Diversified Healthcare Trust (DHC) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the Senior Housing Properties Trust first quarter 2007 financial results conference call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Manager of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Thank you, Dustin, and good afternoon, everyone. Joining me on today's call are David Hegarty, President and Chief Operating Officer, and Rick Doyle, Chief Financial Officer. The agenda for today's call includes a presentation by management, followed by a question-and-answer session.

Before we begin today's call, I would like to state that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Federal Securities laws. These forward-looking statements are based on Senior Housing's present beliefs and expectations as of today, May 1st, 2007. The Company undertakes no obligation to any revise or publicly release the results of any revision to the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission, or SEC, regarding this reporting period. In addition, this call may contain non-GAAP numbers, including funds from operations, or FFO. A reconciliation of FFO to net income is available in our supplemental package found in the Investor Relations section of the Company's website. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Form 10-Q, which will be filed by tomorrow, and 2006 Form 10-K filed with the SEC, as well as in our Q1 Supplemental Operating and Financial Data found on our website at www.snhreit.com. Investors are cautioned not to place undo reliance upon any forward-looking statements. And with that, I would like to turn the call over to Dave Hegarty.

Thank you, Tim. And good afternoon, or good morning, wherever you're located. In the first quarter of 2007, we continued to build on the strong performance of 2006. Our revenues were up 8.7% for the first quarter of 2007 versus the first quarter of 2006. And our funds from operations, or FFO, were up 31.8% using the conventional definition of FFO. However, both the first quarters of 2007 and 2006 had losses on early extinguishment of debt charges. If you were to exclude those charges from both periods, our FFO increased 18.4% on a gross dollar basis and 5.2% on a per share basis. FFO per share for the first quarter 2007 would have been $0.41 per share if the loss on early extinguishment of debt was excluded. I'll let Rick talk about the numbers in more detail in a few minutes, while I try to provide you with more color on the acquisition environment and the performance of the properties in our portfolio.

As you all know, the real estate market for senior housing has caught up to the rest of the red hot real estate market in all of the other major sectors. To win bids on large portfolio transactions, you have to bet on the future to make the deals make economic sense, and find creative funding mechanisms to lower the cost in the short term while the property's operations improve to levels that support a long-term capital structure. And we will continue to remain disciplined in our approach to investing. We will remain very active in evaluating any and all senior living deals that come to market. However, in this environment of cap rates in the sixes, we're likely to be most successful on the small portfolio and one-off transactions. Because the senior living industry is highly fragmented and there is an active deal flow, we stand a good chance of making in the range of $100 million to $200 million in acquisitions in 2007, which would be in line with our historical pace, absent any large portfolio transactions.

We did not acquire or close, anyways, on any properties during the quarter, but we have agreed to acquire three assisted living properties with 159 units for approximately $20 million. These transactions should close in the second quarter and the initial rental rate will be 8% on the final purchase price. These properties will be added to the master lease to Five Star, and we have added -- we have a few more individual properties in purchase and sale negotiation at the present time. In addition, we expect to make improvement funding to Five Star in the range of about $10 million per quarter. During this quarter, we funded $9.6 million of capital improvements at Five Star properties that we own, and the rent was increased by approximately 10% on the amount funded. We receive annual increases in our tenant's rent under leases in the form of percentage rent, PPI increases or fixed increases. The additional rent in the first quarter of 2007 was $1.6 million versus $1.3 million in the first quarter 2006. As was true when we increased the dividend in early January, we expect that the growth combination of acquisitions, improvement financing and additional rent will grow our FFO enough for our Board to consider another dividend increase in the next few quarters.

Our portfolio continues to perform well. Our largest lease based on rent with 30 senior living properties at about 1.6 times coverage in the fourth quarter of 2006, while most of the other leases had coverage of approximately 1.4 times to almost 3 times coverage. And the lease with [New Seasons] dropped to just under 0.7 times coverage in the fourth quarter, but they had some unusual insurance charges that hit that quarter. And I don't believe it's indicative of any deterioration in the property's performance, as occupancy has remained the same. Without those charges, coverage still would have been in the 1.1 to 1.2 times level. This is the first quarter we've shown coverage for the two rehabilitation hospitals operated by Five Star. For the quarter, they had 1.5 times coverage of the rent.

