Diversified Healthcare Trust (DHC) 2013 Q2 法說會逐字稿

Good day, and welcome to the Senior Housing Properties Trust conference call. The call can is being recorded.

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

Thank you, and good morning, everyone. Joining me on today's call David Hegarty, President and Chief Operating Officer, and Rick Doyle, Treasurer and Chief Financial Officer. Today's call include as presentation by management followed by a question and answer session.

I would also note the transcription recording and retransmission of today's conference call is strictly prohibited without the prior written consent of Senior Housing. Before we begin, I would like to state that today's call contains forward-looking statements within the meaning of the Private Securities Litigational Form Act of 1995 and other Securities laws. These forward-looking statements are based upon Senior Housing's present beliefs and expectations as of today, July 30, 2013.

The Company undertakes no obligation to 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, S.E.C., regarding this reporting period. In addition, this call may contain non-GAAP numbers including normalized funds from operations or normalized FFO. Reconciliation of normalized FFO to net income, and the components to calculate AFFO, CAD, or FAD are available on our supplemental operating and financial data package found on our website at www.SNHreit.com.

Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the S.E.C. Investors are cautioned not to place undue reliance upon any forward-looking statements. Now, I would like to turn the call over to Dave.

Thank you, Tim. And good morning, everyone.

And thank you for joining us on today's call. Earlier this morning, we reported normalized functional operations or normalized FFO at $0.42 per share in the second quarter 2013. Our results this quarter were mixed with many positives to note.

In short, our triple net leased assets were steady with modest growth, same-store manage living portfolio demonstrated outstanding results, although the former Sunrise properties underperformed expectationsand the same-store medical office buildings portfolio underperformed our expectations for the quarter, but we remain optimistic.

As announced this morning, we have $101 million of acquisitions that are under agreement to be completed over the next few months, which was a big positive, given that the (inaudible) was slow coming out of the gate during the beginning of 2013. We are well positioned today to pursue accretive acquisitions without access to the capital markets concerning the capital we raised in January which we are still working to fully invest.

In addition, after taking an aggressive look at our portfolio, we made the decision to market for sale 18 properties in our portfolio, which will generate more cash for investing. With all these moving parts, our Board determined in early July, to leave the dividend unchanged at $0.39 per share, which represents an attractive and secure 5.9% dividend yield as of yesterday's close.

Occupancy and rental coverage in our triple net senior living communities remained strong and essentially unchanged for the 12 month ended March 21, 2013, over the prior year period. Same-store triple net GAAP rental income for the quarter was up 1.2% year over year.

Our managed senior living communities demonstrated strong internal growth, as in-store occupancy for the second quarter was up 390 basis points from the same period last year, and same store NOI increased by an impressive 7.9%. Our medical office portfolio remained well-occupied at 94%, at quarter end and total N.O.I. was up 13% since the second quarter last year.

However, same-store NOI declined primarily due to a decline in same-store occupancy since last year as a result of a few early lease terminations. On the acquisition front since April 1, we have entered into agreements to acquire five properties for a total of $101 million. Four properties are private-paced senior living communities with 306 units, located in Georgia and Tennessee, totaling $51 million,and will be added to our managed living senior portfolio.

The fifth property is 105,000 square foot biotech laboratory building located in Boston, for $50 million. This property will be leased from PerkinElmer, a publicly traded investment rate company, for a 15 year initial lease term. One private-pay senior living community for $22 million, which was previously disclosed in Q1 of this year, will close on August 1st.

We expect the other acquisitions under agreement to close over the next several months. And as mentioned on our last earnings call, we disclosed an agreement to acquire a medical office building in Cherry Hill, New Jersey for $21.5 million. During June, we terminated this acquisition due to results of our diligence process.

As I mentioned earlier, after taking an aggressive look at our portfolio, the decision was made to market for sale 18 properties, including 11 senior living communities, with 856 units and seven medical office buildings with 831,000 square feet. The 11 senior living communities consist of seven skilled nursing facilities and four assisted living communities and have an aggregate net book value of $15.5 million.

The seven medical office buildings were 99.3% occupied with the weighted average remaining lease term of one year. We generated annualized NOIof $6.8 million, andhave an aggregate net book value of $27 million as of June 30th. These sales are just commencing and will likely be consummated during the second half 2013 into next year. Several factors influenced our decision to sell these properties.

