Health Care REIT Inc. Q1 2010 Earnings Call Transcript

Health Care REIT Inc. Q1 2010 Earnings Call Transcript
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Health Care REIT Inc. (HCN)

Q1 2010 Earnings Call

May 04, 2010 10:00 am ET

Executives

Jim Bowe - VP of Communications

George Chapman - Chairman, CEO & President

John Thomas - Executive VP-Medical Facilities

Scott Estes - Executive VP & CFO

Analysts

Craig Schmidt - Banc of America/Merrill Lynch

Jay Haberman - Goldman Sachs

Rich Anderson - BMO Capital Markets

Todd Stender - Wells Fargo Securities

Tayo Okusanya - Jefferies & Company

Dan Bernstein - Stifel Nicolaus

Michael Mueller - JPMorgan

Ross Nussbaum - UBS

Presentation

Operator

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Good morning, ladies and gentlemen and welcome to the Health Care REIT first quarter 2010 earnings conference call. My name is Tina and I will be your operator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As reminder, this conference is being recorded for replay purposes.

Now, I would like to turn the call over to Mr. Jim Bowe, Vice President of Communications for Health Care REIT. Please go ahead, sir.

Jim Bowe

Thank you, Tina. Good morning, everyone and thank you for joining us today for Health Care REIT's first quarter 2010 conference call. In the event you did not receive a copy of the news release distributed late yesterday afternoon, you may access it via the company's website at www.hcreit.com.

I'd like to remind everyone that we are holding a live webcast of today's call which maybe accessed through the company's website as well. Certain statements made during this conference call maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Health Care REIT believes results projected in any forward-looking statements are based on reasonable assumptions, the company can give no assurance that projected results will be obtained.

Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in the news release and from time to time in the company's filings with the SEC. I'd like to now turn the call over to George Chapman, Chairman, CEO and President of Health Care REIT for his opening remarks. Please go ahead, George.

George Chapman

Thank you, Jim. This morning I will discuss our current portfolio and its performance, our success in positioning the portfolio to meet the needs of our customers going forward as well as the progress with our entrance fee communities. I will then focus on the growth platform that we have built. Our portfolio is strong and diverse with coverages of about two to one and our top five and 10 operators comprise only 25% and 37% of our portfolio respectively. More importantly in medical facilities that is hospital's medical office buildings and life science buildings have become a very significant part of the portfolio currently comprising 40%.

We are establishing important relationships with health systems resulting in investments in modern customer-centric hospitals and medical office buildings and our life sciences and investments have added another property type that enhances our diversification as well as our offerings to health systems. Clearly these investments provide meaningful portfolio diversification as well as investment opportunity. We have acquired the Windrose and Rendina MOBs several years ago. We also acquired property management capabilities and we made it clear at that time that we will produce a very strong MOB portfolio and property management team. And we are very pleased with our progress in doing so. As we have culled through the MOB portfolio, eliminating smaller unaffiliated MOBs while at the same time investing in larger customer-friendly MOBs affiliated with excellent health systems.

With our recent Aurora acquisition, our MOB occupancy now stands at 93%. The percentage of on-campus and affiliated MOBs was up to 80% and heading toward our near term goal of 90%. The average size of our MOB portfolio has increased from 39,000 square feet in 2006 to 52,000 square feet today and is continuing to increase. Generally we believe that MOBs will be even more critical elements in the health care sectors as health systems extend their reach and branding efforts through these facilities and also provide more health services such as outpatient surgery and testing. At that same time the facilities are better designed and focused on the customer. We believe that MOBs are generally favored by those healthcare reform that John will discuss later and have benefited from those dramatic shift to outpatient services.

I might point out before leaving this topic as well that Mike noticed property management team has added key personal and is hitting on all cylinders. So we thank him and all of them for their efforts. In the senior housing sector, we are successful moving our facility mix from freestanding facilities to facilities that offer multiple services and place more emphasis on wellness. Our freestanding SNIPs skilled nursing facilities now comprise only 15.5% of the portfolio and could be as well as 12 to 13% by year end. Generally we believe we have a portfolio that is comprised of best-in-class assets that give us great confidence in future performance.

Now that we will continue to position our portfolio to minimize the possibility of functional obsolescence and maximize performance and quality care. Let me say a few words about independent living facilities and CCRCs. It is clear at least on our portfolio and I think well supported nationally that occupancies and our independent living facilities are bottoming out and while CCRC fillip and sales are more complex, we are certainly seeing better volumes and fillips as well and with minimal development activity, we believe the favorable demand supply relationship should produce significant value in this space over the next several year.

Scott Estes will share some additional information regarding our CCRC progress later in his remarks. But I would say that we are very pleased with our progress as an example our largest CCRC operator senior living communities has entrance fee and rental occupancies of 55% and 82% respectively inclusive of the newest CCRC that opened a month or so ago. Those operators being successful even in these tough markets because it pays close attention to every aspect of its business including running at terrific wellness program and a noted dementia program.

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