Diversified Healthcare Trust (DHC) 2008 Q4 法說會逐字稿

Good day, and welcome to the Senior Housing Properties Trust fourth quarter 2008 financial results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Thank you, and good morning everyone. Joining me on today's call are David Hegarty, President and Chief Operating Officer; and Rick Doyle, Chief Financial Officer. Today's call includes a presentation by management followed by a question-and-answer session. Before I begin today's call I would like to say 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. Before I begin today's call I would like to say 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, February, 27, 2009. The Company undertakes no obligation to revise or publicly release the results of any revisions of the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission regarding this reporting period.

In addition, this call may contain non-GAAP numbers including funds from operations, a reconciliation of FFO to net income, as well as components to calculate AFFO, CAD or FAD are available on page 14 in our Q4 Supplemental Operating and Financial Data package found on our web site at www.snhreit.com. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences in contained in our 2008 Form 10-K to be filed with the SEC on Monday. Investors are cautioned to not place undue reliance upon any forward-looking statements. With that I would like to turn the call over to Dave Hegarty.

Thank you, Tim. Good morning, everyone. Thank you for joining us during this very busy reporting season. I will try to be brief but informative. Last evening, we announced our results for the fourth quarter full year 2008. For the fourth quarter, we reported funds from operations of $0.43 per share, and these results fully reflect the investment of the surplus equity proceeds from the June offering, but they're not fully reflect the impack of the new investments made during the quarter.

In spite of difficult Capital Markets and a weak economy, 2008 was a very successful year for SNH. Revenues and FFO grew significantly, and now come from a more diversified tenant base than at the start of the year. FFO per share grew by 3% to $1.67 per share, which is significant given the negative arbitrage on earnings created by the timing delay in investing all of the proceeds from the equity raised in the second quarter. We are very pleased with the results for the quarter and for the year, as well as our strong financial position we are in today. In terms of liquidity and balance sheet strength, SNH compares very favorably with not only the rest of the health care REITs but the whole REIT universe.

I'd like to highlight a few points about the position we are in today. Our debt ratios are at industry-leading lows. At December 31 our debt represented less than 30% of our total book capital. In February 2009, we raised another net $97 million of common equity which further reduced our debt ratios. Only 6% of our portfolio is secured by debt. We have no near term debt maturities. Our $550 million credit facility matures in December 2011, which includes our option to extend the maturity date one year. There was $190 million outstanding after the February equity offering. We have only $259 million of debt coming due before the end of 2012, and it is related to senior unsecured notes and 16 mortgage loans. We have availability on a revolving credit facility. We currently have $360 million available on our revolving credit facility.

We are in the process of exploring Fannie Mae financing. We are currently negotiating secured financing for at least $500 million with Fannie Mae. If this is consummated, it is expected to close in the second quarter and the use of proceeds will be to repay balances outstanding on the revolver. At that point we will encourage [HFUT] to sell us the remaining $195 million of medical office buildings as soon as possible and use the balance of the proceeds to fund investment opportunities or possibly prepay some debt. Earnings may be impacted on an interim basis depending on the timing of the receipt and deployment of that cash. In these economic times, this could be described as a good problem to have.

We have enjoyed continued access to the Capital Markets. We were able to successfully raise equity capital on two occasions during 2008, for a total of $525 million which has and will continue to assist us in weathering the difficult credit markets. In fact we have positions us very well for being opportunistic in the acquisition environment looking forward. As previously mentioned, subsequent to the end of the quarter, we raised a net $97 million in a common equity offering. These equity raises and the diversified investments have aided in getting our unsecured debt to investment grade with one rating agency and a positive outlook to investment grade from another agency. When the debt markets return, SNH will be well positioned to access the public debt markets. Now I would like to have Rick review the annual quarterly results with you and the properties we acquired and then I will discuss the operating trends, the acquisition environment and the outlook for SNH.

