Q4 2016 Real-Time Call Brief

Highlights

We realized full year total portfolio average same store growth of 3%.

All 4 of our businesses achieved average full year growth of 2.4% or greater.

We completed $2.8 billion of dispositions during the year including $2 billion of post acute facilities.

The decreased exposure to post acute as a percentage of total portfolio NOI at 750 basis points since January 1 of 2016, and as a result increased Private Pay's share of total company revenue to 93%.

We finished the year with under 5.4 times net debt-to-EBITDA and our net debt to book capitalization ratio of 37.4%, a reduction of more than 200 basis points during the year.

While delivering results at the top end of our most recent guidance, we disposed off $2.8 billion in non-core assets, we balanced our operator exposure thereby improving our risk profile, and we significantly de-levered our balance sheet.

We began 2017 with a corporate reorganization that is rationalizing and reinventing the way we do our business.

This plan is expected to realize a $30 million reduction in G&A from our 2016 guidance.

In the fourth quarter of 2016 we invested $878 million at an average yield of 6.7%.

We also made significant progress toward our seated goal of selling non-core assets this quarter.

This included the completion of our previously announced Genesis dispositions which generated $1.7 billion in proceeds at an effective cap rate of 9%.

Our same-store portfolio grew 2.3% in the fourth quarter bringing the total same-store NOI up to 3% for 2016.

This performance was driven by 3.4% growth in a short duration in Seniors Housing operating portfolio.

1.7% same-store NOI growth in Q4 was in line with our budget.

Strong revenue growth of 3.8% was dampened by an elevated 4.8% increase in expenses for the quarter.

We finished strong Q4 REVPAR growth of 4.3% with the highest contribution coming from our US portfolio.

We stepped an initial expectation of flat occupancy for the show portfolio in 2016 and ended the year up 50 basis points.

Looking forward to 2017, we are projecting 1.5% to 3% same-store growth for our Senior Housing operating portfolio.

Our operating assumptions include a solid REVPAR growth in the 3% to 4% range, offset by a flat to slight reduction in occupancy as a result of new supplies in select markets and a 4% to 4.5% increase in expenses including a 5% to 5.5% increase in labor costs.

We estimate that the extra day in last February would negatively effect our Q1 2017 growth rate by roughly $1.8 million or around 1% for the SHO portfolio.

Medium duration outpatient medical portfolio continues to produce steady and predictable growth driven by low lease turnover and high tenant retention.

These dynamics led to a solid quarter with 2.1% same-store growth.

We had outstanding tenant retention of 92% in the quarter offset by an 8.1% same-store operating expenses.

For the full year 2016, same-store NOI was up 2.4% at the high end of our initial guidance of 2% to 2.5% for the year.

We are projecting 2% to 2.5% growth for this portfolio in 2017.

Senior housing triple net NOI was up 2.8% in Q4 capping the year at 2.8%.

We're projecting 2.5% to 3% for this segment for 2017.

Turning to Post Acute and Long-term Care which now represents only 13% of our portfolio, same-store NOI grew 3.3% for the quarter capping the year at 3.4% relative to the 3% guidance for 2016.

We're projecting 2.5% to 3% NOI growth for the segment in 2017.

Our remaining portfolio is now even more secure with coverage at 1.7 times before management fee and 1.4 times after management fees.

This is a sequential improvement of 7 and 5 basis points respectively.

We enhanced the quality of our portfolio, minimized single tenant risk and drove an increase in our private pay revenue mix to 93%.

We reduced our leverage by over 200 basis points to 37.4% at year end.

We renewed and extended our line of credit through 2021 ending the year with nearly $3 billion of liquidity.

Our 2017 G&A expense is projected to come in $30 million below our original 2016 forecast.

In terms of fourth quarter earnings, we generated normalized FFO of $1.10 per share and normalized fit of $0.99per share.

G&A of $32.8 million for the quarter came in below our expectations.

We recognized significant gains on asset sales of $200 million.

We incurred $13 million of impairments.

For the full year 2016 our normalized FFO and Fit per share increased 4% and 6% respectively.

This annual growth was primarily driven by sale of same-store cash NOI growth as net investments totaled a relatively modest $244 million in 2016 as a result of the significant $2.8 billion of dispositions completed this year.

Moving on to dividends, we paid our 183rd consecutive quarterly cash dividend on February 21 of $0.87 per share, representing a new rate of $3.48 annually and a current dividend yield of 5.2%.

The most significant capital event this quarter was the $1.93 billion in proceeds generated from dispositions, the $125 million in loan payoffs, and $1.8 billion of property sales which included $200 million in gains on sale.

A portion of our net proceeds were used for the early payoffs our $450 million and 4.7% senior unsecured notes maturing in September of 2017 as well as reducing our line of credit volume by $705 million, balance of $645 million at yearend.

We repaid approximately $92 million of secured debt at a blended rate of 4.9% during the quarter and we assumed or issued $280 million of secured debt at a blended rate of 2.5%.

As a result we have nearly $3 billion of liquidity entering 2017 based on $2.4 billion of credit line availability and $557 million in cash and 10/31 exchange funds on balance sheet.

As of December 31, our net debt to under-appreciated book capitalization has decreased to 37.4% and net debt to enterprise value declined to 31.1%.

Our net debt to adjusted EBITDA improved to 5.4 times while our adjusted interest and fixed charge coverage for the quarter was strong at 4.2 times and 3.3 times respectively.

Our secured debt level remained at only 12% of total assets at quarter end.

We anticipate further strengthening our balance sheet in early 2017 by using near term disposition proceeds to reduce preferred stock by 288 million and secured debt by over $700 million during the first quarter.

Our guidance does include $323 million of development funding on projects currently underway and an additional $544 million in development conversions at a blended projected stabilized yield of 7.7%.

In terms of dispositions, we've added $400 million of incremental loan payoffs and property sales this year.

So $1.6 billion of dispositions that were previously disclosed in our December 2016 portfolio repositioning release.

This brings our calendar 2017 disposition forecast to $2 billion, a blended yield on proceeds of 7.6%.

As a reminder, the $1.6 billion of dispositions previously disclosed are comprised of $1.2 billion that were expected in the fourth quarter and the Genesis buyback of $400 million.

At this point we anticipate that virtually all of the $1.2 billion of carryover dispositions have closed or will close during the first quarter.

In terms of same-store cash NOI growth, we're forecasting blended growth of 2% to 3% in 2017.

Our G&A forecast is approximately $135 million for 2017.

This would represent a significant $30 million reduction relative to our original 2016 guidance.

We expect to report 2017 FFO in the range of $4.15 to $4.25 per diluted share.