This is a presentation of my work alongwith two undergraduate analysts for the McCombs REIT Fund. We analyzed a healthcare pair including Ventas and Senior Housing.

1. M C COMBS REIT FUND | HEALTHCARE PAIRS ANALYSIS
ISHTMEET SINGH SHUOYU LI HAMMAD RAHMAN
1

2. TABLE OF CONTENTS
AGENDA
RECOMMENDATION 3
HEALTHCARE SECTOR OVERVIEW 4
PAIRS ANALYSIS 19
REIT ANALYSIS - SNH 20
REIT ANALYSIS - VTR 40
FINAL COMPARISON 57
APPENDIX 61
2

3. HEALTHCARE SECTOR OVERVIEW
RECOMMENDATION
Ticker Company Name DJ REIT MCCOMBS Recommendation
Index REIT Fund
SNH SENIOR HOUSING 1.00% 0.87% UNDERWEIGHT
PROPERTIES TRUST
VTR VENTAS, INC 2.72% 3.97% OVERWEIGHT
VTR + VENTAS + 4.47% 3.97% -
NHP* NATIONWIDE HEALTH
* VTR acquired NHP in July 2011 for $7.6B
We recommend Overweight VTR 50 bps due to the following reasons:
• High growth and diversification strategy; $11B M&A in 2011
• Diversified portfolio with largest tenant representing only 17% of NOI
• Consistent NOI and dividend growth; 8% dividend growth for 2012
VTR SNH
DDM IRR 10.8% 11.7%
NAV IRR 14.8% 16.6%
3

4. HEALTHCARE TRENDS
HEALTHCARE SECTOR OVERVIEW
• Healthcare spending is close to 18% of US GDP. The group is poised
to become the fifth ‘food group’.
• Healthcare spending has grown at 10% CAGR since 1965. Increasing
public spending is not sustainable
• Quality assets, recession resilience and stable cash flows
• Healthcare REIT index outperformed broader REIT index in 2011 by
230bps. Average healthcare REIT dividend yield 5%
4

5. DEMOGRAPHICS GOVERNMENT REIMBURSEMENT
HEALTHCARE SECTOR OVERVIEW
• Aging baby boomer 65+ group • Declining Medicare and Medicaid
growing 5x faster than national avg. payments affect tenant revenues
• 65+ group uses healthcare 2x national • 11.3% reimbursement cut to 2012
avg. SNF (Skilled Nursing Facility)
• 3.65mm baby boomers retire every Medicare payments
year • REITs drifting towards assets with
• Healthcare reform may add 32mm revenues from private insurance or
Americans to insurance rolls individual savings
5

6. HEALTHCARE REITs
HEALTHCARE SECTOR OVERVIEW
• REITs own only 8% of the $1 trillion healthcare real estate market
• Mall REITs own 60% in their segment
6

7. SENIOR HOUSING
7
7

8. HEALTHCARE SECTOR OVERVIEW
SENIOR HOUSING – Declining Cap Rates
• Discretionary in nature with shallow demand pool depending on
housing prices, stock market, overall economy
• Occupancy in low-mid 80% range
• Cap rates have recently declined to below 7% levels
8

9. HEALTHCARE SECTOR OVERVIEW
SENIOR HOUSING – Good Demand and Low Supply
• 85+ population growth almost at par with general population in near
term. Grows faster eventually
• Limited new supply of senior housing
9

10. HEALTHCARE SECTOR OVERVIEW
SENIOR HOUSING – Cash Coverage
• Low operator cash flow to rent coverage
VTR Senior Housing
coverage
SNH Senior Housing
coverage
10

11. HEALTHCARE SECTOR OVERVIEW
SENIOR HOUSING - TYPES
Independent Living Community
• Seniors that can take care of themselves and need high degree of
independence
• Few amenities such as meals, maid service for additional monthly fee
Assisted Living Community
• Typically one bedroom with efficiency kitchen and bathroom
• More amenities such as laundry, dressing/bathing bundled in charges
Nursing Homes
• Extensive nursing and healthcare services similar to hospitals
• Staffed with licensed nursing professionals 24-hrs
11

12. SKILLED NURSING FACILITIES
12
12

13. HEALTHCARE SECTOR OVERVIEW
SKILLED NURSING FACILITIES (SNF)
• Tenant operating margins directly affected by Medicare
reimbursement cuts
• More ‘need-based’ hence independent of housing trends
13

14. HEALTHCARE SECTOR OVERVIEW
SKILLED NURSING FACILITIES (SNF)
• Increasing risk perceived in Skilled Nursing leading to highest cap rates
among Senior Housing asset types
Source: 2011 Senior Housing Investment Survey;
http://www.slvsinc.com/Vol.17.2011.pdf
14