Thank you, Dave. In comparing 2008 to 2007, we were able to grow and diversify our revenue streams from $188 million with 11 tenants, to $236 million with 155 tenants. This growth in revenues is due to investing approximately $910 million, including capital improvements in 2008. We invested approximately $375 million in senior housing properties, $366 million in medical office buildings, $100 million in wellness centers and $59 million on capital improvements during 2008. Also included in the revenues, our percentage rent revenue from our senior living tenants which total $8.4 million in 2008 versus $6.6 million in 2007. The annual interest expense for 2008 was $2.4 million higher or 6% higher versus 2007, due to the assumption of secured debt in greater amounts outstanding our revolving credit facility. We assumed three mortgage loans in July on two medical office building properties for $11 million with a weighted average interest rate of 7.1% per annum in a weighted average maturity in 2018.

In September, we also assumed 15 mortgage loans maturing in 2017 on eight senior living properties for $50 million with a weighted average interest rate of 6.5% per annum. In addition, interest expense increased due to the full-year impact of interest on $15 million of secured debt we assumed in November 2007 on two wellness center at an interest rate of 6.9% per annum. General and administrative expenses were $3 million higher year-over-year due to new investments as well as the overall increase in professional fees. We recognized impairment charges of $8.4 million for r the year on 4 assets that is are underperforming and may be sold in the near future. Two of these assets are classified as held-for-sale in our financial statements. Upon sale there will be no meaningful impact on our results. On a quarterly basis, we evaluate our portfolio for impairments and performance and July we sold three underperforming assisted living facilities with 259 living units for $21.4 million, and recognized a gain of $266,000 For the fourth quarter of 2008, our FFO was $48.9 million or $0.43 per share compared to $35.2 million or $0.42 per share for the 2007 quarter. The dividend paid with respect to both quarters was $0.35 per share, which is an 81% pay out ratio of the quarterly 2008 FFO.

During the fourth quarter we invested $171 million which is comprised of one senior living community for $29 million, nine medical office buildings for $115 million, and funded $27.5 million of capital improvements on December 31st. Results for the 2008 quarter do not reflect the full impact of these acquisitions. Subsequent to the quarter end we acquired another medical office building for $19.3 million. Interest expense increased in the fourth quarter 2008 versus the same period in 2007 due to the assumed mortgages from the acquisitions as discussed previously and increased use of the credit facility. General and administrative expenses were higher quarter-over-quarter due to the increase of real estate investments and professional fees. There were $1.7 million of property operating expenses in the fourth quarter of 2008 compared to none in the same period of 2007 as we did not have multi-tenant and medical office buildings until June 2008.

As previously discussed, our vestments for 2008 totaled approximately $910 million, and it was funded with the proceeds of $525 million of equity raised in 2008. $21 million of asset sales, $61million of assumed debt, borrowings on the revolving credit facility and operating cash. At year-end we had $257 million outstanding on our revolving credit facility, two series of unsecured senior notes of $322 million in mortgage loans and capital leases totaling $151 million. Our total debt was $730 million and our equity was 1.7 billion. For a ratio of debt to total book capital of just under 30%.

At December 31st we had commitments to acquire $215 million of medical office buildings by early 2010. In January 2009 we acquired one medical office building for $19.3 million. As previously discussed, we issued common equity on February 3rd, resulting in net proceeds of $97 million, which was used to repay a portion of the outstanding borrowings on our credit facility. Today we have $360 million available on our credit facility to acquire the remaining $195 million of the medical office buildings. We have also been negotiating terms for a mortgage financing with Fannie Mae in the amount of approximately $500 million of long-term secured financing. We cannot asure you that this financing will be consummated or that the amount will be significantly higher or lower. But the timing would be during the second quarter. Now I will turn it back to Dave for discussions about the performance of the portfolio and the investment environment.

