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Edited Transcript of VTR earnings conference call or presentation 20-Feb-20 3:00pm GMT

Q4 2019 Ventas Inc Earnings Call

Chicago Feb 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Ventas Inc earnings conference call or presentation Thursday, February 20, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christian N. Cummings

Ventas, Inc. - SVP of Asset Management - Seniors Housing

* Debra A. Cafaro

Ventas, Inc. - Chairman & CEO

* John D. Cobb

Ventas, Inc. - Executive VP & CIO

* Juan Sanabria

Ventas, Inc. - VP of IR

* Robert F. Probst

Ventas, Inc. - Executive VP & CFO

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Conference Call Participants

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* Connor Serge Siversky

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Daniel Marc Bernstein

Capital One Securities, Inc., Research Division - Research Analyst

* Jeffrey Alan Spector

BofA Merrill Lynch, Research Division - MD and Head of United States REITs

* Jonathan Hughes

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Jordan Sadler

KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst

* Michael Bilerman

Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research

* Michael Albert Carroll

RBC Capital Markets, Research Division - Analyst

* Michael William Mueller

JP Morgan Chase & Co, Research Division - Senior Analyst

* Nicholas Philip Yulico

Scotiabank Global Banking and Markets, Research Division - Analyst

* Omotayo Tejamude Okusanya

Mizuho Securities USA LLC, Research Division - MD & Senior Equity Research Analyst

* Piljung Kim

BMO Capital Markets Equity Research - Senior Real Estate Analyst

* Richard Charles Anderson

SMBC Nikko Securities America, Inc., Research Division - Research Analyst

* Stephen Thomas Sakwa

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst

* Steven James Valiquette

Barclays Bank PLC, Research Division - Research Analyst

* Tao Qiu

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Vikram Malhotra

Morgan Stanley, Research Division - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 Ventas Earnings Conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Juan Sanabria. Thank you. Please go ahead, sir.

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Juan Sanabria, Ventas, Inc. - VP of IR [2]

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Thanks, Justin. Good morning, and welcome to the Ventas conference call to review the company's announcement today regarding its results for the fourth quarter and full year ended December 31, 2019.

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 law. The company cautions that 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. Ventas expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any changes in expectations. Additional information about the factors that may affect the company's operations and results is included in the company's annual report on Form 10-K for the year ended December 31, 2018, and the company's other SEC filings.

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, www.ventasreit.com.

I will now turn the call over to Debra A. Cafaro, Chairman and CEO of the company.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [3]

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Thank you, Juan. Good morning to all of our shareholders and other participants, and welcome to the Ventas Year-End 2019 Earnings Call. Today, the Ventas team is here with me to discuss our 2019 performance and provide our outlook for 2020.

Let me start by expressing how personally committed I am to the future success of Ventas, our Ventas team and our stakeholders. As such, today, we are announcing a series of decisive actions to drive performance, including recruitment of new talent and realignment of our executive team, the launch of an exciting new growth platform and significant moves to improve senior housing quality and reliability.

Following our third quarter call with you in October, we committed to doing 3 things: one, closing out the year consistent with the guidance we provided; second, taking demonstrable steps to improve performance and get back on the Ventas winning path; and third, providing 2020 guidance when it was ready and reliable. Today, we have met all 3 commitments.

Let's start with finishing our year consistent with our outlook. For the full year in 2019, we delivered solid enterprise results of $3.85 per share at the high end of our full year normalized FFO guidance range issued in February of 2019, led by our Office segment outperformance, steady growth in our health care portfolio, accretive investments and effective capital markets activity. Our fourth quarter 2019 results also came in line with our projections.

Notably, during the year, we also made significant strategic advances. We announced, closed or commenced nearly $4 billion in new investments expected to yield between 6% and 7%. These investments include our attractive LGM portfolio and partnership in Quebec and our commitment to nearly $1 billion of high-quality Research & Innovation ground-up development projects with leading research universities. We took smart capital markets actions to finance our investments, lower interest expense and extend maturities. And thanks to Pete Bulgarelli and his team, we delivered strong results in our Office business that now represents nearly 30% of our portfolio. We continue to lead in and be widely recognized for our commitment to environmental, social and governance values.

Second, we promised to take demonstrable actions to improve our performance and position us for growth and success. We have been moving with a sense of urgency, intensity and purpose and have made significant strides over the past couple of months. These actions fall into 3 general categories: leadership, senior housing and platforms for growth. Let me start with leadership. Today, we announced the appointment of Justin Hutchens to our executive leadership team. Most of you know Justin as a well-respected, operationally focused senior housing leader. Justin, who will report to me and move to Chicago, will oversee our senior living business in North America, partner with our operators and focus on maximizing our position in the market. His operating background will provide a strong complement to our existing capable team, and his presence will add to our senior housing bandwidth. We are all very excited about the insights and impact Justin will have on the Ventas senior housing business when he joins us in early April. At the same time, we are realigning our current leadership team to provide expanded roles and responsibilities for each executive. And we will welcome our new General Counsel, Carey Roberts, when she begins at Ventas in March.

Turning to the action items to improve our senior housing business. We are marketing for sale over $600 million in nonstrategic senior housing assets, and the process is competitive. When achieved, proceeds of these divestitures will be recycled into our exciting Research & Innovation pipeline with leading research universities. We have also collaborated with our operators to accelerate and target our senior housing capital investment plans for 2020 and better position our communities to compete in their markets. In priority markets, we have significantly increased our 2020 budgeted CapEx spend particularly on projects that are customer-facing and designed to improve the occupancy, competitive position and overall attractiveness of our communities. We have also taken initial steps to form an institutional joint venture for the ESL portfolio as ESL continues to find its footing following the transition of assets to it, the recent rollout of its simplified pricing model and an increased allocation of capital to the communities.

And finally, in a sincere attempt to be responsive to investor and analyst input, we have updated our SHOP same-store policies to enhance comparability, transparency and consistency in the presentation of our SHOP results and guidance. I want to recognize Michael Bilerman for encouraging this initiative as well as Tom Herzog, Pete Scott, Bob and our own team for the energy and professionalism they brought to this effort for the benefit of investors, analysts and other stakeholders.

The third category of action we have taken to position the company for growth and success is the launch of an exciting new business in the first quarter. It is a Ventas-branded perpetual life vehicle focused on life science, medical office and senior housing assets. Our fund is off to a fast start with about $650 million of committed third-party capital by its initial closing, which is expected in the first quarter. Ventas is seeding the fund with life science and medical office buildings valued at a 4.9% cash cap rate, validating the value creation of our investment strategy and execution. At inception, we also expect the fund to enjoy nearly $0.5 billion of incremental buying power to acquire additional assets, and we expect the fund's gross assets under management to grow over time. Ventas will retain a 20% interest in the fund to ensure alignment with the fund investors as well as receive asset management fees and other compensation if the fund investors receive expected returns.