15. MEDICAL OFFICE BUILDING (MOB)
15
15

16. HEALTHCARE SECTOR OVERVIEW
MEDICAL OFFICE BUILDINGS (MOB)
• MOBs lease space to doctors hence somewhat exposed to Medicare
reimbursements
• Expected to climb if Affordable Care Act passes
• Same store NOI increased 2.4% on average
• Vacancy down from 13.5% in 2009 to 12.4%; new supply slow at 1.1%
16

17. HEALTHCARE SECTOR OVERVIEW
RIDEA – REIT Industry Diversification and Empowerment Act
• Adopted in 2008. Represent 15% of NOI on industry average
• REIT leases property to TRS and TRS enters in to management
contract for operating the asset receiving a management fee
• Acts as bridge for collaboration between REITs and operators
• Opportunity for REIT to redevelop/expand and improve
operations of properties owned
• Allows REIT to keep part of building’s operating income using
Taxable REIT Subsidiary (TRS). Presents exposure to operational
risk
• ‘TRS 25% test’ limits a REIT to own upto 25% asset value in TRS
• Example: Ventas purchased Atria Senior Living in October 2010
under RIDEA structure. SNH intends to put most new
acquisitions into this structure
17

18. HEALTHCARE SECTOR OVERVIEW
MAJOR PLAYERS
TICKER PRICE MKT CAP DJ REIT MCCOMBS
INDEX REIT FUND
HCN $53.46 $11.42B 2.75% 3.52%
HCP $38.62 $15.85B 4.36% 3.57%
HR $21.75 $1.71B 0.43% 0.00%
SNH $22.12 $3.6B 1.00% 0.87%
VTR $55.50 $16.03B 2.72% 3.97%
Source: Google Finance; Prices as of 04/05/12
18

19. PAIRS ANALYSIS
VTR AND SNH PAIRS ANALYSIS
SIMILAR ASSET DIFFERENT HIGH
CLASSES TENANT CORRELATION Time
EXPOSURE Horizon Correlation
• MOB • 96% OVER 3-YR.
• SENIOR LIVING PERIOD 2 yr. 0.80
• LARGEST VTR
• SKILLED TENANT IS 17% • SIMILAR BETA 3 yr. 0.96
NURSING NOI VTR - 1.45, 5 yr. 0.97
FACILITIES • LARGEST SNH SNH - 1.61 7 yr. 0.97
• HOSPITALS TENANT IS 49% 10 yr. 0.98
NOI
19

20. REIT ANALYSIS – SNH
20
20

21. REIT ANALYSIS - SNH
SNH Overview
• Primary senior housing and medical office building throughout the U.S.
• Founded 1999; based in Newton, MA
• $3.6B equity market cap
• Approximately 560 tenants
• Total properties: 376

22. REIT ANALYSIS - SNH
SNH – Geographic Exposure
• Properties in 38 states and Washing, D.C.
• Revenues mainly come from California (23.7%), Massachusetts
(11.0%), and New York (9.4%)

23. REIT ANALYSIS - SNH
SNH – Tenants: Five Star Quality Care (NYSE: FVE)
• Five Star is SNH’s largest tenant, comprising 49% of NOI
• SNH maintained a close relationship with Five Star
23

24. REIT ANALYSIS - SNH
SNH – Tenants: Five Star Quality Care (NYSE: FVE)
• Operates a total of 245 communities with diversified operations across 30
states
• Owns and operates 31 private pay communities
• Annual revenues over $1 billion with 24,500 employees
• 73% of senior living revenues are private pay
• Of the four largest publicly traded operators, Five Star alone has been
profitable over the last two years
24

25. REIT ANALYSIS - SNH
SNH – Tenants: Five Star Quality Care (NYSE: FVE)
• Portfolio rent coverage is strong
25

26. REIT ANALYSIS - SNH
SNH – Tenants: Five Star Quality Care (NYSE: FVE)
• Conservative financial approach
26

27. REIT ANALYSIS - SNH
SNH – Tenants: Five Star Quality Care (NYSE: FVE)
• Long term leases
27

28. REIT ANALYSIS - SNH
SNH – Property Type
• Senior Housing (ALF, ILF, and SNF) = 61%
• MOB = 31%
29

29. REIT ANALYSIS - SNH
SNH – Occupancy
• Senior Housing = 87%
• Growth potential once the economy recovers
• MOB
• Strong rent growth in 2011
• 94% of NOI derived from properties that are primarily private pay and not
government-dependent
30