We considered the underlying conditions in the markets where the properties reside, situations will result in future leasing would be challenged the property's exposure to government reimbursement and related uncertainty over future profitability. And other factors all led us to believe these properties were not core to our long-term strategy of owning high-quality senior living and medical office properties.

Turning to the detailed performance results of our existing portfolio. Our triple net senior lease living properties, which results reported on a rolling 12 month basis as March 31st 2013, continue to perform well. Occupancies on the same store basis overall remained approximately 85%, and coverage ratios were around 1.4 times.

Looking at the performance of our individual operators, Five Star Quality Cares, 190 leased properties, had combined occupancy of 84.2%, and rental coverage of 1.27 times. If you exclude the 11 communities held for sale, Five Star's aggregate occupancy would increase sixty basis points to 84.8%, and rental coverage would increase from 1.27 times to 1.30 times. The four properties we leased to Sunrise Senior Living had occupancy of 93.2%, and rental coverage of 1.9 times.

The 18 properties we leased to Brookedale Senior Living occupancy of 95.2%, and rental coverage of 2.5 times. Our Triple Net Senior living properties leased to private regional operatives had occupancy of 83.6% and strong rental coverage of 2.1 times.

Now the coverage is down from 2012 data, due to the addition of a new tenant and new properties that came online at approximately 1.2 times coverage. Moving on to our managed senior living portfolio, often referred to our TRF or REIT investments. Today we have 39 communities with approximately 6,700 units which generated $16.4 million of NOI during the second quarter.

Occupancy at the 23 same store communities during the second quarter was 91.5%, up 390 basis points from last year. And average monthly rates were up marginally. Overall same store NOI was up 7.9% over last year, and same store margins improved to 28% from 27.2%. For the six months ended June 30, 2013, occupancy increased 400 basis points. Rates were modestly higher and NOI improved 5.3%.

The growth and same store NOI was primarily driven by increases in occupancy. And the ten former Sunrise properties are not included in the same store data. Moving on to the medical office building component of our portfolio, excluding the seven medical office buildings we are marketing for sale, we have 115 medical office buildings with over 7.7 million square feet, generating NOI of $35 million. This represents 31% of our total company NOI.

And NOI was up 12.7% from last year due to growth from acquisitions. Occupancy at quarter end was 94.1%, up 20 basis points from last year. Looking at the 99 same store medical office buildings, occupancy was 93.6%, down 170 basis points from last year.

And NOI was $29 million, down 3.4% or practically $1 million, from last year. We believe these declines are temporary, as they are primarily attributable to the termination of leases at certain properties which we expect will be released over the next few quarters. During the quarter, we renewed 83,000 square feet of leases and signed 18,000 square feet of new leasesfor weighted average roll off of 2.9% and a weighted average lease term of approximately four years.

Tenant improvement and leasing commissions for the quarter were of $1.3 million. With that I will turn it over to Rick Doyle to provide a more detailed discussion about our financial results.

Thank you, Dave. I will now review our second quarter year-over-year financial results. For the second quarter of 2013, we generated normalized FFO on $79.1 million, up 8% from last year. On a first-year basis, normalized FFO for the quarter was $0.42 per share, compared to $0.45 per share for the same period last year.

The year-over-year quarterly decline in normalized FFO per share is attributable to two main items. First, we experienced short-term dilution from our January equity offering, as we were unable too invest all the proceeds due to the timing of certain acquisitions, in the termination of the medical office building acquisition that we previously expected to close on. Second, the NOI from our ten previously triple net leased Sunrise communities, which are now part of our managed senior living portfolio, are underperforming our expectations.

The Medicare sequestration rate cut, as well as the seasonal decline in Medicare census, further impacted results at the skilled nursing units within these communities. We expect that NOI will recover as we continue to invest the appropriate amount of capital that we believe will bring operations back to stabilization. Eventually, we believe that the NOI of the former Sunrise communities will be better than historical performance. Looking first at the income statement.

Rental income for the quarter was $112 million, up 3.7%. The increase was due to external growth from acquisitions since April 1st, 2012 which included five leased senior living communities and 16 medical office buildings. Approximately $57 million of rental income was derived from our leased senior living communities and approximately $51 million was derived from our medical office buildings.

Percentage rent from our leased senior living communities was $2.3 million for the quarter,down from $2.9 million for the same period last year,due the transition of ten communities formerly leased to Sunrise, to our managed senior living portfolio. Residence fees and services grew to $74.6 million during the quarter, due to the acquisition of seven managed senior living communities in the transfer of the ten formerly leased Sunrise communities to our managed portfolio since April 1st, 2012.