Our new fund has numerous strategic and financial benefits for Ventas and its shareholders. It leverages our brand, team, experience and industry knowledge, extends our reach and provides us with another consistent source of capital to grow. We expect each of the actions outlined above to contribute positively to our enterprise results over time.

Which leads to the third and final objective we communicated to you, that we would introduce 2020 guidance and the components thereof when they were ready and reliable. Today, we are introducing 2020 normalized FFO per share guidance of $3.56 to $3.69. Our 2020 guidance at the midpoint approximates our fourth quarter 2019 results times 4 adjusted for a few identified items. Our guidance also reflects our expectation for continued strength and reliability in our office and health care verticals, continued pressures in our senior housing portfolio and no capital markets or investment activity.

Although our 2020 guidance excludes, as is typical, the impact of new acquisitions, we are coming off a fantastic year. And we continue to see attractive investment opportunities across our verticals, including in our Research & Innovation business. During 2020, we will endeavor to extend our long history of effectively sourcing, acquiring, underwriting and financing value-creating investments.

Turning to the broader market. We continue to see strong institutional interest in all of our asset classes, particularly senior housing, life science and medical assets. Global investors continue to be powerfully attracted to these asset classes for the same reasons we are. They are driven by powerful demographic demand tailwinds. We are especially encouraged by the favorable supply-demand trends in the national senior housing market and in our submarkets that bode well for our future. In the top 99 markets, absorption in the fourth quarter outpaced inventory growth for the second consecutive quarter, driving 2019 absorption to the highest level on record. Across Ventas submarkets, we expect 2020 deliveries of new communities to improve year-over-year. Although operators are still digesting the cumulative supply delivered over the past couple of years, the power of this upturn in senior housing is undeniable and inevitable.

So as we push through 2020, we have our sights set squarely on the potential in Ventas from the upside we see in our senior housing business; contribution from the opening of our Research & Innovation developments; steady, growing NOI from our high-performing office and health care portfolios; the expansion of our footprint and access to capital through our newly launched fund; our enhanced team that is committed to each other and to our stakeholders; and our continued investment in capital markets opportunities.

And now I'm happy to turn the call over to my partner, our CFO, Bob Probst.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [4]

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Thanks, Debbie. In my remarks today, I will cover our property performance and outlook, our overall 2019 company results and our company guidance for 2020.

But before I jump in, our 2020 FFO guidance range midpoint of $3.63 per share can be framed simply as our adjusted fourth quarter 2019 FFO annualized, further adjusted for continued growth in Office and triple-net healthcare or $0.08 of dilution from $1.3 billion of capital recycling and for flat senior housing performance. This guidance excludes any new unannounced fees, investments or capital markets transactions, as is our practice. With that context, let's get into the property discussion.

SHOP results for the fourth quarter 2019 were in line with our latest expectations. Full year 2019 same-store SHOP NOI declined 4.4% while Q4 declined 7.5%, driven by the cumulative effect of new competition together with some unique operational issues at ESL. If we exclude ESL, which represents 8% of our same-store NOI, fourth quarter 2019 same-store NOI would have declined 4%, and the full year 2019 would have been down 3.1%. As anticipated, the lower revenue trajectory coming out of Q3 continued in the fourth quarter, and occupancy finished the year at 86.3%, which is 160 basis points below prior year.

On a positive note, operating expense growth was less than 2% in Q4 with labor inflation mitigated by strong cost controls, a theme which played out consistently during 2019.

In terms of guidance, 2020 same-store SHOP NOI is projected to decline in the minus 9% to minus 4% range. The simple facts are that our SHOP guidance is a result of 2 factors: one, the revenue trends that we called out at the end of the third quarter as having an important impact in 2020 because of a lower occupancy start point entering the year; and two, the impact of cumulative supply still being digested in 2020. The fourth quarter of 2019, which incorporates the lower ending occupancy levels, is a good jumping-off point for 2020. Relative to the fourth quarter of 2019 annualized, 2020 SHOP same-store NOI is expected to be flat at the guidance midpoint. We do expect improvement in the full year occupancy gap in 2020 relative to the 160 basis point gap in the fourth quarter of '19 as well as modest 2020 RevPOR growth driven by healthy in-place rent increases. Wage and insurance inflation and the impact of an extra day due to the leap year are also incorporated.

Encouragingly, new supply coming online in our SHOP submarkets is expected to decline nearly 15% in 2020, and new construction starts and preconstruction permits are also trending favorably. That said, we estimate cumulative new units that have come online over the last several years and that are still being absorbed will remain elevated in 2020. Thereafter, the positive trends of growing demand and lower inventory under construction should become manifest.

Debbie summarized earlier our action plans at senior housing. I'll build on a few of those points. First, we continue to increase the frequency and depth of dialogue with our operators. The addition of Justin Hutchens, with deep experience and relationships in senior housing operations, will accelerate and complement those efforts. Second, we've incorporated the sale of $600 million of nonstrategic senior housing assets into our SHOP outlook, benefiting the same-store range by an estimated 50 to 100 basis points. And third, we've revised our same-store SHOP definitions, as announced last week, in conjunction with and consistent with Healthpeak. The new definitions are summarized on Pages 47 to 49 of our supplemental. These SHOP updates are effective January 1, 2020. And we've also presented 2019 results as if these updates to SHOP policies had been in effect during the year. The impact of their adoption is to reduce 2020 same-store growth by 50 to 100 basis points by eliminating the benefit of lease-up of certain redevelopments. Taken together, the impacts of the sale of certain SHOP assets and the adoption of the new definitions effectively offset each other.

I would also note that over 80% of our SHOP assets are in the same-store pool. And as is our normal practice, we provide transparency into both quarterly and full year same-store pools, which we think is critical to understanding organic growth in SHOP.

Finally, I'm pleased to report that the LGM portfolio has been successfully integrated. Our partnership with the LGM team is off to a strong start, and the assets are performing well.

