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TRANSCRIPT

SUMMARY: Cafaro says VTR is a real estate company. She comments on the company's focus on nursing homes. She says the healthcare sector has improving fundamentals, revenue growth and margins.

Bill: Healthcare facilities real estate investment trust Ventas reported better than expected results for the second quarter, out this morning. This company owns and manages a nationwide string of hospitals and nursing homes, a penny better than a year ago and better than expected. On funds from operations or FFO, revenues down 21% to $47.4 million and you can see funds from operations, that is what the measurement they use, up 3% to $18.6 million. Joining us to talk about that and all kinds of things in that industry is Ventas president and CEO joining Debra Cafaro from Chicago. Thank you for joining us.

It is my pleasure.

Bill: You are a real estate play, do you make money necessarily depending how profitability the hospital is that you own?

We own 216 nursing homes and 44 hospitals and we are actually a hybrid. We are a real estate company and therefore have all the good characteristics of real estate investment trusts, like dividend yield. But we also represent really a play on the turn around in the healthcare and long-term care sector, which is well under way.

Bill: Yes and we have been hearing about that from other companies that own hospitals, what is your version of why it is happening right now?

I will focus on the nursing homes first. Over the last couple of years there has been real dislocation in the long-term care or nursing home sector because there were some draconian Medicare rate cuts that took effect in 1998. And as a consequence, the majority of the operators in that sector filed for bankruptcy including our own tenant, Kindred Healthcare. Since then the government has recognized the error of its ways and has implemented two very important Medicare give-back bills. The second of which took place this quarter, so the sector has dramatically improving fundamentals, improved revenue growth and improved margins. And our tenant, Kindred Healthcare, is the first out of bankruptcy and benefiting from that emergence and we are sharing in that benefit.

Bill: I was going to have ask about them later but since you brought it up, I will ask, some think you should monetize it as they say on Wall Street, what are your plans for that?

You mentioned an important part of the restructuring, for us as the landlord and biggest creditor, we felt we got a greet rent stream from they them but we wanted to make sure we captured the upside when the industry did turn around, as we predict it would. We took 10% of the equity in our tenant Kindred. We are confident about them, about the leadership and management, we think they will do well. So it is our intention to hold that equity and frankly optimize any kind of disposition of it, so that as and when we may sell it, perhaps next year or later, we will use all that money to improve and strengthen our own balance sheet.

Bill: But you don't have plans right now to sell it or do anything with it?

We do not plan to sell it or do anything with it at present because we feel good about Kindred being an improving story.

Bill: When you do sell, will that be a signal that you feel it is as good as it is going to get?

No, it won't be. We have a number of other factors to consider, including our own effort to improve our balance sheet. And it will be some combination of feeling as if the prudent thing to do for us is to monetize their equity, irrespective of how we think they will perform subsequent to that, Bill.

Bill: In the meantime, do you think it is prudent to make more acquisition, will you grow the company that way?

We intend to grow and diversify, our first step is to drive down our cost of debt. And we view that refinancing of our own balance sheet to be the first step toward making smart acquisitions, which we do intend to do.

Bill: Nice to see you, thank you for joining us today.

Thanks again, Bill, really enjoyed it.

Bill: Debra Cafaro, the president and CEO of Ventas joining us from Chicago. Here's what the company stock has done over the past year, reflecting the increasing pricing power that these companies have right now in the healthcare field, especially in hospitals and nursing homes, down 28 cents today at $11.44.

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