Diversified Healthcare Trust (DHC) 2013 Q3 法說會逐字稿

Good day and welcome to the Senior Housing Properties Trust third quarter financial results conference call.

This call is been recorded.

At this time for opening remarks and introductions I would like turn the call over to the Vice President 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, Treasurer and Chief Financial Officer.

Today's call includes a presentation by management followed by a question-and-answer session. I would also note that the transcription, recording and retransmission of today's conference call are strictly prohibited without the prior written consent of Senior Housing.

Before we begin I would like to state that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigational Reform Act of 1995 and other securities laws. These forward-looking statements are based upon Senior Housing's present believes and expectations as of today October 29, 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 Security's and Exchange Commission, or SEC, regarding this reporting period.

In addition this call may contain non-GAAP numbers including normalized funds from operations or normalized FFO. A reconciliation of normalized FFO to net income, and the components to tabulate AFFO, CAD or FAD are available in our supplemental operating and financial data package found on our website at www.snhreit.com. Actual results may differ mature from those projected in any forward-looking statements.

Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

And now I would like turn the call over to Dave.

Great, thank you Tim and good morning, everyone. And thank you for joining us on today's call.

Earlier this morning we reported normalized funds from operations, or normalized FFO, of $0.42 per share for the third quarter of 2013. Our results this quarter were mixed with many positives to note. Our triple-net leased assets representing more than half of our NOI held steady and generated modest growth.

Our medical office building portfolio representing 30% of our NOI, showed modest overall growth. And our managed senior living portfolio representing 15% of our NOI demonstrated particularly outstanding results. I will analyze these segments in detail in a few minutes.

Consistent with our business strategy of owning and acquiring private-pay assets and minimizing our exposure to government-funded programs, such as Medicare and Medicaid, we completed $101 million of private-pay acquisitions since July 1. And have $27 million of additional properties under agreement to acquire. In September we announced the sale of our two Greater Boston inpatient rehabilitation hospitals, the only rehab hospitals we own, to a third-party joint venture for $90 million.

Additionally during the quarter we sold 1 skilled nursing facility and are making progress on selling the other 10 senior-living communities and 7 medical office buildings held for sale. These actions are part of our portfolio repositioning we announced last quarter. We continue to be well-positioned today to pursue accretive private-pay acquisitions, while maintaining our disciplined underwriting standards and do not have a need to access to capital market for the foreseeable future.

With all these moving parts, our board determined earlier this month to leave the dividend unchanged at $0.39 per share, which represents an attractive and secure 6.25% dividend yield as of yesterday's close. I'll now spend some time discussing the trends we're seeing in our portfolio and the acquisition environment, and Rick will get into our financial performance in a few minutes.

Our triple-net leased senior living properties, whose results reported on a rolling 12-month basis as of June 30, 2013, continue to perform well. Overall occupancies were approximately 85%, and coverage ratios were about 1.4 times. Occupancy for the trailing five quarters were essentially flat for our independent and assisted living assets, while skilled nursing continue to decline.

The independent living assets hovered around 87.6% to 87.7%, while assisted living remained between 86.5% and 87%. Skilled nursing declined from 80.4% to 78.9% year over year. The skilled nursing portfolio continues to be affected by the weak operating environment and the decline in skilled nursing census along with the Medicare sequestration has put some pressure on coverage ratios.

Looking at the performance of our individual operators, Five Star Quality Care's 189 leased communities had combined occupancy of 84.2% and rental coverage of 1.25 times. If you exclude the 10 senior living communities held for sale, Five Star's aggregate occupancy would've increased 40 basis points to 84.6%, and rental coverage would have increased from 1.25 times to about 1.3 times, more in line with historical coverage ratios.

The four properties we leased to Sunrise Senior Living had occupancy of 92.9% and rental coverage of 1.9 times. The 18 properties we leased to Brookdale Senior Living had occupancy of 95.3% and rental coverage of 2.5 times. Our other triple-net leased senior living properties leased to private regional operators had occupancy of 84.2% and strong rental coverage of 2.0 times. Coverage is down from last year due to the addition of five new communities with a new tenant that came on at approximately 1.2 times coverage, as well as declines in Medicare rates at the skilled nursing assets.