Let's turn to our triple-net lease portfolio, which grew same-store cash NOI by a solid 2.2% for the full year 2019. Our health care portfolio of acute and post-acute assets led this growth. Within triple-net, IRF and LTAC coverage remained stable at 1.4x. Ardent continued to perform exceptionally well throughout 2019, and Ardent rent coverage remained robust at 3.1x. Trailing 12-month senior housing triple-net rent coverage was flat at 1.1x but included some drift lower in coverage from certain operators, including Brookdale. We were pleased to see the solid report from Brookdale on its earnings call yesterday.

On a same-store basis for 2020 triple-net overall, we expect same-store cash NOI will grow 1.5% to 2.5% year-over-year driven by in-place lease escalations in the health care assets.

Let's discuss our exciting Office reporting segment, which represents 27% of Ventas' NOI. For the full year 2019, Office same-store cash NOI increased by 2.6%, beating the high end of our upwardly revised guidance range of 2% to 2.5%. This outstanding result was fueled by our R&I portfolio, which grew 2019 full year same-store cash NOI by 6%, with average rent per square foot up 5.5% and occupancy approaching 97%. Strong performance at our university-based developments, affiliated with Duke and University of Pennsylvania, fueled growth in Q4 and the full year in R&I. The benefit of lease-up of our attractive R&I developments will continue to boost same-store growth in this segment in 2020.

Complementing the fast-growing R&I business is our highly valuable medical office business. MOB same-store cash NOI for the full year 2019 increased 1.6%, in line with our expectations and above the midpoint of our guidance. The MOB team did a terrific job delivering excellent customer service in 2019 and achieved a very strong 92% tenant retention rate for the quarter and 86% for the full year, a Ventas record. On a combined basis, our Office portfolio of life science properties and MOB assets is expected to accelerate growth in same-store cash NOI from 2.6% in 2019 in the range of 3% to 4% for the full year 2020. This guidance is comprised at the midpoint of 1.75% and 9% for MOB and R&I, respectively.

Now on to our overall company financial results. In 2019, we delivered normalized FFO of $3.85 per share at the top end of the initial guidance range of $3.75 to $3.85 that we set out last February. For the full year 2019, same-store property results were also in line with our latest guidance ranges.

We've been proactive in refinancing our debt. At the end of 2019, Ventas' average debt duration on senior notes approached 8 years, our average cost of debt improved to 3.5%, and our debt maturities through 2021 are minimal. Finally, as expected, net debt to adjusted EBITDA was 6x for the full year 2019.

I'll finish up with our full year 2020 guidance for the company. The key components of our guidance are as follows. Net income attributable to common stockholders is estimated to range between $1.61 and $1.74 per fully diluted share. Normalized FFO is forecast to range from $3.56 to $3.69 per share. We expect our portfolio same-store cash NOI to range from minus 1.5% to positive 1%. And net debt to adjusted pro forma EBITDA is expected to remain stable for the full year 2020.

Following Q3 2019 earnings, we communicated that our implied Q4 2019 guidance midpoint annualized or $3.64 per share would be a "good start point" for our 2020 FFO per share. This calculation was before any new investments or dispositions in 2020. Our 2020 FFO guidance midpoint, as published today, is $3.63 per share despite absorbing an anticipated $0.08 per share of dilution from $1.3 billion of dispositions used to reduce debt and to invest behind our new R&I developments. And as is our usual practice, we have not included in our guidance any new fees, investments or associated capital market activities. A normalized FFO per share bridge from our fourth quarter 2019 annualized to our 2020 guidance midpoint of $3.63 can be found in our press release.

To close, the entire Ventas team is fully engaged and committed to execute on our 2020 plan, to improve performance and to position us for the exciting opportunities that lie ahead.

With that, I will ask the operator to please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Vikram Malhotra from Morgan Stanley.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [2]

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I know you guys have done a lot of work, so congrats on getting all this done. So I know I have one question and a follow-up. So just focused on guidance, can you give us a bit more color on sort of how you came out with the ranges for your ideal growth kind of at the midpoint and then what gets you to either end and what -- how the flu may be baked into that?

And then second question, on the triple-net side, you talked about coverage. I'm just wondering, are you baking in any additional cuts or anticipating any cuts to the rents on the triple-net side?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [3]

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Sure. I'll take those, and thanks for the question. Let's start with SHOP, midpoint of the range, and then I'll do the high/low. Midpoint of the range, occupancy, we expect to improve the gap year-over-year relative to the fourth quarter. The fourth quarter was down 160 basis points versus the prior year, 2019, would be '18. And we expect to improve, i.e., narrow that gap over the course of 2020. We expect modest RevPOR growth. We had nice in-place increases in the 2020 first quarter, and that's helping. That will be offset in part by re-leasing spreads to get to modest growth in RevPOR.

On the expense side, we highlighted some of the issues, including labor inflation, insurance inflation and the extra day of leap year. And those are all baked into the plan. I would say on the OpEx growth side, we have not assumed that we'll continue to hold overall OpEx below 2%, which is what we saw in the last few years. And when you add all that up, that gets you to the midpoint of the range that we quoted.

On the -- I'll call it the good side of the range, the real lever is, I would say, particularly around cost. So their ability to continue to drive the labor inflation down through efficiencies in the operating model, procurement, et cetera, would be the upside that really is key to get to the good side of the range. On the other end, it's really about the revenue and pricing and what happens in the marketplace as we continue to absorb the supply that's still out there. So really a revenue-driven equation on the downside. And that's really the upside/downside as we portrayed it.

On the second question, I should say, the flu. Yes, the flu is incorporated. We don't believe it's a big deal this year, but it is incorporated.

Triple-net coverage, a complex equation for sure. I'd say a few things. One, what we told you last year remains true, i.e., lease modification impacts, transitions, et cetera. 10 becomes 20, and 20 is a simple phrasing, that is true. That's incorporated in our guidance. We've also incorporated some room for further modifications should they be necessary. And so that is in the guidance range for FFO as we look at the overall. So long answer.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [4]

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So just to clarify, when you -- the guidance, the SHOP guidance that you have, given you're looking to -- given ESL may undergo a change, what would the guidance have been excluding ESL?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [5]

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The benefit is not baked into the range as it's not baked into our guidance. I'd say it approximates 100 basis points.

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Operator [6]

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And our next question comes from Nick Joseph from Citi.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [7]

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It's Michael Bilerman here with Nick. And Debbie, thanks for working with your peers to standardize same-store, and we certainly appreciate that. Two questions from me. From the fund that you launched, can you walk us through the process now of allocating acquisitions into the fund versus on the portfolio? It sounds like it's going to be both core and core plus. So what's going to be the factors of an asset or a portfolio of assets going into the fund versus on balance sheet?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [8]

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Good. Well, we are excited about this. I've long admired Hamid and his success in this area. And I'm excited that we can use our infrastructure and platform to give investors a choice of how to invest in these core life science and medical office and senior housing assets. So there are defined criteria, as you would imagine, for the fund. And over time, as the fund grows, which we expect and hope that it will, there will be just really a choice of which is the better home for the assets, making sure, of course, that we treat all of our stakeholders fairly.