With regards to the occupancy at the properties in our portfolio, they remain relatively unchanged during the quarter, at approximately 88% to 90% occupancy. There were some slight decreases, but historically, that occurs in the fourth quarter with the several holiday periods that follow during the quarter. The occupancy level at the two rehabilitation hospitals was about 60%, which is consistent with the prior operations at the properties. Now, the occupancy level there is based on the licensed bed capacity, and currently there's a significant amount of excess bed capacity at those hospitals. As Rick will discuss, we have plenty of ready capital, we will continue to pursue transactions large and small, and in the interim, we have good sources of internal growth, a low dividend payout ratio, and room to grow it.

Thank you, Dave. As Dave mentioned, we had strong growth in our revenues and FFO year-over-year. Revenues grew by $3.6 million or 8.7% from the first quarter 2006 to the first quarter 2007. This was primarily due to approximately $130 million of acquisitions and improvement financings, and $341,000 of growth in percentage rent year-over-year. Interest expense decreased from $11.4 million to $9.9 million year-over-year, primarily due to reduced leverage levels. During the quarter, we issued 6 million common shares in a public offering, raising net proceeds of approximately $152 million. We used these proceeds to pay off the outstanding balance on our revolver and retire $20 million of our senior unsecured notes with an 8.625% coupon. The cost of our equity was approximately equal to the cost of the debt we were retiring. The retirement of the unsecured senior notes generated a loss on early extinguishment of debt of approximately $2 million, of which $1.8 million was a cash premium payment and $250,000 was a write-off of deferred financing fees related to those notes.

General and administrative expenses were higher than usual this quarter. In addition to higher level of professional fees during the quarter, we had planned to refinance borrowings on the revolver with a secured financing package and abandoned the idea when we raised the equity. Approximately $250,000 of [some] costs were written off to G&A in the quarter. At quarter end, we had zero outstanding on our $550 million revolving credit facility and approximately $20 million of cash on hand. After the quarter, the Board of Trustees declared a dividend of $0.34 per share. This represents a payout of approximately 83% of the FFO per share, excluding the loss on early extinguishment of debt, which is a relatively low payout ratio.

In summary, the first quarter was a good start to 2007. Over the past several quarters, we were able to grow revenues through a combination of acquisitions, improvement financing and percentage rent to raise our quarterly dividend level to $0.34 per share in early January. And we expect to have opportunities for similar growth over the next several quarters, while maintaining our disciplined approach when evaluating acquisitions. That concludes our prepared remarks. Operator, we are now ready to take questions.

(OPERATOR INSTRUCTIONS) David Tsoupros, Merrill Lynch.

Last quarter you guys signalled that you kind of raised your expectations on going in cap rates for senior housing, I think it was 7.75% to 8.25%. Are you lowering that any bit? And just looking in that line of thinking, do you look to expand outside of your traditional space? Maybe get back into skilled nursing or some other healthcare real estate areas?

Okay. Thanks, David. As far as the first part of your question, the transactions that we're going to close on this quarter are at an 8% rental rate. And I think if we -- with the one-off transactions, we're inclined to stay around the 8%. Obviously if we felt it would take 7.75% or even a 7.5% cap rate to win one of the larger, or a large portfolio, or medium sized portfolio, we would go to that length. But unfortunately, many of the larger transactions are being done in the sixes. And they just don't make economic sense for us. We won't go into a transaction unless we have a positive spread. So again, we're trying to stick to around the 8% and maybe we could go a little bit lower on larger transactions. We do look at a number of opportunities in hospitals, even the LTACs and skilled nursing facilities, we've been reluctant to invest in those areas unless we had a very good cushion. I'm not going to say we're not going to consider making investments in those areas. But we've not been that comfortable to date, in this last -- at least the last year or two we have not. I'm not going to rule it out, but it's probably not that likely.

Does your experience with the two rehab hospitals make you feel that you can move into -- more into that space, rehab specifically?

As far as a comfort level of dealing with those types of assets, it does make us more comfortable, understanding a lot more of the dynamics going on at the hospitals in the marketplace and so on. I, frankly, have not seen that many opportunities to invest in rehab hospitals out there. So we certainly would consider it and -- but I can't say that I've seen -- I really haven't -- I think I've only seen a couple hospitals in the last two years to even consider.

Okay. I know it's a small piece of the pie, but you had that one Genesis property. What happens to that in the scenario that they're undergoing an LBO takeout?