30. REIT ANALYSIS - SNH
SNH – Investment Rationale
• Proven record of consistently strong financial performance.
• Driven by a conservative financial approach and a strong balance
sheet.
• SNH is rated investment grade by Moody’s (Baa3) and S&P (BBB-).
• Manageable debt maturities.
• Strong access to capital.
• In 2011, SNH raised a total of over $1 billion dollars in capital
markets transactions.
• In June, SNH entered a new $750 million unsecured revolving
credit facility (maturity of June 2015, with borrower’s option to
extend one year; interest is set a LIBOR plus 160 basis points).
• Portfolio is characterized by:
• Predominantly private pay assets with limited exposure to
Government reimbursement.
• Geographic, tenant and asset diversification.
• Extremely high quality assets with low historical per unit, per
square foot or per bed costs. 31

31. REIT ANALYSIS - SNH
SNH - Upcoming Maturity Dates
• Current Liquidity:
• Cash and Cash Equivalents = $23.6 Million
• Unused Revolver capacity = $750 Million
• Total Liquidity = $773.6 Million 32

32. REIT ANALYSIS - SNH
SNH - Financials
Key Statistics Dividend Discount (SNH)
Price/share $22.12
Leveraged Cost of Equity 11.2%
52-week range $19.09-$24.64 Implied Dividend Growth 4.2%
Market Cap $3.6B NOI Growth 2.6%
DDM IRR 11.7%
Current Financial Position
Total Debt $1.8B Net Asset Value (NAV)
FFO/Share $1.73 Implied NAV $4.096 ($m)
Price/FFO 13.49 Implied NAV/Share $23.95
AFFO/Share $ 1.61 Premium/(Discount) -7.7%
AFFO Payout Ratio 93.2% NAV IRR 16.6%
Debt-to-Total Cap 33.4%
Debt-to-Equity 73.9%
Int. Coverage Ratio 3.5x 33

33. REIT ANALYSIS - SNH
SNH - Dividend Discount Model
ANALYSIS
Total Dividends
$0.38 $0.38 $0.40 $0.40 $0.40 $0.40 $0.42 $0.42
Paid
FFO/Per Share $0.46 $0.47 $0.49 $0.50 $$0.51 $0.52 $0.54 $0.55
FFO Payout Ratio 82.3% 80.3% 82.4% 80.4% 78.4% 76.4% 78.2% 76.3%
AFFO/Per Share $0.41 $0.42 $0.43 $0.44 $0.45 $0.47 $0.48 $0.49
AFFO Payout
92.6% 90.3% 92.7% 90.4% 88.1% 86.0% 88.0% 85.8%
Ratio
Expected LT
Dividend Growth 3.95% Management stated constant growth for 2012
Rate (Annual)
 Beta = 1.61, 5-year daily returns regressed on S&P
 Levered cost of equity: 11.2%
 Annualized IRR = 11.7%
34

34. REIT ANALYSIS - SNH
SNH - History of consistently raising the dividend
35

35. REIT ANALYSIS - SNH
SNH – Nav Cap Rate Break Down
• Cap Rate = 7.91 %
36

36. REIT ANALYSIS - SNH
SNH – Implied Cap Rate
NOIt+1
$ Millions $421,725 $445,154 $468,583 $492,012 $515,441
5.91% $31.04 $33.36 $35.67 $37.99 $40.31
6.41% $27.78 $29.92 $32.06 $34.20 $36.33
6.91% $25.00 $26.98 $28.97 $30.95 $32.93
7.41% $22.59 $24.44 $26.29 $28.14 $29.99
7.91% $20.49 $22.22 $23.95 $25.68 $27.42
8.41% $18.64 $20.26 $21.89 $23.52 $25.15
8.91% $16.99 $18.53 $20.07 $21.60 $23.14
9.41% $15.52 $16.98 $18.43 $19.89 $21.34
9.91% $14.20 $15.58 $16.96 $18.34 $19.73
37

37. REIT ANALYSIS - SNH
SNH - FFO/Share
0.80
0.70
0.60
0.50 +1 SD
0.40
Mean
-1 SD
0.30
0.20
0.10
0.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FFO/Share Mean +1 Std. Dev. -1 Std. Dev.
38

38. REIT ANALYSIS - SNH
Pros
• Relatively cheap (-7.7% NAV Premium)
• Strong relationship with top tenant (Five Star)
• Conservative investment strategy
• High exposure to senior housing (56%) and MOB (31%), both will benefit
from private pay and economy recovery
Cons
• Large portion or revenue comes from single tenant
• External management no longer common in the industry