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Michael Bilerman, Citigroup Inc, Research Division - MD and Head of the US Real Estate and Lodging Research [9]

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And then second question, in terms of G&A load, I guess it's really a 2-part. One, what's embedded for guidance for 2020 relative to 2019 for G&A especially as you're bringing new people on? But also taking a look at 2019, you were at $166 million, call it, about 50 basis points of gross asset value. Your Q, closest large-cap health care REIT peers, you had Peak running at $90 million or just over 40 basis points and Well at $126 million, just over 30 basis points of GAV. Is there -- I mean maybe there's some disclosure in terms of comparability. But just directionally, do you feel that there's areas that you can reduce the G&A load? And how will Justin's hiring impact things as we look at 2020?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [10]

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Sure, I'll take that one. Thanks, Michael. So it's always hard to compare on G&A using different measures. Scale, your operating model are 2 variables that can drive material differences. As we look at our G&A, I'd highlight a few things. When you look at year-over-year, for example, in '19, we saw the lease accounting standard change where we begin to expense leasing commission costs. That is a -- in the run rate, if you like, but a year-over-year impact in '19 and in the base. As we look at '20, we would expect effectively to, on G&A, try to stay flat and thereby, by definition, absorbing headcount costs, including Justin. So that's going to mean efficiencies and being sharp, as we always are, but that's our budget.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [11]

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Well, I told him he has to make it all that times 3 or something.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [12]

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I'm sure you'll pay for that, no doubt.

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Operator [13]

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And our next question comes from Rich Anderson from SMBC.

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Richard Charles Anderson, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [14]

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Good addition with Justin, good guy, of course. Looking forward to seeing him again.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [15]

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Yes. We are, too.

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Richard Charles Anderson, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [16]

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So the -- on the same-store, I guess the question that goes for both same-store and FFO as the year progresses, and same-store meaning SHOP, how do you envision this sort of moving over the course of the year? Do you see a trough quarter on either measure? And then when you think about the work that went into sort of identifying your SHOP guidance, is there a time line where you get back to a more competitive level of growth versus your peers? Is it a year from now? I'm sure there's something -- some sort of thought about time line to sort of get this matter all fully behind you.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [17]

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Yes. Rich, good question, and thanks for asking. Because the profile, as you know, of '19 was -- in the second half, we saw the revenue drop. We called it out obviously in the third quarter. That carried forward into the fourth. So if you just kind of drew a line, if you think about 2019, obviously, it started high, finished low. And coming into 2020, that's our start point. And so all else equal, we'd expect to see a tougher comp in the first half of the year and then normalizing, if you like, as we get into the back half of the year. So that's just going to be the normal phasing as we look at it. And as we look at the year-over-year guidance range, that is a fundamental predicate. Absolutely, for sure. Go ahead.

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Richard Charles Anderson, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [18]

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No. I was going to say, could you -- so is the first quarter the trough year both for same-store and FFO, would you say -- the trough quarter?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [19]

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Yes. You'll have some competing forces there. So in terms of FFO phasing, the dispositions -- we talked about $1.3 billion of dispositions being used to reinvest behind R&I and debt repayment, will be over the course of the year. So that is dilutive when we consider $0.08 versus the fourth quarter. So you'll see that phasing in over the course of the year, so some offsetting forces.

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Richard Charles Anderson, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [20]

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All right. But then this time next year, do you think we'll be at a competitive level of growth on the same-store SHOP portfolio?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [21]

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Everyone in this room is focused on delivering 2020.

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Richard Charles Anderson, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [22]

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Okay. Second question is on the fund assets. You kind of answered it kind of, but I appreciate you want to kind of hold your cards a little bit. But is there at least a higher percentage of riskier assets or core-plus assets there? And would you seed more from your existing portfolio? Or is this all you're going to do for now and everything else would be growth?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [23]

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Well, right now, it's our expectation that everything will be growth. And importantly, we believe that it really does augment our aggregate capacity to grow. And so from here on out, we would expect John's team to be sourcing investments, and if appropriate, they'll go in the fund. And otherwise, we will happily take them on balance sheet. So we're excited about the expansion of overall capacity.

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Richard Charles Anderson, SMBC Nikko Securities America, Inc., Research Division - Research Analyst [24]

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I still don't know what appropriate is, though. Can you define what appropriate is for the fund?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [25]

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Yes. I mean there are defined investment criteria that are identified that would be for core life science, stabilized core life science, senior housing and MOBs. And things like our growing Research & Innovation pipeline, ground-up development with our exclusive partner, Wexford, would clearly be for the Ventas account. So there are pretty clear demarcations, but where there may be overlap, again, our job is to be fair to all the stakeholders and, in the aggregate, expand our reach and our acquisition capacity.

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Operator [26]

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And our next question comes from Nick Yulico from Scotiabank.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [27]

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Just going back to the fund, I think you mentioned $500 million of incremental buying power in the fund. Can you just tell us what the leverage target is, so we just have an understanding of the assets you'd be buying in the fund?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [28]

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Yes. It's consistent with our enterprise leverage targets.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [29]

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Okay. So -- and the $500 million of incremental buying power, that was -- you're referring to actually assets being bought at the fund level?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [30]

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Well, it's equity and debt availability on top of what we're already seeding the fund with in the initial closing. And then again, we would expect the assets under management to grow from there.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [31]

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Okay. And in terms of the additional assets, are you more likely to be buying new assets or contributing existing Ventas assets into the fund?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [32]

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Right. Very clearly, from here on out, we would expect this to augment our total acquisition capacity. And it would only be newly acquired assets, which, if they meet the criterion or otherwise appropriate, would go to the fund. So we're initially seeding it with the 5 that we talked about, and then from there, it will be John's team that will be sourcing and closing the investments. And if appropriate, that's how the fund would grow from here.