Well, the coverage at that property is very strong, over two times coverage. And the -- we just have a guarantee from Genesis. So that would stay in place. Given that they're doing an LBO transaction, and looking at the final capital structure of what it may ultimately look like, unfortunately, that probably will weaken the quality of the guarantee. But the property again, -- in fact, this quarter, the property was at 100% occupancy. It's clearly a very good asset and it could probably stand on its own very well.

Okay, thank you.

Jerry Doctrow, Stifel Nicolaus.

Good morning, or good afternoon, I guess. And Rich, welcome aboard.

Thank you.

I just had a couple things mostly related to development investments. I guess, David, just to clarify on the CapEx that you're funding from Five Star, were you saying it's a 10% basically yield on the CapEx investments?

Yes, it depends on which particular asset it is. That first group of properties of 30 properties that were previously operated by Sunrise, those improvements would be at the 10% rate. And some of the earlier assets in the other lease are at the 10% rate. And then later on as properties were added, the funding would be at the rate of the initial rental rate. So in some cases it would be 9.5% or 9%. Or the deal we're funding this quarter improvements going forward would be at 8% on those assets.

Okay. On the hospital, they were lower, right?

On the hospitals, we have not funded anything yet.

Okay.

And we are still negotiating what the final rate will be on funding improvement there. And just for everybody else's benefit, on the -- when Five Star took over the rehabilitation hospitals, they have been putting together a capital improvement program at those facilities, and hiring in fact some engineers to do so. And right now, they're looking at a total between the two properties of approximately $15 million of capital improvements. And we have said that that would be at a rate comparable to our long-term cost of capital. And, it's a moving target a bit, but we have to still -- the independent trustees have to negotiate a final formula for that.

Okay. And so just on CapEx in general, we would model something a little sub-10s or maybe 9.5%, or something like that, would be just safe on average?

Yes. That would be certainly adequate.

And in terms of just acquisition volumes, I think you talked about rates there. Again, you were talking about $100 million to $200 million, obviously, is going to be weighted towards the back end of the year. Is all of that sort of Five Star-related, or are you looking to do transactions separate from them as well?

Well, we've been looking at both situations where it's a sale leaseback to existing -- to other operators and to -- what's interesting is most of these individual facilities, it's typically an operator who just wants to cash out and they don't want to stay in as operators. And some of them are individuals or groups of investors who own the asset and hired a management company. And in all those cases, they just want to sell outright. And so we're looking in those cases to just buy them and lease them to Five Star. The reality is, is any of the larger operators, whether public or private, can probably obtain financing cheaper from, say, Ventas or Healthcare Property Investors, or one of our competitors. So it's sort of a self-fulfilling situation unfortunately.

Okay. But you're obviously -- you're not concerned about trying to set, just from an underwriting standpoint, sort of a limit on Five Star? You'd be happy with the amount of investments leased to them to continue to rise?

Well, yes, well, I mean, we don't want to set an absolute limit, because if we stop doing transactions there, we'll be struggling to try to find investments to do with others and negotiating. And I think we're more inclined to continue to do acquisitions that fill in areas that Five Star has a presence in.

Okay. And just one or two others, I guess, if I can. On the typical sort of Five Star deal, if there is such a thing, on some of the stuff you've done recently with them, you've gotten sort of shares of revenue and that sort of thing. So when you're doing sort of a -- I don't know if it's an 8%-ish rate on sort of these one-off deals maybe where Five Star's the new tenant, would that typically include just like an inflationary adjusted kind of thing, or are you typically getting share revenue growth or something like that, as well?

It'll be an 8%, say, base rent, and then we get a percentage of revenue growth. And typically, the first year of operations is their base year. So a deal today would mean that 2008 would probably be their base year. And we start participating in 2009. So there's always -- since we've been doing acquisitions for several years with Five Star, it seems like every year there'll be properties that roll onto the formula and start to pay us percentage rent.

Okay. So is your same-store growth then sort of moving upward? I think we may have it at, I don't know, 2% or whatever, but is it moving higher than that at this point?

No. I'd say it's a comfortable level (inaudible).

Okay. And just my last question. Trying to understand sort of your thinking about, particularly now that developments -- or the acquisitions are coming on a little bit later, your debt level is obviously very, very low leverage, very low at this point. So where does that leveraged ratio need to be for you to begin thinking about perhaps coming back to the equity markets?

I don't see it for quite awhile. Unless there was a major transaction, I don't see us coming to market. We -- historically, we've run -- our comfort level has been the 35% to 45% of our capital being debt. We are way below that today. And we're sitting on roughly, as of quarter end, we were sitting on $20 million of cash. Nothing outstanding on the revolver. We're probably even actually today sitting probably about $35 million of cash. So I frankly don't see us coming to market any time soon.