Thank you, Rick. As Rick described, we had a solid fourth quarter in 2008, and ended the year in excellent liquid position. In fact we are positioning ourselves to take advantage of investment opportunities in later 2009 and 2010. The quality of one's earnings and securities dividends is only as good as the performance of the underlying portfolio and the tenants' ability to pay the rent. At SNH, the dividend is our highest priority and we believe it is well protected on many levels. Our largest tenant, Five Star, reported its earnings Wednesday night. As a company, they generated operating income and meaningful cash flow. They were in a descent liquid position at year end and had zero outstanding on the $40 million revolving line of credit.

Five Star owns several properties and leases properties from other landlords. SNH focuses on the underlying performance of our own properties leased to Five Star in addition to overall monitoring of Five Star as a company. We report performance a quarter in a rear. like other healthcare REITs, as not all tenants can report information accurately and timely to us to rely on and report. We note that most others report trailing 12 months each quarter when they report the statistics while we report it on a quarter stand alone basis. For the quarter ended September 30th, the properties cover the rent obligations at three of the four Five Star leases by a comfortable 1.3 to 1.4 times. There's one lease for seven properties at 1.04 coverage times. That represents properties formerly leased to New Seasons. A couple of these properties had operating issues when Five Star took them over on July 1, and it takes some time to reposition them.

For the quarter ended September 30, 2008, occupancies remained strong at 91% in lease number one which are mostly assisted living properties, with some skilled nursing facilities. Lease number two, which are the 30 large retirement communities and two in-patient rehabilitation hospitals, the occupancies remained flat at about 88% from the second quarter to the third quarter. And lease number three, which is the newest acquisition, plus a portion of legacy portfolio of skilled nursing facilities, was 84% down from 86% in the June quarter. The 14 properties released to Sunrise continued to perform well as a group. The rent coverage was 1.52 times and occupancies averaged 91%. Of these leases are guaranteed by Marriott International. As you know, Sunrise is having its own issues as a company but the facilities are being operated well and the occupancy and rent coverage are holding up well. The [Brookdale] properties that we own continue to be stable with 93% occupancy and 2 times coverage.

The private operators have experienced occupancy drops at two skilled nursing locations, but still cover the rent very comfortably. The two wellness tenants cover their rental obligations well over 2 times and have been surviving the downturn in the economy relatively well. As everyone knows, we are at a very difficult economic times and all of the operators in the senior living industry and wellness industry are under pressure. But we are comfortable that the businesses are all holding up well enough to pay their rental obligations due to us. In addition, our portfolio is very geographically diversified, which provides further safety to our cash flows. On the medical office building portfolio our occupancy is 99% for the 38 properties we own. Most of these properties are long-term lease with strong credits, but even the multi-tenanted buildings are performing at or better than expected levels. There's been little turn over in the medical office suits, but renewals or leases have been at or above existing rent.

In late December, we announced a delay in the date by which we had to acquire the remaining medical office buildings from HRPT. We currently have nine remaining properties to acquire by May 2010 totaling $195 million. This deferral was by mutual agreement, which permitted SNH to access more capital and be in a position to take advantage of high-yield and investment opportunities this year. We raised equity proceeds earlier this month and are having discussions with Fannie Mae who will continue too be lowly leveraged and have significant capacity for opportunities. There are a tremendous number of opportunities out there to consider in the senior housing industry and in the medical office area.

To date, the biggest obstacle in the price is the pricing as we are willing to pay as usually is in the neighborhood of 9 to 11% cap rates, but if the property was acquired at, say, an 8% cap rate or less and was financed 80% or so, with debt, and it is very difficult for us to pay an amount that is more than debt amount. But the pressure is increasing on lenders and operators out there, and we believe the market will come around to our pricing. And during the acquisition property acquisition period in 2007, we basically sat on the sidelines. We are can conservative investors who do not want to overpay for properties. Right now we are balancing risk adjusted returns versus safety.