Property operating expenses for the quarter increased to $74.5 million due to external growth from acquisitions in the Sunrise communities to our managed portfolio. Approximately $16 million of property operating expenses was derived from our medical office buildings compared to $14 million last year.

And approximately $58 million was derived from our managed senior living communities compared to $26 million last year. General and administrative expenses for the quarter were $8.2 million compared to $8.1 million for the same period last year.

The primary increase in GNA as a result of external growth, offset by other cost savings. Interest expense increased 5.1% to $29.6 million this quarter, compared to last year due to several factors.

Since April 1st, 2012, we assume a total of $134 million of mortgage debt, with a weighted average interest rate of 5.7%, and we repaid 249 million dollars of mortgage debt with a weighted average interest rate of 6.5%. Also in July of 2012, we issued $350 million of 30-year unsecured senior notes at 5.625%.

During the second quarter, we recorded an impairment of asset charges of $4.4 million related to four of our senior living communities held for sale. We also recognized a loss of 105,000 dollars related to the early extinguishment of debt for four mortgages we paid off on June 20th 2013.

Income from these continued operations was $1.5 million for the quarter, seven of the medical office buildings now classified as held for sale, are included in discontinued operations. We recognized a non-cash impairment charge of $27.9 million to reduce the carrying value to the aggregate estimated net sales price. Moving to the balance sheet.

We did not close on any acquisitions during the second quarter, but we have announced $101 million of both senior living and medical office building acquisitions under agreement. We expect these acquisitions will close in the next few months. We intend to fund these acquisitions using cash on hand and borrowings on a revolving credit facility.

During the second quarter we invested $7.7 million into revenue, producing capital improvements at our leased senior living communities. We also spent approximately $6 million in capital improvements, which includes tentative improvements, leasing costs and recurring capital improvements at our medical office buildings and managed senior living communities.

Our recurring capital expenditures include $1.7 million at our medical office buildings and $2.9 million at our managed senior living communities. As previously discussed, we expect our recurring capital expenditures at our managed senior living communities to be between $1,000, and $1,500 per unit annually.

This quarter, in our supplemental data package, we broke out recurring capital expenditures in development and redevelopment capital expenditures. During the second quarter, we incurred approximately $4 million of development and redevelopment capital expenditures, primarily at our managed senior living communities. We expect that over the next year or two, the nonrecurring capital expenditures at our managed senior living communities will be higher than normal, until we complete many of our one-time projects.

At June 30, we had $37 million of cash on hand, $1.1 billion of unsecured senior notes, $727 million in secured debt in capitol leases and $30 million outstanding on our $750 million revolving line of credit. At quarter end, our debt to market capitalization ratio was a strong 27%, and our debt to total book capitalization ratio was 40%. Our targeted leverage using debt to total book capital is in the range of 40% to 45% and we may operate slightly above or below that at certain times.

Today we have $10 million outstandingon $750 million line of credit. Our credit statistics remain among the strongest of all healthcare rates with adjusted EBITDA over interest expense of 3.7 times in debt over annual adjusted EBITDA of 4.2 times.

We have excellent liquidity to fund future acquisitions with no need to access the capital markets for the foreseeable future. Although we are pleased with the significant progress being made at our managed senior living communities, we believe that the full potential of these communities has yet to be realized. The same store property still has significant growth potential, and after we spend the necessary capital to restore the former Sunrise communities to the market-leading communities they once were, there is a tremendous value to be derived. During 2013, we will continue to focus on opportunities to grow cash flow, pay consistent attractive dividend, while maintaining a conservative balance sheet. With that, Dave and I are now happy to take questions.

(Operator Instructions). We will go to the line of Juan Sanabria with Bank of America.

Hi, good morning guys. I was just hoping you could talk a little bit about the Reid portfolio.

I think you previously talked about targeting a 30% margin, what you think the time frame for that would be, what kind of CapEx you need to spend to get there? Is that redevelopment CapEx of on tired assets. And when do you think you will be able to push some rents? I know you've had mostly gains from occupancy, but the rental rates have stayed relatively flat.

Rick, do you want to chime in?

Yes. Today we have about a 28% margins on the same store on the REIT portfolio. That would increase even slightly more if we took all 39 properties and excluded the Sunrise properties, we would be around the 30% margins.

If you recall, you may not -- if you recall, the Sunrise properties margins are lower. We just took those on over the last six to nine months. We do expect to put these one-time capital projects into them.