Okay. And the 35% to 45%, is it sort of debt to book or debt to market?

That'd be roughly debt to book capital.

All right. Great, thanks.

Omotayo Okusanya, UBS.

Dave, a couple of questions. I am trying to gather a little bit of comfort around the acquisitions going forward. There's the guidance you mentioned of $100 million to $200 million possible in '07. You talked about the Five Star rehab where you're expecting maybe about $15 million from that. You're doing about $29 million this coming quarter in regards to this outstanding deal that's expected to close, and then you're also expecting $10 million a quarter just from the current Five Star portfolio, is that correct?

Yes.

Is that the way you kind of get to that number?

Well, the thing is, the acquisitions are always lumpy.

Right.

And we're only into the first quarter of the year. I'm not sure if, in fact, that we would say $100 million or $200 million will have closed by 12/31. But we have bid on many transactions, and we just don't know which ones we're going to be successful on. So our expectation is that it probably would be in the second half of the year, and we probably would do $40 million of total acquisitions, would probably be these improvement financings and expansions and so on at existing properties.

Would that $40 million also currently include this $15 million you're talking about at the two rehabs?

No, actually. I've actually kind of put them out of my calculations, because that will be mostly neutral to us. I mean, maybe we'll have a short-term arbitrage given we'll use our revolver to fund it and charge our long-term cost of capital to Five Star.

Okay.

But I frankly am not expecting much accretion from that at all. So I have not -- .

Okay, so the $40 million and then the $29 million you're currently closing this quarter gets us to about $69 million (inaudible), and you are still forecasting you should be able to get to $100 million by making at least $30 million more in the back half of '07?

I would expect at least that, yes.

Okay. Could you also help explain the New Seasons again, why the (inaudible) ratio dropped so dramatically?

First of all, New Seasons is a relatively small subsidiary of a large insurance company, and so -- and they're not necessarily as focused say on earnings per share and so on. So they had some catch-up accruals or adjusting entries that related to insurance in the fourth quarter that significantly impacted the coverage ratio, but I understand the nature of those charges, and they're not ongoing charges. So I feel comfortable that their normal run rate would otherwise be around 1.1 to 1.2 times.

Okay. That's helpful. And then with the rehabs, any updates this quarter in regards to have occupancy rates improved or any anecdotal data you can give us?

Well, I think -- I mean, they're still performing fine. I think that any commentary on occupancies and bottom line performance and stuff should all be deferred to Five Star, which will probably be having its call in the next week to two weeks.

But is it, I mean, but how high can you theoretically get the occupancy at the rehab hospital? Like, if things went well according to the Five Star plan, what would that potentially be? Could it be 75%? Could it be 80% over 12 months?

No. I think the occupancy -- well, first of all, take a step back to talk about the way the occupancy is calculated. These are licensed for 364 beds between the two hospitals, and each hospital has taken some of these beds that are under their license and opened up satellite locations out in the suburbs of Boston. And the occupancy levels fluctuate very significantly. It's not uncommon to have 10 or so residents or patients move in and out in a day. So it's very volatile. They -- I would not expect the occupancies to increase under the current structure that much. And the only way that it could would be to, A, take beds out of circulation and turn them back in to the state, which might actually help the reimbursement rates and other things. Or one of the thoughts they're considering is whether to open up more satellite locations in New England that they could utilize these licensed beds to -- for. Another way maybe in the future that we'll consider is looking at actual practical availability of beds or a physical capacity, rather than their licensed capacity. And that might give a more indicative level. Each main hospital is probably using about 75% of the available beds.

Okay.

Because there were semi-private, triple and a couple four-bed unit wards or rooms. And just from a marketing perspective, they can't -- they don't want more than two people in a room, and sometimes only one in a room. So it just skews the occupancy level to a lower level than it otherwise really is.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) Paul Puryear, Raymond James.

As we look at your situation there, and your stock, based on our math, is trading at a seven -- 73 implied cap rate, I guess the question is, given that your portfolio is really independent and assistant living, at least 85% of the revenues, is there a better investment than your own stock?

Well, it's an interesting question. That is something to consider. As I say, we're putting new investment money to work at 8%. So it's -- it starts to become pretty close. We did issue equity back in February. It would be a little bit difficult to go right back into the market to buy it back in. But to be honest, it's in the short term, we haven't really given that much consideration.