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Nicholas Philip Yulico, Scotiabank Global Banking and Markets, Research Division - Analyst [33]

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Okay. Just one last question on the hiring of Justin. Maybe you could talk a little bit more about exactly what you're hoping for him to achieve. And I guess because looking back on last year, it just felt you had kind of an issue where you were just dealing with some operator issues, and in some cases, you just have to kind of live with those operating issues. I mean going forward, how is Justin going to be working with senior housing operators where, I guess, you could have a little bit more control over ultimately how some of these assets perform?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [34]

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Good, good. I'm so glad you asked that. And note that we did this right before the trade deadline. So we're excited about it. I mean what we really think that Justin will bring -- and again, we have this bias to action. We're taking a lot of actions to do what we told you, which is to put Ventas back on a winning path and to realize the upside in our portfolio, in the senior housing portfolio. So what he is going to do is work very closely with our existing, highly capable team. He's going to bring that complementary operating background that he has that will make us better. And he has preexisting relationships with most, if not all, of our operating partners, as you know. And so he can work with them and our team on operating strategies and capital plans, with the overall objective, of course, to improve operating results. He will also, as we mentioned in the press release, serve on the ESL Board of Directors.

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Operator [35]

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And our next question comes from Jeff Spector from Bank of America.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [36]

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I'd like to focus a little bit more on hiring Justin, congratulations.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [37]

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Thank you.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [38]

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Could you share with us, I guess, some of the feedback criteria that he provided to you and in taking this role, again, some of the criteria he requested?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [39]

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Yes. I mean one of the great things is that Justin coming here, really, is attracted to Ventas' team, our strong track record, our commitment to our stakeholders and the upside in our business, broadly speaking, and our senior housing portfolio, in particular. And he is obviously well versed in the U.S. senior housing market. He helped build the business during a dynamic time in the senior housing market. And I think he is confident that he can have a very positive impact on the company and on our portfolio once he joins.

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Jeffrey Alan Spector, BofA Merrill Lynch, Research Division - MD and Head of United States REITs [40]

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So has he already influenced the $600 million of dispositions, the noncore dispositions? Is that the bulk right off the bat? Or he still needs to comb through the portfolio and figure out how much more needs to be sold from there? Because I'm trying to tie just that. And then you still did comment in your press release that you're expecting a positive turn in senior housing, and I'm not sure when you feel that, that's coming.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [41]

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Good. So I mean we have been working on these action plans, obviously, on our own and as well as all the other actions that we outlined today. We've been full speed ahead on them. And Justin will start to make his contributions, really, when he comes here in April, and we're really looking forward to that. And as I said in my remarks, I mean, the tailwinds of demographic demand in senior housing are compelling, and the fact that there will be an upturn in senior housing, driven by those demographic tailwinds, is both undeniable and inevitable. And so we're focused on 2020. We want to continue to take actions as we have today to position us to capture that upside, and that's what we're all focused on. And Justin will be focused with us as soon as he gets here.

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Operator [42]

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Our next question comes from John Kim from BMO Capital Markets.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [43]

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Just taking a step back, looking at your guidance, it implies over a 2-year period and 11% decline in FFO, and that's totaling $99 million at the midpoint. But at the same time, same-store NOI is flat. You've made $4 billion of investments. Can you just remind us what the disconnect is between those 3 items? I know you have a $10 million rent cut last year. But are there more rent cuts contemplated this year, just given where your triple-net coverage is?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [44]

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Right. So the key variable that you mentioned there is disposition and loan repayment activity, i.e., sales over the last several years, again, reinvested in either debt reduction or future growth through R&I, which have been dilutive to FFO. That, together with the senior housing market-driven performance, is -- effectively, those are the 2 key things that answer that question.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [45]

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What about any further rent cuts or relief like you had last year?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [46]

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Right. So again, we, in our guidance, have incorporated the impact of that, which happened last year. So we talked about the $10 million becoming a $20 million in terms of activity in the triple-net operator portfolio. That's in. And then we provided for some additional activity, if it's necessary. So we've contemplated having to deal with some others. So that's in the guidance.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [47]

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Okay. And then my second question is on your fund. Can you just discuss how much you're going to earn in fees this year? Is it just your typical asset management fees or if there's any origination or acquisition fees that would be included in your normalized FFO?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [48]

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Yes. It's a -- it's just a market structure. And I'm surrounded by a phalanx of counsel who's encouraging me to restrain my comments, so I will. But it's just a market structure.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [49]

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So any onetime fees would be basically to promote? Or would there be anything else in there?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [50]

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Again -- principally, again, there's asset management fees, as you would expect and other as the documents provide.

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Operator [51]

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And our next question comes from Steve Sakwa from Evercore.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [52]

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I just want to go back, Debbie, to a comment you made earlier about the CapEx spend and you're investing into the senior housing to help shore up the portfolio, but I don't know that you actually provided a dollar figure for that. So is there any color you can provide on that and how that kind of relates to overall maintenance CapEx spending in 2020?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [53]

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I'll do overall for the company. That's in the guidance. I'll let Chris talk a little bit more specifically about senior housing. But the guidance range for '20, this is FAD CapEx, Steve, is $180 million at the midpoint. Round numbers, we were $156 million in 2019. And the vast majority of that increase is a function of senior housing and, again, very much a result of this targeted and accelerated spending in senior housing. So I'll turn it to Chris to give a little more meat on that bone.

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Christian N. Cummings, Ventas, Inc. - SVP of Asset Management - Seniors Housing [54]

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Yes. Great. Again, Chris Cummings, senior housing asset management. As you look at senior housing spend on a per unit basis, in 2019, we spent on a total basis around $2,500 per unit. Closer to $3,300 per unit in '20 is our expectation. We're spending, in terms of customer-facing capital, about 65% more dollars in '20 than we did in '19. And where we're spending those dollars is primarily in those markets which we view as future attractive from a supply-demand perspective where we can get good outcomes from that spend.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [55]

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Okay. And Debbie, just going back to the R&I business. Just in general, what are you seeing with Wexford in terms of deploying new capital? And how would you expect starts to trend in '20 and maybe into '21?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [56]

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We continue to have a robust pipeline. I mean Wexford has a terrific position in the marketplace with these leading research universities, and we have a team dedicated here at Ventas to work with them.

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Stephen Thomas Sakwa, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Equity Research Analyst [57]

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Can you just share any more around just types of deals or the size of the pipeline or expectations on starts?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [58]

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I'd refer that to my colleague, John Cobb.

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John D. Cobb, Ventas, Inc. - Executive VP & CIO [59]

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Yes. I mean I think last year, we announced $1.5 billion pipeline. Today, we've done almost $1 billion of that. So we're still working another $0.5 billion that we think will start hopefully in the first half of this year. And then we're constantly looking at new deals. They generally range between $100 million to $250 million apiece, so they're sizable. But we're -- we have an active pipeline, and we have a great market competitive position.