39. REIT ANALYSIS – VTR
40
40

40. REIT ANALYSIS - VTR
VTR Overview
• Geographically diverse portfolio of senior housing and healthcare
properties throughout the U.S. and Canada
• Founded 1983; based in Chicago, Illinois
• $16.3B equity market cap
• Total properties: 1,378

41. REIT ANALYSIS - VTR
VTR - Leadership
• Debra Cafaro - Chairman and CEO
• CEO since 1999 & Chairman since 2003
• Past Chair of National Association of Real Estate
Investment Trusts (NAREIT)
• Raymond Lewis - President
• Richard Schweinhart – Chief Financial Officer
• John Cobb – Chief Investment Officer
• Timothy Doman – Chief Portfolio Officer
42

42. REIT ANALYSIS - VTR
VTR – Development Strategy
• Moving into profitable MOB market
• Progress: Cogdell Spencer acquisition – 72 high-quality
MOBs
• Low cost of capital - $600M 10-year bonds @ 4.25%
• Large holding in resilient Senior Housing market
• Progress: Ventas is the largest Senior Housing REIT
• High quality properties
• Progress: Properties have average 2.1x rent coverage
• Diversification
• Progress: Many tenants and large geographic exposure
43

43. REIT ANALYSIS - VTR
VTR – Geographic Exposure
• Properties in 47 states and 2 Canadian provinces
• Primary markets include the West Coast and New England region

44. REIT ANALYSIS - VTR
VTR - Tenants
• Kindred rents up for renewal, expecting to not renew 64 properties
• Rent coverage ratio: 2.1x
• Good tenant spread relative to peers, Top 5 = 59% NOI
Kindred, 18%
Other, 22%
Emeritus, 2%
Avamere, 2% Atria, 14%
Elmcroft, 6%
Sunrise, 11% Brookdale, 12
%
MOBs, 12%
45

45. REIT ANALYSIS - VTR
VTR - Properties
• Industry-high asset diversification
• Responsible for low stock volatility
• Growing MOB properties
Senior Housing Hospital, 7.80%
-
operating, 25.0 MOB, 15.60%
0%
Senior SNF, 23.40%
Housing, 28.20
%
46

46. REIT ANALYSIS - VTR
VTR – M&A / Properties
Cogdell
ElderTrust, Sunrise Spencer, $
$102M REIT, $1B 247M
11/03 4/05 1/07 3/11 12/11
Provident, NHP,
$607M $5.8B
Properties
1400
1200 1286
1000
800
600
602
400 523 511 505
452
380
200
245 245
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
47

47. REIT ANALYSIS - VTR
VTR - Upcoming Maturity Dates
• Extremely low cost of borrowing
• Current Liquidity:
• Cash and Cash Equivalents = $45.8 Million
• Unused Revolver capacity = $2,000 Million
• Total Liquidity = $2,045.8 Million
48

48. REIT ANALYSIS - VTR
VTR - Financials
Key Statistics Dividend Discount
Price/share $55.50
Levered Cost of Equity 10.4%
52-week range $43.25-$59.05 Implied Dividend Growth 6.2%
Market Cap $16.03B NOI Growth 7.2%
DDM IRR 10.8%
Current Financial Position
Total Debt $6.44B
Net Asset Value (NAV)
FFO/Share $1.24
NAV $13,353.3 ($m)
Price/FFO 15.5
NAV/Share $50.87
AFFO/Share $1.19
Premium/(Discount) 9.1%
AFFO Payout Ratio 74.5%
NAV IRR 14.8%
Debt-to-Equity 67.97%
Debt-to-Total Cap 28.58%
Int. Coverage Ratio 4.5x
49

49. REIT ANALYSIS - VTR
VTR - Dividend Discount Model
ANALYSIS
Total Dividends
$0.62 $0.62 $0.62 $0.62 $0.63 $0.63 $0.63 $0.63
Paid
FFO/Per Share $0.87 $0.88 $0.94 $0.97 $0.96 $0.97 $0.98 $0.99
FFO Payout Ratio 71.4% 70.6% 66.1% 64.4% 65.2% 64.6% 64.2% 63.3%
AFFO/Per Share $0.83 $0.84 $0.90 $0.92 $0.92 $0.93 $0.93 $0.95
AFFO Payout
75.0% 74.1% 69.2% 67.3% 68.3% 67.5% 67.2% 66.1%
Ratio
Expected LT
Dividend Growth 6.19% Management stated dividend growth of 8% for 2012
Rate (Annual)
 Beta = 1.45, 5-year daily returns regressed on S&P
 Levered cost of equity: 10.4%
 Annualized IRR = 10.8%
50