We've seen some portfolios trade sub-six. I just wonder, is your Board attuned to the fact that at 6.25, your stock's worth $30?

Well, we are. We have some discussions internally. We have trouble rationalizing some of the other prices. And we can't believe that as -- that if we could get that pricing, ours would be worth a lot more. But we have not -- I mean, the world's changed so much even in the last 30 days as far as the price of the stock and so on. It wasn't that long ago we were over in the mid 26s. I take note of that, and we'll be talking about it in our May meeting.

Thank you.

(OPERATOR INSTRUCTIONS) Philip Martin, Cantor Fitzgerald.

A couple of questions. And I get -- we all get the same implied cap rate, too. So I think those were good comments by Paul there. And obviously, you're trading below NAV, at least in my opinion anyway. But some of the questions I have, in terms of the acquisitions that you are bidding on, what percentage of those are you winning? And can you speak to the volumes that you are bidding on in terms of dollars?

Yes, we see probably in the neighborhood of six to ten properties per week to consider. So it's a pretty active pipeline as far as seeing lots of volume. We probably reject two-thirds of those, either because they're too old or too rosy forecasts and historical numbers don't bear any resemblance to the forecast. Or you have the other extreme where it's currently being managed by -- for a pension fund or other institutional investor, and it's going to be a trophy property that we know is going to trade for a cap rate in the sixes or fives even. So probably two-thirds of the situations are ones that we pass for one reason or another. So -- and of those third that's remaining, we probably, I'd say about a 15% success rate on bidding on those.

Mm-hmm.

So it's -- we see quite a bit of product. But -- and again, we're probably bidding on that one-third of what we see. But our success rate is still not great.

What's the amount that you're bidding on right now, that you have bids out on? Dollar amount. Roughly.

Roughly, it would be about $150 million.

Okay.

I was going to say, too, if -- a couple of the other REITs have announced their acquisitions, also this far. And I'm aware of only two assisted living facilities being announced that other REITs have acquired this quarter.

Mm-hmm.

So I know it's a challenging environment to make successful bids on.

And are there opportunities out there from a value-add standpoint? That's one area we see in other commercial real estate sectors that gets talked about to death, is the value-add, repositioning, redevelopment, et cetera. Are there opportunities, especially with some of these smaller portfolios, where you've done a pretty good job within your existing portfolio of increasing margins, improving the assets, et cetera, and seeing a return on that. Are there opportunities within some of these smaller portfolios where you can reposition an asset again? And that, along with a lease structure with percentage rents provides a pretty good longer term cash flow situation for you.

Yes. That is correct. We have picked up a few of them on an individual asset basis. And given the surplus coverage ratios on a couple of these other -- on our leases, there is room for adding a couple facilities to any of these leases, and not significantly impacting the cash flow overall. And we do see a fair amount of those. And if fundamentally the asset's good, it's in a market that should be good, and the margin's maybe lower than what we believe should be normal, those are situations where we can pick up assets. And, like I said, we picked up a couple last year. This year the ones so far we're bidding on are not those situations. There are a couple we are looking at that we believe can be. We are trying to pick up some of those that are just either mismanaged but have good physical plant, or that -- sometimes -- well, once in a while, it's just bad location, bad configuration and just doesn't work. And those were -- we're attuned to and we can avoid. But we do believe that there are situations that we can pick up underperforming assets.

And obviously, the cap rates you're seeing here on the properties that are going to close here in the second quarter, they're 8%. Now, those are pretty attractive cap rates in this environment. Is that truly a reflection of limited competition of smaller portfolios? Or are these properties perceived to be fundamentally flawed, and you just see something different?

Two of the properties are doing very well. And I think the main reason we won that is because the competition tends to be more mom and pop or groups of investors, and we're not running up against the institutional investors and our fellow peer group of healthcare REITs.

Okay. Okay. And at the property level, can you just speak to margin improvement over the last, call it 12 to 18 months? Even specifically towards skilled nursing. Are operating -- I mean obviously, we're seeing pretty good rent growth in the private pay area. But can you speak to margin improvements, if any, over the last 12 to 18 months that you've seen within your own portfolio?

Well, I've seen actually the most margin improvement at the higher level type properties.

Mm-hmm.