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Operator [60]

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And our next question comes from Jordan Sadler from KeyBanc.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [61]

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I just want to clarify on the hiring of Justin, his real marching orders here. I know you talked about sort of increasing the dialogue with operators, and obviously, he's on the ESL Board. But is he also -- will he also be taking an overall inventory and assessment of the existing seniors housing triple-net and SHOP portfolios and sort of assessing whether or not you have the right portfolio of assets going forward?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [62]

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Well, working with Chris Cummings and our existing team, we want to partner with Justin as a team to improve performance. And obviously, part of that is looking at the portfolio with fresh eyes. We believe we have a portfolio that will continue -- that will perform in the long term, look at capital plans, obviously, look at pricing strategy. So it's all part of the overall leadership of our senior housing business.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [63]

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So it sounds like -- I guess what we're all probably trying to get out of here is what Justin's mandate is and sort of what's been relayed to him in terms of what he'll be able to do in terms of needing to address whatever may be going on within the portfolio? And so what's the latitude in terms of capital recycling? It sounds like you're saying there'll be some latitude.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [64]

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Yes. I mean we -- these are enterprise decisions. We will all work together to optimize both portfolio and enterprise. And he will be really leading that effort with Chris and his team, and we look forward to the results of that improving Ventas performance and position and realizing the upside that we know is in the portfolio.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [65]

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Okay. And will he remain on the -- in his current Board seat at New Senior? Has that been discussed at all?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [66]

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I mean that's something that I would refer you to New Senior for.

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Jordan Sadler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [67]

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Okay. And lastly, Bob, just a clarification, if you could, on the leverage. You said it'd be stable throughout the year. I think it -- I think at a 6 -- from the 6x, I assume that was at year-end. But just to clarify that. And then -- but how does that sort of fit with the $1.3 billion of recycling in this point and the $700 million of debt repayment?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [68]

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Right? So simple sources uses here, Jordan, is we've got the $1.3 billion of sources coming in from the dispose. The uses of those are twofold, roughly $600 million of that is going to be redevelopment spend, principally behind the R&I pipeline and development, and $700 million is going to be debt repayment. And you run all through that, that all through the grinder, that's flat on a leverage basis versus '19.

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Operator [69]

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And our next question comes from Daniel Bernstein from Capital One.

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Daniel Marc Bernstein, Capital One Securities, Inc., Research Division - Research Analyst [70]

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So I'd like to go back and -- obviously, hindsight is 20/20. But what lessons can you learn from the last couple of years in terms of the portfolio that you can bring forward as the -- do you need more robust asset management, more CapEx early, more asset recycling early? Maybe that's related to Justin coming onboard as well. But what lessons can you learn from the performance of the last 2 years that you can bring forward and change how you operate?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [71]

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Well, I think clearly the actions that we're taking speak to those points, I think that bringing Justin, being one of them in terms of expanding our -- and complementing our strength with significant operating experience and perspective, I would say that really understanding that the longer transition period in ESL portfolio and communicating that more to you and generally, obviously, having, I think, consistent SHOP policies and so on, so that investors can really understand organic performance across companies, which I think we've now tried to offer between us and Healthpeak, which I think is a step forward. So obviously, lots of lessons learned. I think over a 20-year time period, we have really focused on delivering and on excellent performance. And I think we've had a short period here where we have not met our own expectations. But we're doing everything within our power to get back on the winning path, and I'm confident that the actions we're taking will do so.

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Daniel Marc Bernstein, Capital One Securities, Inc., Research Division - Research Analyst [72]

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Okay. And maybe this is related, but what gives you confidence that the SHOP portfolio is going to perform better or even better than industry besides a rising tide raises all boats with industry? I mean you obviously have underperformed within the SHOP. What gives you confidence that it can perform better in the future? Is it the location of the assets, the management at Sunrise, Atria, et cetera? Just trying to understand what can change in -- within the portfolio versus where we are today. Maybe that's just...

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [73]

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Again -- yes. So we understand -- so there's 2 things, as Bob described, that were -- have been -- that affect our 2020 guidance. It was the end of the third quarter, which mathematically lowers our start point going into 2020. So obviously, when that happens, that has an effect on 2020; and then the cumulative absorption of the supply in our submarkets. And we know that, that second aspect is improving, and the NOI will inevitably follow, plus, again, working with the operators on capital plans that are targeted and accelerated as well as bringing on more operating focused experience to work on pricing and so on. So those are all the actions that we're taking that we believe will drive improved performance.

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Daniel Marc Bernstein, Capital One Securities, Inc., Research Division - Research Analyst [74]

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Okay. And I know it's more than 2 questions here, but one last one. I just want to make -- understand. Was the $10 million of triple-net lease restructuring, was that already in 4Q that's rolling into 2020? I just wasn't clear on that.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [75]

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Correct.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [76]

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You got it.

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Daniel Marc Bernstein, Capital One Securities, Inc., Research Division - Research Analyst [77]

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Okay. Rolling into 2020, okay.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [78]

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Yes.

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Operator [79]

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Our next question comes from Steven Valiquette from Barclays.

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Steven James Valiquette, Barclays Bank PLC, Research Division - Research Analyst [80]

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So at the REITworld conference back in November, you guys gave a little more color on some of the specific secondary markets that were problematic back in 3Q '19 with some of those ones in Texas, Utah, New York, California, et cetera. I don't know how much you want to get into that on this call. I guess I'm just curious if there's any update on those markets you would point out as maybe being expected to improve in 2020 from that prior list versus which ones may still be, let's say, difficult throughout the whole year.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [81]

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Sure. I'll take that one. And I would say the themes are very consistent with what we talked about last in that regard, namely the secondary markets, particularly in the fourth as in the third, continue to see, on a proportional basis, more revenue challenge. And again, that's where we saw supply come earlier and that the need to digest those units comes first. So that -- as we look into 2020, that said, second -- some of the secondary markets have begun to see that turn. And as Chris was describing where, for example, we're focusing some of the capital, those would be good opportunities to spend targeted capital there. On the other hand, primary markets -- so these are just broad brush, you have to get, of course, get into the specifics. But primary markets is where supply came later, and the digestion will come later, put it that way. And so we'll expect in 2020 to see some of those primary markets, having to deal with that supply.

But at the end of the day, this is timing because the trends are inexorable. We see the demand growth. We see the penetration growth. The starts trend, which has been favorable now for several years, those come together and manifest themselves in the upside that we keep talking about. And it's just a matter of getting from here to there.

