, good morning and thanks for the time. I was just hoping you could talk about the expense side, the sustainability of the lower expense growth year-over-year and maybe if you could detail the software costs that you kind of added back and what that was for?

Sure Juan. Bob here. We're really pleased to see the expense growth at 1.7%. We have given guidance early in the year and that's helped me true of about 4% I call it constant volume wage pressure, and we continue to see that. So what obviously therefore happening is the operators doing a great job of managing down the other costs not associated with labor, together with flexing labor with occupancy, and that's what's driving the benefits in the quarter. I believe a lot of those cost savings remain sustainable, particularly flexing labor with volume is to go back in time and look at historical occupancy levels, we still have plenty of cushion relative to where we were at lower. So there is still opportunity there and for those with scale, which our operators have, to continue to drive that to reduce and hold non-labor costs, so still room to run there. In terms of your second question on software implementation costs, that's a one-time cost with Sunrise and putting in the software for care and so we've adjusted that out as non-recurring.

And do it more efficiently and more accurately in terms of the level of care and related pricing for that care.

Okay. And then just switching gears to the joint venture, could you just give us a sense of kind of how that portfolio is tracking in terms of rent coverage, current occupancy levels, and the potential valuation on that portfolio based on what it was generating on an NOI basis? How are you thinking about the value from a capital or price basis?

Yeah, so I'll be happy to take that. Good morning. So this is a good portfolio of over 70 private pay communities. It was in the heat map and is no longer in the one-one to one-two bucket. We think that it is a great portfolio and well positioned - the largest part of it, of course, is stable, reliable, and growing asset, and then there's a portion that we think can drive some significant upside, as I talked about this powerful upside potential in senior housing and we want to enjoy the benefits of that for Ventas and also with the joint venture partner.

Do you think this vehicle could grow and maybe acquire some of the assets that may come loose from whatever is transpiring there?

Well, I do think the joint venture obviously will be initially focused on this portfolio, but it is a competitive advantage, as I pointed out, if there were assets to acquire, that would be another source of capital should we wish to grow in that joint venture and if we thought the assets were appropriate to go in there. It's one of their diversified capital sources should we wish to add assets. But we're focused right now on completing the first step of that process.

Okay. And do you own a stake in that new management team, the management operation?

Well, we've been known to do that before. We have established a really significant strategic relationship with the new management company and we are excited about being in business with them. It would be possible that we would have an ownership stake going forward, yes.

Thank you very much.

Thank you.

Hi, thanks. I just want to ask you about the Elmcroft mechanics a little bit. Say the natural lease was expiring and you're basically just allowed to say to them they are pulling this contract completely from you, they don't have any recourse to maintain management if they wanted to or if it's something that you work out?

We have a good relationship with Elmcroft. They have been good partners, we've known them for a long time. They originally were at Vencore many, many years ago and spun off as part of the original Atria. So the relationships we have with them go way back, and we are working with them collaboratively to transition the portfolio, and so that's how we are making it happen.

Okay. And then just sticking with your triple-net portfolio for a moment, I think in the past you said that the Brookdale facilities are kind of in line with the overall coverage. Is that still the case or are they improving more or underperforming relative to the group as a whole?

Yeah, on a triple-net senior housing side, I say there's a lot of consistency there. Bob mentioned a lot of clustering, including Brookdale, around the segment average. So very consistent.

Okay, okay. And then Bob, just you mentioned that some construction I guess will continue into 2018 because of delays this year on the operating portfolio side. What are some of the other, I guess, puts and takes that you're hearing? I mean, we always ask you this, is anything on the financing side from banks for lending to senior housing, and also just anything you're hearing from the operators on the labor cost into 2018 if that's kind of a building at all?

Sure. Well, anecdotally we continue to hear it's more difficult to find operators to get financing, to find good locations in terms of supply, Debbie quoted some of the steps in terms of starts relative to two years ago which are down nearly 50%. So both the anecdotes and the facts would suggest there's a positive trend there, which we're pleased with. As we think about labor going into 2018, obviously a bit early to give guidance. I do think wage pressures will continue, labor pressures will continue into 2018 there. Therefore we're going to turn to price again. I'd emphasize how pleased we are on the rate side with 4% we saw this year, and again we're seeing that across the portfolio, and that's really encouraging.

I mean one thing on the construction side too with the hurricanes, there is going to be tremendous demand on construction, labor, materials, and so on for the rebuilding that's going to be necessary in Texas and Florida. And that's an additional constraint on new development.

Okay. Alright. Thank you. Appreciate it.

Thank you, Smedes.

Yeah, yes, good morning everyone.

Good morning.

Good morning. Quick question under triple-net portfolio; I'm just trying to understand some of the moving parts because you do have a guidance increase for the same store NOI, the cash seems to NOI, but occupancy was down year-over-year in the quarter; coverage is still flattish. I mean, is coverage expected to kind of go down going forward? I'm just trying to, this seem to all the parties moving in different directions and I'm just really trying to understand how it all comes together?