As stated in the past, our current business plan is to closely monitor the portfolio in these tough economic times, look for opportunities that have risk adjusted returns in today's market, prudently manage our liquidity, and look for opportunities to grow cash flow in order to ultimately increase the dividend. Subsequent to quarter end, our board declared a cash dividend of $0.35 per share, which is a pay out ratio of 81% of the quarter's FFO. Our board evaluates the dividend on a quarterly basis, and currently the board considers this dividend level to be appropriate. Based on our current pay out ratio, we are generating $35 million to $40 million of excess cash flow per year to provide a cushion for the dividend should any operator experience difficulties or for any other unforeseen needs. This surplus cash flow is currently used to just fund proven financing, make new investments, to prepay debt. Our liquidity position is strong with no meaningful debt maturing until December 2011, and as you can see on page 16 of our supplemental package, we are well within all of our debt covenants. As said before, we are among the top of all liquidity and strength of our balance sheet. With that, I will turn it over for questions for the Q-and-A.

(Operator Instructions). We will take our first question from Jerry Doctrow with Stifel, Nicolaus .

Thanks. Good morning. A mix of trivia and bigger things. Just sort of starting with the trivia, do you have a sense of what CapEx and TI was in the quarter and maybe a sense of where it might be for 2009?

For the fourth quarter, TI and CapEx on the medical office buildings was about $285,000. We expect it to probably continue around that on a quarterly basis for the year, so about $1 million to $1.5 million for 2009.

Okay. And assuming that you place the Fannie Mae stuff in the second quarter, David I think you touched on fact that you are trying to accelerate purchase of the MOBs from HRPT. Should we--obviously some of this is subject to getting the financing and stuff. So we should think that might move up to maybe third quarter or something like that rather than waiting until first quarter of 2010 which is where it is now.

Right. It is clearly difficult to speculate exactly the timing on that, and it is really--the decision is going to be driven by when HRPT is in a position to either find alternative properties to exchanges or somehow defer some of the gain that's built into those properties.

Okay.

So, we would--as soon as we have the money of course we are going to want them to close as quick as they can.

Okay. And the current agreement, just remind me was--starting in 2010--they don't have an obligation to sell it to you until later or--just remind me of that.

That's right. It has to be by mutual agreement. We can't force them into something and alternatively, they can't force us to close either.

Okay. And just a couple of other things. Does the Marriott guarantee burn off at some point? Do I remember that right or not?

Well, it is tied and -- in our eyes it is tied to the lease. As long as the lease is in place, that the guarantee has to be in place. Now, there's --in 2013, I think December, the lease, the initial term expires, and at that time I do not know what rights Sunrise has to man date Marriott's stay on the guarantee. So, if they renew the leases, we are not sure that they have that ability to renew the leases without the guarantee.

Okay. So, in, just from sort of your perspective and Sunrise perspective to stay on that for a minute-- after 2013 Marriott may not be guaranteed, but you also may not. You don't necessarily have to renew unless you have the Marriott guarantee. Is that kind of your thoughts at this point.

Right. That's our view of it.

Okay. Interesting. The rehab facility in Boston-- that was obviously one of the things that is struggling on the Five Star side, any sort of thinking about those assets--obviously, the rent continues to get paid, but-- where you see it headed or any better resolution?

Well, I think when we first took back those properties and moved them to Five Star, it was always a plan that changes had to be made to the physical plant and various--the whole business plan had to be re-evaluated at those properties. And we all knew it was going to be a multi-year process. So it is still in the process of doing that. I think as you would expect, we are constantly in touch with them about the properties, and how they are progressing. They did complete a whole new wing that they plan to do over at the [inaudible] location, and they're pretty close to well on their way in [Braintree]. And so we would expect them to continue with that and then see if there are other changes that they can make in their business plan. And we will evaluate it on a regular basis. But at the moment, there's no expected change in the arraignment.

And do you ever think about moving in another--either just to manage or another tenant since it is clearly kind of a sideline business for Five Star as well.

That is a possibility. We do think about that off and on, and I think that's an option right now.