They performed well in the fourth quarter of the first quarter, they had a slight increase many the margins but they took a little dip from the first quarter to the second quarter here. And is that was due to the Medicare cut rate as well as the decline in occupancies at these properties. About 40% of the Sunrise units are skilled nursing units so they took a little decline in the second quarter.

We are still focused on getting these properties back up to par. Back up to the leading properties that they once were. And we do expect that to happen over the next four to 6-quarters, and you will see all 39 properties as a whole into the margins, in the 30% margins.

And just to add to that, to talk about the rate structure, to date, historical practice has been when we take over properties that the rates are not increased until the residents come up for their anniversary date and facility, and then rates are often incased at that time. To this point, the focus has been increasing occupancy, and les so on the rates. But the rates should start to being the been able to be pushed during the course of this year. And obviously going forward for next year too.

Can you talk a little bit about how much you expect to reinvest into those, I'm assuming they're the Sunrise assets and what returns you are targeting?

Well, I would say as far as returns go, they are it is going to be difficult to exactly determine that, because a lot of this is just capital improvements that were left to run for several years there that just need to be done to put the properties back into good working order.

Okay.

Including capital intensive items like some elevators and roofs and things of that nature. But.

So yeah. Like I mentioned on the script there, we spent about $4 million in development, redevelopment, capital expenditures in the second quarter, and the majority of that was the managed senior living communities and focus on the sun rise communities and we expect that maybe even grow over the next four to six quarters to be between four to $4 million to $5 million per quarter until we get these up and running.

Okay, thank you. And -- can you just generally talk about the acquisition environment, and how you see things? I know you had an initial targeted year that was sort of running ahead of where you are to date.

What is your sense on pricing of -- are you trying to scale back pricing expectations, ie. increasing in cap rates? What are you seeing out there in the marketplace? Are people stepping back at a whole or is competition still heated?

Well, you are right that there's tremendous amount of competition for new investments in medical office as well as senior housing. Many of the, most of the, large portfolios have been spoken for at this point. And usually when they are in the hands of a REIT they typically don't trade after that.

So I'd say probably in the large high profile properties most of that have been acquired. We are trying to stay in on average mid to high 7% for cap rates for our acquisitions. I think on a really class A property we can see us going to 7% but I believe it is upside potential from there. But I -- you know I think the first quarter question very few announced by released by public. It will be interesting to see how this quarter plays out for other acquisitions.

The -- it's an interesting year, because I -- I see a lot of things I would have expected for properties trading on the market just have not either come to market, they have decided to wait until a better time. Or they are just refinancing and buying time. So I would say volume is definitely slower.

Okay. Are those cap rates you talked about what we should pencil in for the acquisitions that are yet to close that you talked about in your press release?

Yep. About seven and 7.75% is about average.

Great. Thank you very much.

We'll go next to the line of Michael Carroll with RBC Capital Markets.

Thanks, guys. Related to your MOB portfolios sale, are those the same properties the off-campus, some of the, that you are having issues with the tenants that were being impacted by the new medical device excise tax?

One of the properties is a property that is effects by that is affected by that, and they -- we expect that they will be moving out in the next couple of years. Finding short term leases and so on. So that is one situation that is definitely impacted by that.

The other properties have actually been impacted by consolidation. One of them is a biotech property that was acquired, that we owned in Rhode Island, that was acquired by a West Coast company. And they consolidated their operations out to the West Coast. So it's going to be very difficult for us to release this property without a lot of capital improvements and so on.

Ten that's one situation. Another situation is the health care system is building their own campus. And moving a lot of their operations onto their campus. So that effects another location, in Albuquerque as a matter of fact. So those are the themes behind most of the dispositions on the medical office side.

Then with you starting to market a portion of your skilled nursing facility portfolio, I know that's a business you have talked about possibly exiting, why are you not marketing the other [sniff] assets now?

Well, a couple of -- some of it -- first of all, all the leases are leased to Five Star, that we consider selling and Five Star really has to make the decision that they want to exit those properties because it would be a joint decision. And unless they want to stay on and lease from another read, or other owner, we would have to break up the master leases. And so -- so it has to be a joint decision.

And some of the properties fit into a network here that Five Star has, and certain markets that they don't want to disrupt. You know, also, our bases in the property are extremely low, so as a result the rent is very low. And Five Star still makes money at those low rents. So I think it is going to be piecemeal, certain markets at certain times to make decisions.