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Operator [82]

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(Operator Instructions) Our next question comes from Jonathan Hughes from Raymond James.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [83]

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I was hoping you could clarify the augmented external growth strategy and relationship with the core and core plus fund. You mentioned only stabilized deals will go into that vehicle. Does that mean only value-add and development opportunities will be targeted by Ventas and the historical external growth trajectory that was outlined last June is maybe also augmented down from $2 billion and maybe half that?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [84]

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Not at all. So let me try to take it again. So the fund helps us grow our platform by augmented investment capabilities and capacity. And so basically, we've seeded the fund, and then anything that grows the funds, assets under management, will be new investments, typically at sporty cap rates. And the fund will provide another arrow in our quiver in terms of access to capital and will enable us to acquire things that, in some cases, would be inefficient for us to acquire on balance sheet. And as I said before, we have an unlimited capacity to invest on balance sheet and then eventually in the fund as it continues to grow. And if you look at Prologis, for example, as an example, then you would see that it's helped the overall enterprise grow. And that's what we're aiming for. And in addition, as we mentioned in the release, will be the 20% GP of the fund. So we will maintain a significant interest in those assets as well. So it's an overall win for everyone, the new stakeholders in the fund as well as Ventas shareholders.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [85]

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Okay. So the growth trajectory of Ventas as a whole is the same, more in the outside vehicle. And John's team, sounds like they'll be busy.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [86]

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The same or better is the theory. Yes, in hand.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [87]

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And John's team sounds like it'll be very busy though. Okay. All right.

Then one more on ESL, I know you're looking for a JV partner, and demand for senior housing is strong. But this same portfolio ultimately didn't find a partner. When I recall, it was being marketed back in late 2017. Why sell it now -- or JV it now after NOI has taken such a drastic turn for the worse? Just feels like we're selling at a trough. Why not just keep it as a whole and lap it, and in 18 months, we lap these comps and you get the benefit?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [88]

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Great question. Because we do see upside there over time. And so first of all, historically speaking, we chose not to pursue a partnership at that time. And so I think that's important for you to understand. And then secondly, we have taken these initial steps to do a joint venture. There is institutional interest in generally partnering with Ventas and in senior housing, in particular. And we believe that continuing to recycle capital and attract capital and gain more partnerships with investors is a positive development for Ventas. And this could enable us to do that.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [89]

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Why did you not JV it 2 years ago?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [90]

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We made a decision at that time that it was not in the best interest of the company to do so.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [91]

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And you stick by that today as NOI has gone down pretty precipitously?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [92]

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We do, and I'll -- we'll be happy to talk to you about more color off-line. But yes, we do.

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Operator [93]

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And the next question comes from Michael Mueller from JPMorgan.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [94]

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Just a quick question on SHOP occupancy, the 160 basis point gap at year-end. Bob, I know you talked about that closing some. But can you talk about like a magnitude of how much of that closing would you say is really good progress versus kind of a base case scenario? I asked, right?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [95]

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Thank you for asking. Yes, I appreciate that. And the goal is to narrow.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [96]

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Yes. So in the right direction.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [97]

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And that's a lower number than 160, and obviously, there's a related question, which is pricing. So both of those need to be answered together. We need to be smart on both occupancy and price. Revenue, when you're -- when all is said and done, growing revenue is the job to be done. And so that's where the focus is.

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Michael William Mueller, JP Morgan Chase & Co, Research Division - Senior Analyst [98]

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Okay. And real quick on ESL to JV. Should we read into that, that you think the progress -- process to turn that around is going to take longer, so you just want less of it today? Is that the right way to think of it?

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John D. Cobb, Ventas, Inc. - Executive VP & CIO [99]

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This is John. I wouldn't read into it that way. We're going to stay in.

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Operator [100]

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Our next question comes from Chad Vanacore from Stifel.

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Tao Qiu, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [101]

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This is Tao Qiu for Chad. My first question is on dividend coverage. So FAD this quarter was $0.78 versus $0.79 dividend. And 2019 guidance implies some decline in FFO. So how do you feel about your dividend at this point, also in light of the higher CapEx you were expecting in senior housing?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [102]

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Yes. Thank you for the question. So obviously, the dividend is an important component of our total return. And we feel good about where the dividend is because we feel good about investing in our portfolio this year, which has increased FAD this year so that we can realize the benefits of the upside in our portfolio. So as we look forward, we do see the benefits of senior housing turning up. We also see the benefits of the R&I development pipeline that we've been heavily investing in with those assets starting to come online and contributing to cash flow and EBITDA as they open in late '21 and into '22, and they'll make a significant contribution at that time. So the combination of -- and then the steady growth of the office and health care portfolios, all combined, make us feel comfortable.

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Tao Qiu, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [103]

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Okay. And a follow-up on the REVPOR numbers. Can you talk about what kind of rate increases you are seeing now that you have the month of January under the belt? And how does it compare to prior years, given the lower occupancy level you're seeing? Are you interested in more discounting to drive that revenue?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [104]

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Yes. Thanks. So there's 2 pieces of price. I'll touch on both. One is the in-place resident increase that happens this time of year, and that's been healthy, I'd say consistent with last year. So that's encouraging and important part of revenue. And then to your second question, which is -- I think of it in terms of the releasing spread. When resident leaves, what are we seeing on pricing. And it remains a competitive market. There's no question about it. Therefore, our guidance for the year of modest RevPOR growth incorporates both those odds. But so far, I'd say the start of the year, it's in line with our expectation.

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Operator [105]

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And our next question comes from Omotayo Okusanya from Mizuho.

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Omotayo Tejamude Okusanya, Mizuho Securities USA LLC, Research Division - MD & Senior Equity Research Analyst [106]

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Yes. So again, congrats on the Justin Hutchens exit from the U.K. I think again, you're generally hearing positive commentary on him. But I guess again, the core question, I think, a lot of us are trying to get on to the call is kind of, fundamentally, what's really changing here in regards to how you're going to operate the SHOP platform going forward. I think again the asset sales are helpful. But again, your SHOP portfolio is $12.6 billion, and I think you're only selling $600 million. Yes, the ESL JV is helpful to kind of reduce exposure. But kind of what really is fundamentally changing here to give us more confidence that the SHOP portfolio will perform better going forward?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [107]

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Okay. We've been -- yes, we've been trying to get at and respond to your questions. Fundamentally, we -- if we have a 2020 and realize the benefits of Justin's contributions and we see cumulative supply declining in our submarkets as we expect and we continue to take these other actions that we've described, which include targeted capital plans, simplified pricing and so on, the combination of those things makes us confident that the portfolio will perform, and we will realize the upside in the portfolio. And we have to demonstrate that over time, and that's what we are committed to doing.