And then just one last thing and I will jump off. So it sounds like you are thinking about opportunistic investments. I think you said, and we have heard similar things from the other REITs that have reported so far, that the sense is the deals will be out there but really aren't out there now. There's not enough sort of blood in the water yet maybe. Is there particular kinds of assets that you would be looking for senior housing versus others. Would they likely Five Star deals or something else-- more fitness, just any sense as sort of what your yield is. But what type of assets would you--again senior housing or something else? Can you give me any color.

Sure. The deepest markets are possible opportunities, clearly senior housing and medical office building areas. I don't--wellness center is not a particularly deep market. So we not throwing that heavily but it is possible down the road there could be something there. I think ideally we would look to be more medical office building--again the cap rates are not there yet for making it attractive enough to us. But I also think with guys that maybe there's more flexibility in the cap rate.

And as I see it, this year right now, without the Fannie Mae financing, we have obviously some capacity on the revolving credit facility but we are clearly going to be very conservative and only do transactions that we feel are real winners for us. But we are going to be pretty conservative with everything. Should the Fannie Mae transaction occur, clearly it give us more fire power but we are also going to be conservative in putting it to work and I think opportunities will be better later in the year than they are right now. People are still trying to come to the realization that, properties are probably not worth the debt values on their properties.

And just, just quick follow up-- the MOBs pricing on this stuff for major PTC is still set. I think I just wanted you to confirm that. And are you looking to really do more multi-tenant or single tenant and I will jump off.

Sure. The pricing is still the same on the HRPT properties . With a little bit of time--as time has gone on some fixed increases in the leases have kicked in, and so on. It is maybe a little modestly higher but not materially higher. But on--we did a multi-tenanted MOB transaction at the end of the third quarter that is something more like what we would want to do more of. It is property with about a dozen tenants in it. And it was an 8.5 cash cap rate, but a mid 9. Low 9 gap cash rate. So I think we are interested in both multi-tenant and single tenant

Okay. Thanks a lot.

You're welcome. Thanks.

We will take our next question from [Kyle] Okusanya with UBS.

Hi guys, good morning. The rent ratio that you guys report--are those the [darm] rent coverage ratios.

They are.

Okay. So if we were to look closer towards more cash rent coverages, take out the management, the kind of maybe some adjustment for any CapEx spends some tenets may need to make--at that point, just based on the numbers you have as of 9/30/08, doesn't that paint much more of a dire picture, for the Five Star leases, in regards to the coverage being much closer to 1.

Well, there are many things about that coverage calculation. One is-- I will point out several things. One was that the specifics we provide in our supplemental are not same-store basis. So as properties get added, newer properties are going in at lower coverage ratios than existing ones and they sort of pull down. That's the case particularly with lease number three as we have property that pulls down the coverage ratio. In the case of Five Star, they don't charge a management fee to themselves. So you would have to impute some sort of a fee, a 5% fee is what the industry uses rule of thumb. Usually that has some profit baked in there for a third party manager, so the real cost would be something lower than that.

Maybe if you take these down another 10 or 15 basis points to factor in additional costs-- maybe a little CapEx but typically all of our tenants have the option to come to us for financing for CapEx. But the other thing, too is as you mentioned--I believe just about all of the other healthcare REITs report a trailing 12 month statistic in each quarter. In ours, we report an individual quarter, and so they tend to be much more volatile than the other healthcare REITs from a quarter to quarter basis. But, so the seasonality and other things affecting these. But certainly like at 1.3, 1.4 coverage is more than adequate to coverage a rental obligation and have some profit left over for the tenant. It has-- historically in lease number one, it has been at that level for several quarters. And then on lease number two, the obligation there is about I want to say about $80 million of rental obligation. So the .2 coverage on $80 million is quite material at that $30 million of excess, $3 million, rather, of excess coverage. So there's -- no, 30. So there is very good cushion still to pay the rent obligation to us.

Okay. Can you give us a sense of what the coverage ratio look like as of fourth quarter now that Five Star has reported?

Well, we don't -- we have not produced them or verified them. So--

Can you talk about directionally which way it is going.