Okay, can you remind us how big you want to grow that TRS portfolio?It seems like most of your upcoming investments of the senior housing assets, at least, are going into that structure.

I think for the foreseeable future, additional investments will be included in the TRS structure, again because the fundamentals are very good for the next several years as well as the pricing on these assetsis a little bit thin for making a profit at the REIT level and a profit at the tenant level. So you know -- what we want do -- I think we are pretty much around 20% or so is our comfort level, investing this space, and we are about 15% of our NOI at this point.

Okay, great, thank you

Thank you, we will go next to the line of tie Taio Okusanya from Jefferys.

Good morning, everyone.

Hi.

Dave, thanks for the color on just the disposition. From a timing perspective, though, I know that it is kind of hard to say when these things could potentially happen, but for modeling purposes, what are you kind of guiding us to in regards to when the potential sales can happen, and what do you expect -- half the year to invest the proceeds in.

Well, realistically, we're just launching the sale of these assets the senior housing is any day now. The formal process launched to market. In the case of the medical office buildings, we are still putting together memorandums and so on, so that -- say in the next 30 days we probably have those properties on the market, officially. I -- probably think it would be the end of the year, or first quarter so next year that we probably end up selling most if not all of them.

Okay. I may have missed this, but did the Cherry Hill deal fall out?

It was result of diligence. We were not satisfied with some of the progress that had been made on some issues at the property. And so we decided we would not buy it at the present time.

Okay, great, thank you

Thank you. Next we will go to the line of Daniel Bernstein with Stifel. Please go ahead.

Good morning.

Good morning.

I want to go on to the rate growth, the NOI growth, and the triple net portfolios senior housing. It is only 1.2. Obviously, you discussed some of the issues on the MOB side. Is the NOI growth there listed in the supplemental, is that cash or GAAP? And, especially on the seniors' housing side, can you talk about the -- whether you think that is going to improve or not.

Well, on the triple net is the 1.2% growth. And that's because probably about 75%, 80% of our leases have percent of 4% of the growth of revenue is at the properties over a base period.

So that basically says the revenues did not grow that much as the properties. About 20% of our leases have fixed increases between 2% and 3% per annum. So on a cash basis it is actually higher than the 1.2%.

But that's a GAAP because we have this formula. On the rest of your question.

I was going to ask, how the cut in reimbursement much did the skilled nursing impact that 1.2%? Since you are running off revenues --

Right.

Is that a significant impact?The cuts in Medicare reimbursement.

It is an impact. You know, it does -- we still have the 48 nursing homes and each of them are impacted by -- well, most of them were impacted by sequestration. And in addition, there seems to be within the skilled nursing area, a couple of things that are happening. One is there's been a seasonal drop in occupancy for Medicare patients.

Just due to hospital procedures slowing down and so on. But in addition, just the hospital, what we have seen is homes are holding on to patients longer for observation. Because if they get readmitted the penalties are pretty significant. So that has effected census Medicare beds at the skilled nursing facilities too.

So it's definitely been a soft point. I guess I'm not sure if I can quantify the exact dollars that we were probably impacted by, but it definitely had an impact.

Otherwise, the price of senior living has been modestly up, and obviously to get 1.2% growth, we had to have decent growth from the private pay side to make up for that shortfall in the Medicare side.

Okay. I guess my other question is on the medical office buildings. I think you alluded to some of the issues in the MOB side, is that -- are the occupancy drop and the NOI drop, is that primarily what would be considered like a traditional MOB, whether on campus, or affiliated with hospitals or is that more on the medical device life sign side?

I guess -- where I'm going with that, if it's life science, and medical device, it can be hard tore lease off. If it's on campus MOB, that lends credence to your comments that maybe you expect that to lease back up and improve in the NOI?

The assets we chose to sell are exactly those issues where it is bio tech, will be difficult to release. To the party, and the other one is a hospital affiliated system that is consolidated, and it's going to be very difficult to release that space to somebody else in that particular marketplace. So those are issues within the same [store] numbers and so on that we had a decline in occupancy, that's attributable to three or four buildings primarily.

And they had early lease terminations. And that's in every case. One of them was a physician's practice group that vacated and we are probably about a third released there.

And expect that to ultimately get back to fully being leased now within the next couple of quarters. So it's consolidations and physicians growing the staff of healthcare systems and being paid, salary employees rather than their own group practices.

So it is an off campus multitenant MOB, then?

That -- at the time was when one tenant with the physicians group.

Okay.

So single tenant going to multitenant.

Right.