I think to some degree, the smaller properties have somewhat of a built-in fixed cost structure, and you can only push the rates so much on those. But on the very top end properties in our portfolio, we're seeing the best margin improvement. Again, it depends, too, if it's skilled, assisted living or independent living. Independent living and lighter acuity assisted living has the greater margins, and a greater potential for continuing to improve on those margins. Just because you can charge higher rate increases, and people are willing to pay for better service, more service and so on. And you may be able to add those services without a heck of a lot of an increase in cost, but you can charge for it. And that drops most of the bottom line.

Okay. And my last question, just kind of a follow-up or a follow on to Jerry's earlier question on percentage rents. Right now, the same-store portfolio, kind of bumping along at 2%. But certainly, late last year and into this year, we started seeing a greater amount of revenue from percentage rents. And as you mentioned, going forward some of those are going to start to hit over the next several years. Do you see that same-store growth maybe going from a 2% to a 3% in two years from now, where it's more of a -- it's closer to 3% than 2%? Or is it just over the next ten years, it's going to flat line at 2%?

No. I do think it is subject somewhat to the macro picture of how much you can push rates and how much you can move occupancy. I think we've seen occupancy move up a bit this year. And you've been able to -- the operators have been able to push rates a bit more this past year, and it's cyclical. I expect, again, the winds are at the industry's back right now for the next couple of years I believe. So they should be able to continue to raise rates probably more in that 5%, 6%, 7%, or 8% range, depending on the quality of the asset and location and so on, and hold their costs down somewhat. But occupancies, I don't know how much frankly more they could go from the low 90% range. I think that's probably truly stabilized. And who knows beyond the next two or three years? It is the supply of product is one thing affecting how much they can charge. But also just general economic conditions, if the stock market softens, the economy softens, then senior citizens generally tend to try to start to curb in their costs, and look for the lower -- start to become sensitive to the rates at facilities, and may go for the lower cost setting for them. And so you may not be able to push those rates through down the road. Obviously, I can't predict past the next year or two, but it looks pretty good for the next year or two.

Okay. Well, certainly supply/demand fundamentals are on your side here for several more years, probably, but -- . Okay, I appreciate it. Thank

Michael Salinsky, RBC Capital Markets.

More of a theoretical question. I mean, you mentioned cap rates in the low sixes right now on portfolio transactions. And for the most part, it seems like new supply remains pretty limited. When do you start to see a ramp up in development in this sector, do you think?

Well, I think there's inklings of it out there now. Most of the major operators are not the ones who are doing significant development. Most of the major players are just adding to existing properties and trying to marginally improve the performance at the properties. There are a number of developers and smaller operators out there trying to figure out how they can develop as fast as they can. So I do -- and one good thing about the space is that it takes a while to actually build a facility, and then it takes a while to fill it up. So I think we're still probably talking a couple of years before we start to see any meaningful increase in supply. And so I'd say we have at least two good years of this situation where it is today. And after that, maybe we'll start to see some of the new supplies start to impact a bit. Maybe it'll impact the amount of the rate increases, or a little bit occupancy, but not a big impact to occupancy.

Okay. Another question actually relating to the low cap rate environment. Have you guys thought about going after any portfolios via maybe a JV mechanism or anything like that?

Well, we have a little bit. But we've really not been fans of trying to do joint ventures for our Company, and I don't foresee it in the near term. It's a -- it complicates the structure as far as, by definition a JV typically is looking at a three to five year time horizon, and then has to be bought out. And during the short term, you get the management fees, but then the dynamics all change. We have just been reluctant to get into those arrangements ourselves.

Okay. Then a final question here. Looks from the fourth quarter to the fist quarter that your bed count dropped off a little bit more than I would have expected. Was there any particular reason for that? Or just shifting within the Five Star portfolio? Or what was the major driver behind that?

The only reason our bed count would have dropped would be we've sold a handful of facilities during the year, particularly on the skilled nursing side. And a couple of those were fairly good sized skilled nursing facilities. So that would be the really the only meaningful drop in our bed capacity, or units.

Great. Thanks, guys.

There appear to be no further questions at this time. I'd like to turn things back to Mr. Hegarty for any additional or closing comments.

I think it was a pretty straightforward quarter and stuff, so I don't know that there's any more color to put on it. But I -- we'll certainly have a number of opportunities over next couple of months to meet with many of you, and certainly at the NAREIT Conference in June. So we'll be happy to talk with anybody on one-on-ones. We'd love to meet with you. Thank you very much. Have a good day.

And that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.