Okay. Bob, do you want to start with that?

Sure. Let me differentiate between underlying asset performance and our triple-net same-store. Our triple-net same-store has performed very well year-to-date and the rise to 3% to 3.5% really reflects the fact that we've done three quarters of the year and really see stability in that portfolio—everything about the rental income. So that's through guidance for us. In terms of trends in the underlying portfolio, I think the same store senior housing triple-net portfolio has the same headwind to the industry. And so we probably will see some pressure on that 1.3 times as we go forward here. But again, we think that fits within underlying norms within the industry.

Okay. That helps a bit. Debbie, could you talk a little bit about how you're thinking about hospitals at this point in the cycle, given all the healthcare reform, what you're trying to see from some of the public hospital systems?

Absolutely. I mean here's how we're thinking about it. First of all, we love a diversified portfolio and we think that that is the path to success in value preservation and value creation, and we followed that issue now for a very long time. Within that, we've made some great investments in the hospital space; we've been extremely selective. It is performing very well in that series through the third quarter on our property performance, and we will continue to look at selective opportunities both with them and in the market generally. So it is the same as always. We think it's a big potential opportunity, but one where we are going to be very selective, and we've been very successful so far and we want to continue that track record.

Got it. Okay. And then lastly you talk a little bit about your international markets and how they're generally doing?

Yes. I mean we have a beachhead investment in certainly in Canada, obviously that's doing exceptionally well and that was our first real international investment that we started back in 2007 and we cut that trend early, and we have some investments in the U.K. that are performing very well also. We continued to look in the continental U.K. and have done a lot of good work there, and those markets can be attractive, but we will be very selective there as well.

Okay. Thank you.

Thank you.

Hey, everyone, question for you on SHOP. On the U.S. versus Canada, just curious a couple things. Is the degree of divergence surprising you at all this year? And then would you expect that huge Canadian outperformance to continue in 2018?

We've been really pleased Michael with Canada of course, two consecutive quarters now of double-digit growth. And when you look within the occupancy is nearly 95%, of course, we have a supply-demand equilibrium in Canada, we have great assets in Canada very well operated. And in light of the high occupancy, we've been pushing price again. I think that's a big driver of this performance. So I hope it will be top obviously next year, but the fundamentals are there. On the U.S. side, it's very much as we've portrayed; I think if you go back to the beginning of the year and the framework on guidance we laid out, that's where the year is really kind of very consistent. So we really know the surprises so far.

Okay. And then just to follow-up again on Brookdale and their disclosure last quarter, they showed a triple-net lease coverage of 1.02 times on EBITDA and then we know H-City and Wall Tower at 1.5 to 1.2. It sounds like if we were to take your EBITDA, I mean adjust downward EBITDA, you would suggest you're somewhere in the 1.1 range. Is that about right?

Well, again we look at this if you look, if you think it's relatively consistent with the rest of our senior housing triple-net as we talked about which has been stable at 1.3. We would say that the reason we look at EBITDAR and again this is a subject on which we have tremendous experience with Kindred and others. When you look, we look at EBITDAR because when you look at operators and how they make decisions and what their incremental cost management is, and/or stated another way, how much overhead they're truly able to get rid of if they shed assets. That number tends to be much closer to kind of 1%, 2%, 3% depending on the operator and the asset type. And so we think EBITDAR is really a good place to look. And so it's pretty clear depending on how you look at management, see what the math is, but we are in that consistent kind of stable coverage area.

Thank you.

Thank you.

Hi, good morning. This is here with Nick and thanks for taking our questions. On supply you…

Good morning.

Good morning. On supply, you touched on this in your prepared remarks, but it looks like new supply in your top 20 markets rose to roughly 7% of stock. So could you give a little more color on what changed during the quarter in your major markets? Because this is where you're seeing the best rate growth; how much of a threat is the new supply to results if you're looking to drive results through that rate growth?

Sure. Well, two things as we think about construction that are important, which are deliveries and new starts. In the quarter, this quarter we did see delays in deliveries, and that together with flattish new starts is what drove the ratio up. And therefore again, a step back, I think there's clearly a carryover to 2018. The underlying trends for the industry in terms of starts we believe will impact our portfolio equally. Within that from a market point of view, one also had to look at demand of that supply growth and for our engine room markets, as I described them, we consider this a very, very strong performance and that's L.A.s, Boston, and New York as I've highlighted. So though in certain areas there have been some new access coming online, again the engine room is strong and the rate is particularly strong in that. So we are feeling good about it.

Okay. Thank you very much. Appreciate that. I'll follow-up if I may. You talked about the recently announced joint venture; I know you just announced it today, so it's fresh. Could you possibly talk about how the joint venture is being valued and how it demonstrates the value of your portfolio?