They have pretty much held steady to comparable for these. What's interesting is the is the rehab hospitals are in lease number two. As Jerry mentioned, they had a $1 million loss this quarter, so if you took out the rehab hospitals, you would find senior living assets are actually covering very strongly at about 1.6 times. So we continue to hold pretty strong.

Okay. And then one last question, with the Five Star-- the acquisitions you made when you leased to Five Star in 2008, that in 2010 you start to get percentage rents on those facilities. Any concerns about that at this point given everything that's going on with the pressure to the assisted living/independent living market.

What could be interesting is the acquisition in 2008, the way the structure is, is that 2009 is that new base year. So, the revenues they earn in 2009 will set the floor for going forward. If the economy is picking up in 2010 and thereafter, there's actually probably a relatively low base in 2009 to start with. So that may work to our benefit.

Okay.

Down the road.

That's helpful.

And too, while we are talking about the leases, I do want to mention that in connection with the Fannie Mae financing, one thing that we will have to look at is certain properties would have to be pulled out to be financed by the Fannie Mae transaction. So we would end up restructuring these leases between the different leases. Again at that time once that is known. So I am just-- we will provide all of the statistics and so on so that people can track still how the performance has been. But that is something that will probably change, late second or third quarter depending on timing of everything.

Got it. Thank you.

You're welcome.

We will take our next question from Mark Biffert, Oppenheimer.

Good morning, guys. I guess continuing on that, Dave. Related to the first, can you just share kind of a target range for the terms that you are seeing for the Fannie Mae facility in terms of length and coupon rate?

Yeah. I mean it is, it is still preliminary. So I am he hesitant to give you many specifics but it is long-term financing. The notes will be set for ten years, but there will be clearly various prepayment options and so on that we would have. And just--the rate is not locked in. So that's why I am not sure what the rate--I would say today clearly it would be below 7%. Deals in the market have been at say 6.75% maybe even as low as 6.5% in some cases. I think today it is clearly less than 7.

So the assets that you are going to be pulling out to be tied or secured by this facility-- do they have any existing loans that you would be paying off and what rates would those currently be at, if there is any?

No. The properties that we are pulling out today are not encumbered today. There would be nothing there. The of proceeds--we clearly have some amounts outstanding on the revolving credit facility. First application of funds would be to pay down the revolver, obviously our revolver is very inexpensive right now. So you would have maybe a 5% or so negative arbitrage. And then we would buy--hopefully we can line up the HRPT properties, but again I don't know if that is possible. But that would be our desire. Those are going to be cash cap rate of like 7.2%, 7.3% by that time. And so that would be a positive and then hopefully we can line up transactions at 9%, 10%, 11% cap rate.

So given that you have some flexibility with the HRP transactions, wouldn't you rather just push those off as far as you could to take down if you could find other transactions in that 9%, 10%, 11% range?

That is possible, and it is going to depend on where we are at that time.

Do you have a commitment to actually take those assets out? You made it sound like you have a decision there you can decide whether or not you want to take them down or does HRP put them to you do you have to take them?

Currently right now we have a drop dead date in 2010. We would have to close on them by then.

And if you don't, then you can walk away?

No.

No. We are committed to close those in 2010. But if we want to accelerate it or HRPT wanted to accelerate it, it would have to be mutually agreed upon both companies to do it. Otherwise we are both committed for the 2010 closing.

Okay. And there's a significant deterioration in the fundamentals, no adjustment to the price if that happens, is there?

Well, it is subject to customary diligence and real estate diligence. So this material adverse conditions--if something should happen to any of the properties or a major tenant moves out or whatever, we would have the ability to walk from that contract. But most of our third party diligence, that has been done and it will have to be material events, or something like that, or material tenant.

Right now we do plan on closing on all of these.

Related to the impairment charge you had in the quarter, what asset type was that related to.

We we took an impairment on three of the senior living properties and one on the medical office buildings.

Those were, one of those was the one from the acquisition you had from HRP?

One of the acquisitions we had from HRPT back in July.

Okay. Thank you.

You're welcome.