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Omotayo Tejamude Okusanya, Mizuho Securities USA LLC, Research Division - MD & Senior Equity Research Analyst [108]

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Is anything changing in regards to just data analyses, lease structures, the type of relationships you're trying to form with operators? Just -- I guess I've kind of -- part of what I'm kind of looking for about what structurally is changing? I -- granted ultimately, again, fundamentals will also -- will be better for the sector. But again, that's kind of a rising tide lifts all boats. I'm trying to think Ventas-specific what really changes here.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [109]

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Well, Tayo, I'd add the 2 things. One, the significant incremental dedicated horsepower in this portfolio, obviously, critically important to us, dedicated, focused in with an individual who has an incredibly unique set of skills with background as a REIT, with deep expertise within the operations to be able to come in and complement and accelerate that which we're already doing, but really can bring that extra bandwidth. I used to call it the multiplier effect that he's going to bring operationally and strategically for the portfolio, and so we're excited about that. And the portfolio itself and the operators themselves, again, as we painted to you before, we think we're in good markets with good operators. So it's really then how do you optimize within that.

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Omotayo Tejamude Okusanya, Mizuho Securities USA LLC, Research Division - MD & Senior Equity Research Analyst [110]

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Got you. All right. That's helpful. Then my second question, your cost of capital is actually pretty attractive at this point. And so when we kind of think about the acquisition outlook going forward, any kind of thoughts around -- again, clearly, you're trying to do more development in life sciences. But from an actual acquisition perspective, how do you kind of think about the very attractive cap rates in skilled nursing, for example, or on the hospital side versus doing more on the MOB side or senior housing side?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [111]

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So good. Yes. I mean I think that your point is well taken. We have talked about our investment framework that we've used over the years and that we're augmenting today with the launch of the fund and enhancing. And basically, as you know, we've created a history of accretive acquisitions through basically really high-quality, relatively lower cap rate assets, such as 1030 Mass life science building. We have our kind of right-down-the-middle investments, such as our successful LGM investment last year, which is performing well in both the stable assets as well as the lease-up assets, so generating kind of between a 5% and 6% unlevered return. And then we have a smaller category of higher-yielding that could include development. It could include health care, government-reimbursed assets and so on, where we allocate a certain amount of capital. And the overall combination of those investment activities is what has driven the accretion from investments historically, and we would continue to stick with that framework.

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Operator [112]

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And our next question comes from Connor Siversky from Berenberg.

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Connor Serge Siversky, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [113]

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So just related to these disposition expectations for 2020, about $600 million. I mean do we have any kind of pricing expectations on these assets? And then is there any rhyme or reason as to the markets you've identified for these dispositions?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [114]

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It's $1.3 billion, inclusive of the contributions, which are effectively sales to the fund. And I believe, in the aggregate, it's a sub-5 cap rate.

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Connor Serge Siversky, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [115]

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Okay. Okay. That helps. And then -- I mean there's a note that these funds are expected to be recycled into the R&I pipeline. I mean how quickly or any kind of color on how quickly you can move those funds into maybe new development projects or acquisitions?

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [116]

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So yes, just to clarify, the $600 million of dispositions are turning around and going to be invested in $600 million of development or redevelopment this year. That's on existing projects. John mentioned that we announced $900 million-plus of new projects last year, and so it's really investing behind those, first and foremost.

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [117]

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So exactly what you said.

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Robert F. Probst, Ventas, Inc. - Executive VP & CFO [118]

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Yes.

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Operator [119]

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And our next question comes from Michael Carroll from RBC Capital Markets.

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Michael Albert Carroll, RBC Capital Markets, Research Division - Analyst [120]

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I was hoping you could provide some color on the triple-net leases that have under 1x EBITDARM coverage. I'm assuming that's largely Holiday and Brookdale. Are you comfortable holding those leases today? Or should we expect some type of restructuring over the next few years or even sooner?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [121]

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Michael, thanks for being patient, and thanks for your question. As Bob pointed out and we've talked about before, we were very happy to see the improved report from Brookdale yesterday. I'm really excited and happy for Cindy and the management team. They've done a ton of heavy lifting to get to this point where they're really starting to see some traction and some positive trends. So we feel really happy for them and good for us as well. In terms of Holiday, again, we continue to have fixed charge coverage that makes rent reliable. And that all having been said, Bob mentioned that our range does include, in the triple-net side, the possibility that we would decide, if appropriate, to take action on different tenants in our triple-net portfolio, and that's all baked within the guidance.

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Michael Albert Carroll, RBC Capital Markets, Research Division - Analyst [122]

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Okay. And then I guess just in general, I guess not specifically related to those 2 tenants. But how do you ensure that operators that have this tight lease coverage ratios are committed to positioning those communities to compete in the current marketplace and even position themselves to benefit from the demographic tailwinds, just overall?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [123]

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Yes. I mean good question and important one. And often, you do see some lesser spend on a triple-net lease in some of those circumstances. So what I would say is the leases generally provide for some required CapEx spend and/or investment. We often will work with the triple-net operators to provide additional capital at a return to continue to invest in the assets. And then lastly, ultimately, as the owner of these assets, we can also just make investments in them as we deem appropriate, either on transition or otherwise to keep them competitive in their markets.

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Michael Albert Carroll, RBC Capital Markets, Research Division - Analyst [124]

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Okay. And then with Holiday and Brookdale, have you pursued, I guess, any specific asset sales? Or is that included in guidance? And I know with Brookdale, you originally had a handful of assets set aside to potentially sell. I mean did you officially take those off the market? Or what's the plan to those potential sales?

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Debra A. Cafaro, Ventas, Inc. - Chairman & CEO [125]

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Good memory. In fact, when we did our positive deal with Brookdale, seems like a lifetime ago, but we sort of anticipated, first of all, that their operating performance would improve through the efforts that Cindy and the team are making. So again, we're happy to see that. We did work with them to identify some assets that we both thought would be better outside the portfolio in other operators' hands. We've sold some of those, and some of those are included in our 2020 disposition guidance. So good memory, and we are doing that. So again, thanks for your patience, Michael. And I think you're our last questioner for today.

Okay. So I really appreciate, and we all at Ventas sincerely appreciate your participation in today's call, your interest in the company and your support of the company. You continue to have our commitment to do everything we can do to benefit our stakeholders, our company and our employees and our partners.

So thank you. We look forward to seeing you in Florida in March.

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Operator [126]

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Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.