As I mentioned in the call, we are going to have to move on. We have a few many other callers that we have to take. But as I mentioned, there is a strong bid across our asset types from all types of capital. And so as we move forward with this transaction, we'll be happy to provide additional valuation metrics. But again, to repeat the semantic, I would say that people are very interested in asset types because they are resilient, because they have demographic demand, because of the cash flows, and so valuations are strong as I said.

Thanks, good morning. So Bob you mentioned negative SHOP for the fourth quarter in terms of the same-store growth; does that presume 9% plus growth in Canada again?

Continued strength…

Hi Rich.

Thank you. Trying to talk first.

I'll try to. The applied fourth quarter is really U.S. dynamics and really again it's down to the views of deliveries in pacing of new supply. I mean that midpoint really assumes we have something more compression on the occupancy line. So we'll see, but that's what driving that assumption.

Okay. And back to Brookdale, not to digress, but I guess 2019 the expirations start happening, do you anticipate tackling that situation early? Could we see a transaction in sort of addressing the expirations, maybe even next year or two?

Well, you are right, we're more than two years away from that. And as you know, we've gone to lease maturities time and time again here at Ventas. And I think that we are always open and active about working with all of our relationships to find positive outcomes for both sides.

Okay. Last question. Okay. That's good enough. And then last on the relationship with Kai, is it really him maybe taking on many of the Elmcroft, you know, kind of people thereby reducing the disruption that might come from this type of transition?

Well, you know Elmcroft is a good company and they have a lot of good people there. And the expectation is that as it is almost always the case in these transitions, that virtually all the property people will be carried on and uninterrupted.

Yeah, thanks. Good morning. Debby, you mentioned in your prepared remarks that the investment pipeline is robust in life science and other asset classes; can you give us some color on the deals you are tracking outside of life science and what asset classes are more attractive right now?

And I think - this is John Cobb. We have seen a robust pipeline in all four verticals. We see it in the life science, the hospital sector, the senior housing sector, and the medical office. You know quarter in quarter out, we are seeing a good pipeline.

Okay, now these are mostly comprised of any larger portfolios or smaller transactions? Or how should we think about the deal size?

I think, as you've seen over the last three or four years, you've seen us do smaller deals and the medium deals, and we also see big deals. So we look at them all.

Thank you and congratulations on the continued recognition.

Thank you, John.

You discussed the breadth in the investor market for healthcare real estate in general, but can you discuss the nature of the investor on the joint venture?

That more to follow. I think that that's what we are trying to do as investors have asked us to do is in some cases where we can give them some early insights into our activities and strategies and where we are doing that in this case providing some early transparency. Certainly happy to disclose more as the pieces come together.

Good morning.

Hi Dan.

Hi. One quick question on SHOP, and the secondary market is really what's been hurting your NOI growth there. It seems like looks like construction supply came down in the secondary markets. Can you talk a little bit about the fundamentals there and what you see coming in the next say 12 months in secondary markets?

Sure. The secondary markets is where we did see the brunt of new competition and I'd highlight markets like Salt Lake City, for example, flow into that secondary market segmentation. And it is - when we looked at our portfolio and segmented it to say where do we have equilibrium versus a surplus. Many of those markets where we have surplus are in the secondary markets, so that's where we are seeing the impact and you can see quite clearly in the quarter.

Okay. And do you see fundamentals there might be improving at all or is that stable?

I think the supply dynamics I mentioned in terms of new deliveries will carry into 2018, no doubt in some of these same markets.

And then starts as they reduce obviously affect the forward environment. So that's where you talk about this powerful upside when you have - you are where you are in the occupancy cycle, you have starts ticking down, then you have the acceleration of the senior growth in population and that's where you get this powerful upside I discussed.

Good morning. Bob, you mentioned that even in the supply-challenged markets that rent growth is occurring. I am just wondering if most of the positive rental growth you think is driven by the higher rent upon renewal and any insight you might have on how new lease rents compared to expired rents of recently vacated units?

That's a great question and shame it's the last one of the day, it's really interesting. And we are seeing rent growth—the growth as I mentioned in some of those markets that have new supply. And that is a combination of what I call the re-leasing but also it is base rent increases. And what is very important is our operators do a very good job of understanding how that re-leasing spread is trending over time. And I think in our portfolio generally we feel pretty good about that re-leasing spread being within norms that are acceptable. So the rate side of the equation is really held us.

Okay, thank you.

Thank you. Are there any other further questions? Okay, well I want to thank everyone sincerely for your attention today and for your interest in Ventas. I continue to believe we're in a great industry that has tremendous potential even with a high-quality diverse and resilient portfolio that generates strong cash flow. We continue to see attractive investment opportunities and have access to diversified sources of capital to fund them. And we are super lucky to have a cohesive team at Ventas, who can capitalize on all those things to deliver long-term security of performance for you. So thank you again. Look forward to seeing everyone soon.