(Operator Instructions). We will go next to Chris Haley with Wachovia.

Morning.

Morning.

This is [Young Hu] here with Chris. Going back to the MOB question, if you did have to walk away from the HRPT assets is there a break up fee of some sort?

No there is currently no break up fee on that.

Okay. It looks like your notes are trading around 12% to 13% yield, versus your acquisitions around 7% to 8% range. How do you thinks think about buying back debt versus buying assets or even buying back stock.

That's a possibility. Right now, we have two different worlds here for--until we procure any Fannie Mae financing or any other financing, we just have our revolving credit facility with limited available capital. And so we are going to use that very cautiously and I don't think we would probably do either of those other alternatives with the capital, with that limited amount of capital available. Now with the Fannie Mae money, that opens up a host of-- a whole array of opportunities for us including those option you just mentioned.

And then one last question, could you tell us how much of you total rent has CPI based escalators.

Let see, a small amount has CPI based income. Some of the medical office building leases, just a couple of is senior living assets do. But the alternative what they have is the formula based on the growth and revenues at the properties. Now, in most of our leases, it is either 4% or 4.5% of the growth in revenues at the properties. And naturally, if occupancies are off a bit or people are discounting rates and so on, the growth and revenues will not be as high in 2009 as they historically have been. But still, even most operators are reporting still modest net increases in revenues.

Okay. Thank you.

You're welcome.

Thanks.

We will take our next question from John [Holbert] with [inaudible] .

Thanks. Actually, my questions have all been answered by the previous participants.

Thank, John.

We will go next to Bill [Knickerbaucher], ING

Yes. Good morning. I had some more of a big picture question on the industry. If you could just sort of go over briefly what you feel the largest concerns and challenges facing senior housing over the next year. And more specifically to what extent do you feel that the slump in the housing market is affecting anything-- if people are reliant on selling their homes for entry fees into the communities. How much impact do you think that has on senior housing.

A couple of thoughts. One is as far as affecting the industry as a whole, I think there's going to be a significant rationalization of the industry in the sense that in the sense that a lot of the debt that is out there either for development or for short term debt like three year financings or five year financings. Are going to start to come to a head this year and next year which is going to create significant stress on operators, and as I mentioned in my prepared remarks, we have seen a number of transactions to date this year that we have run the numbers and we keep coming out to a value that is less than the amount of the debt. And therefore, we are stuck because the lender may or may not be in default-- I mean the operator may not be in default at the moment and there's no equity for them. So they are not willing to sale. And the lender has to make some decisions eventually whether to foreclose or how to handle that. So, I think that those are going to create additional pressures on the industry as a whole as far as companies go.

As far as the fundamentals day-to-day, I think all of the operators are feeling some pressure from the economy and moving rates and so on. I do believe that entrance fee model is under significantly more pressure than the rental model and the housing market is having significant impacts. And more so in certain markets than other markets and stuff, but it is definitely having a significant impact on not-for-profits or other for-profits that is are made with that type of model. Hopefully the stimulus package should help start to move things along. I think everybody is waiting to see, and prove it--but we are certainly hoping that is going to start to have positive effects on it. But there is a building up, pent up demand for these services that at some point is going to have to come through system. And we are seeing more frail residents coming in, and they need the services, and have to pay for the services. And I think that's going to continue to build up, too. So I think if we can weather through this year or so, then that should be some good times after that. And the other thing too is that there's no new supply happening. So that should also further help the demand equation. I guess I can't under estimate the impact of the housing market on the entrance fee models.

Great. What, in terms of your asset, what--approximately how much is the entrance fee versus rental.

We are very--we only have two or three in the whole portfolio that are partial entrance fee models and it is offered as an option and so far they are holding up quite well.

Right. Thank you.

You're welcome.

And we have no additional questions at this time. I would like to turn the call back over to David Hegarty for any closing remarks.

Thank you all very much and we will give you a further update in our first quarter call in May. Thank you.

This concludes today's conference. We thank everyone for their participation.