Okay.

Yep.

And -- I guess the other question I have on the disposition of the assets, it seemed to me at least from the Five Star report yesterday, that some of those -- at least on the skilled nursing senior housing side, the skilled nursing side, the assets are losing money, and so should we expect lease coverage to improve once you sell those skilled nursing outfits? Does that make sense?

Yes. We do expect coverage to go up a few points. Today I think it's at 1.27

times. It will go up to 1.30 times. About -- so we do expect (inaudible) coverage to increase.

Okay. And on the managed operating portfolio, you talked a little bit about the softness this quarter, just -- and especially on that Sunrise portfolio, are you being impacted there? Especially when you think about the rate side, the reimbursement.

I think you did say earlier in the call, the impact of reimbursement on those skilled nursing units. Is that probably the primary cause of the rent decrease also sequentially?

Yes, on the Sunrise assets that has definitely negatively impacted us. It is tough to quantity, but it's probably, in total, about $1 million quarter, versus last quarter, negative impact. So I'd say more than half of that is probably the sequestration impact, particularly on April 1st.

And the balance was declined Medicare census. I think we have even seen a few situations where Medicaid actually was reduced too. So -- and like I say, it is 40% of the Sunrise assets are skilled nursing, which makes up in Sunrise in total makes up like 40% of our managed senior living portfolio.

Do you need to convert some of those units to say memory care, or some other acuity level -- I don't know if those facilities allow themselves to be converted, have those units converted. But is there something, can you convert those units to another level of care that will give you more stability relative to the reimbursement?

Yes, I think -- there can be a number of modifications that can convert wings to Alzheimer's care, but also these are traditional nursing home beds with two beds per room and so on. It really could be updated to be competitive for the Medicare suites that many people are promoting to capture more of the Medicare business on referrals and so on.

Each property is going to be individually examined, and we'll see if it can be modified in some way.

Okay. I have asked enough, I will hop off and allow somebody else

We will go next to the line of Todd Stender with Wells Fargo.

Good morning, guys. The senior housing assets that are teed up for sale, are they represented in one of the Five Star leases, or are they spread around among the four?

There are spread around three of the four, so they are not all in one lease, but three of them.

Any one particular lease hit more than the rest?

I believe -- yes. Lease number one may have the majority of them, compared to lease number two and number four.

Okay. Thank you, and then the MOBs, were these the ones teed up for sale, were these acquired from Commonwealth? And when were they acquired?

They are acquired back in 2008 in our first original transaction. Where we did buy a portfolio property from them. And you know back -- if you go back to the spring of 2008 when we did the transaction, it was pre-recession.

So the world still looked very wonderful back then, and a lot of these businesses were expanding. But during the recession, many of them looked to contract or consolidate. And so here we are five years later, and some have made that decision.

So I think -- in looking at our portfolio, if you were to look -- sometimes in our presentations we looked down our piecharts to core on-campus, our hospital affiliated, noncore, and biotech. And I think most of this is coming out of that middle noncore component.

So it will focused more and more on the on campus affiliated, or nearby hospital affiliated or some biotech, like the [Brook and Elmer] deal. Which is here in Boston, it's a beautiful biotech space.

And the tenant is signing on for a 15-year commitment to lease the space. So we are seeing other opportunity to reinvest proceeds.

Okay, that's helpful. And just looking at the average lease terms of about a year. Are any of the MOBs currently vacant?

One is --

One just became vacant on July 1st. And the others over the next 12 months will -- early 2014, second quarter 2014 will become vacant.

Okay, thank you, Rick. And back to your comments with this July 13 acquisition. The MOB in Boston.

Can you two through a cap -- or any cap rate differential, if there is one, between a traditional MOB and one that has more of that bio tech lab space? Is there any real difference in acquisition costs.

I think -- they are pretty comparable. The biotech in the Boston area is pretty hot. Actually I should say it is in fire on the Cambridge market.

So cap rate there is a little less than traditional medical office buildings that we have been buying. We have been usually in the higher sevens to mid seven's for bio tech, and just a little bit below mid. So -- But, you know, investing in a great tenant for a long-term lease is also worthy of stretching a little bit for.

Thank you very much.

You're welcome.

Thank you. And I'll turn it back to Mr. Dave Hegarty for closing remarks.

Thank you for joining us on the call, hope you have a nice rest of the summer, and we will see you in September I'm sure. Thanks a lot.

Thank you. And ladies and gentlemen, that does conclude your conference for today, thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.