50. REIT ANALYSIS - VTR
NAV Cap Rate Breakdown
• Applied Cap Rate = 7.20 %
• Analyst Cap Rates:
• Citi = 6.10 %
• Baird = 7.72 %
51

51. REIT ANALYSIS - VTR
VTR – Implied Cap Rate
NOIt+1
$ Millions $1,375,497 $1,451,914 $1,528,330 $1,604,747 $1,681,163
9.20% $29.27 $32.13 $34.99 $37.85 $40.71
8.70% $32.23 $35.25 $38.28 $41.30 $44.32
8.20% $35.55 $38.76 $41.96 $45.17 $48.38
7.70% $39.30 $42.71 $46.13 $49.54 $52.96
7.20% $43.57 $47.22 $50.87 $54.52 $58.17
6.70% $48.47 $52.40 $56.32 $60.25 $64.17
6.20% $54.17 $58.41 $62.65 $66.89 $71.13
5.70% $60.87 $65.48 $70.09 $74.70 $79.32
5.20% $68.85 $73.91 $78.96 $84.02 $89.08
52

52. REIT ANALYSIS - VTR
VTR – Dividends vs. FFO
4.00
8.5% Average FFO Growth 68% FFO Payout Ratio 3.66
3.50 3.37
3.00 2.88
2.69 2.71 2.68
2.44 2.48
2.50 2.30
2.09 2.14
2.05 2.05
2.00 1.90
1.58
1.44
1.50
1.00
0.50
0.00
2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A
Dividends FFO
53

53. REIT ANALYSIS - VTR
VTR - FFO/Share
1.40
1.20
1.00
0.80
+1 Std.
dev.
0.60
Mean
0.40
-1 Std.
dev.
0.20
0.00
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
(0.20)
FFO/Share Mean -1 Std. Dev. +1 Std. Dev
54

54. REIT ANALYSIS - VTR
VTR – Price/FFO
18.0 17.0
15.9
16.0 15.3
14.8
14.3 14.1
14.0 13.5
12.0
10.5 10.5
10.0
8.0
6.0
4.0
2.0
0.0
HCP HCN SNH OHI HR NHI MPW LTC VTR
55

55. REIT ANALYSIS - VTR
Pros
• Low cost of borrowing allows competitive M&A position
• Relatively low Debt-to-Total Cap value leaves room for further leveraging
• Large portion of NOI comes from private pay
• Diversified tenant base
• High-quality properties
• Multiple healthcare markets
Cons
• Trades at a significant NAV premium
• One top tenant dropping properties

56. FINAL COMPARISION – VTR AND SNH
57
57

57. FINAL COMPARISON
FINAL COMPARISON
METRIC VTR SNH
Price $55.50 $22.12
Market Cap (Billions) $16.03 $3.60
Implied NAV/Share $50.87 $23.95
Price/NAV Premium (Discount) 9.1% (7.7%)
FFO/Share $1.24 $1.73
AFFO/Share $1.19 $1.61
AFFO Payout Ratio 74.5% 93.2%
Price/FFO 15.5 13.5
Price/AFFO 16.5 13.7
NAV IRR 13.6% 16.6%
Dividend Yield 4.49% 6.95%
DDM IRR 10.8% 11.7%
Debt Service Coverage 4.5x 3.5x
Implied Cap Rate 6.1% 7.1% 58

58. VTR STRENGTHS
FINAL COMPARISON
VTR SNF
Management and firm Same CEO since Managed by RMR
structure 1999; 328 managing multiple
employees REITs; 0 employees
Norm. FFO/share growth 9% 1%
Dividend growth 6.2% 3.9%
Price / FFO 15.5 13.5
VTR RISKS
VTR SNF
Exposure to Skilled Nursing 25% 4%
Facilities (SNF)
High Price/NAV Premium 9.1% (7.7%)
Operational TRS risk 25% NOI 3.5% NOI
Govt. pay exposure 30% 5%
59

59. QUESTIONS
60
60

60. APPENDIX
61
61

61. APPENDIX
APPENDIX
Price/FFO FFO/share 2011 Price 2011 FFO 2012 FFO 2012 Price Price
growth (A) (E) Increase
VTR 15.5 9% $55.50 $3.37 3.6733 56.93615 2.588%
ACTUAL
SNH 13.5 1% $22.12 $1.73 1.7473 23.58855 6.639%
VTR 16.11 9% $55.50 $3.37 3.6733 59.18465 6.639%
TARGET
SNH 13.5 1% $22.12 $1.73 1.7473 23.58855 6.639%
62