Moving on to our managed senior-living portfolio, about two thirds of our managed senior-living portfolio based on investment value and NOI is located in the top 31 metro markets. And approximate 80% is located within the top 100 metro markets. Today we have 40 communities with approximately 6800 units.

During the quarter the portfolio generated $17.2 million of NOI which represents 15% of our total Company NOI. And occupancy at the 40 communities was 87.3%. Occupancy at the 25 same-store communities during the quarter was 90.8%, up 270 basis points from last year and average monthly rent rates were up 2.5%.

The increase in occupancy in rates resulting in increase in same-store NOI of 10.8% over last year, and an increase in same-store margins of 27.8% from 26.5%. We believe there is still significant room to continue to grow occupancy and to push rates and margins at these properties.

Beginning next quarter, 8 of the 10 Sunrise properties that were transition into our managed portfolio in September and October of 2012 will become part of our same-store portfolio. The Sunrise assets have shown improvement over the last quarter with margins increasing from 11% to 14%. If you exclude the 10 Sunrise assets from the overall portfolio, margins would have been 28%, up from the 23% reported for the quarter.

Moving on to the medical office building component of our portfolio, excluding the seven medical office buildings we're marketing for sale, we have 116 medical office buildings with over 7.8 million square feet, generating NOI of $34 million. Compared to last year, NOI was up 1.9% and occupancy was up 170 basis points to 95%.

Looking at the 103 same-store medical office buildings, occupancy was 94.7% at September 30, 2013, down 30 basis points from last year. NOI was $30.2 million down 8.3% from last year. These declines are primarily attributable to a handful of lease terminations, which we expect will be released over the next few quarters, along with lower rental rates on certain renewals and a decline in reimbursed expenses from last year, particularly real estate taxes. During the quarter we renewed 292,000 square feet of leases, and signed 132,000 square feet of new leases, for a weighted-averaged roll down in rent of 1.8% and a weighted-average lease term of 5.5 years.

On the acquisition front, since July 1 we completed a purchase of five properties for a total of $101 million, four properties of private-pay senior living communities with 306 units located in Georgia and Tennessee totaling $51 million, and were added to our managed senior-living portfolio. The fifth property is 105,000 square foot biotech laboratory building located here in Boston for almost $50 million.

This property is leased to Perkin Elmer Health Services Inc, a subsidiary of Perkin Elmer, a publicly traded investment-grade company with a $4 billion equity market cap for a 50-year initial-lease term. The weighted average cap rate on these acquisitions was 7.9%.

We also have four properties under agreement to be acquired for a total of approximately $27 million. One of the properties is a senior-living community with 68 assisted-living units located outside of Madison, Wisconsin for $12 million. We expect this community -- to add this committee to our managed senior-living portfolio.

The other three properties represent a healthcare-system affiliated medical-office building portfolio with approximately 63,000 square feet located in Orlando, Florida. We expect a purchase price in this portfolio is approximately $15 million. We expect these properties to close during the fourth quarter.

We continue to see a steady amount of acquisition opportunities to consider focused on individual properties and small portfolios in the medical office and senior-housing industries. Although we see many opportunities we are diligent in our approach to find the best properties to fit within our portfolio.

On last quarter's earning call we announced a disposition program to remove underperforming properties, particularly skilled-nursing facilities and medical-office buildings. The purpose of this disposition program is to further reduce the Company's exposure to government funded programs, such as Medicare and Medicaid, to upgrade the quality portfolio by culling out under performers, and to recycle the proceeds into private-pay properties, and to further reduce our concentration with one tenant, Five Star.

One disposition we were not in a position to announce at the time of our last call was an agreement we entered in September to sell our two inpatient rehab hospitals for $90 million to an unaffiliated joint venture. We expect to realize a gain on sale of approximate $30 million upon completion, which we expect to be sometime in mid 2014, subject to health regulatory approvals.

Both of these hospitals are leased to Five Star, and in connection with the sale they've agreed to terminate their lease and transfer their operating rights and obligations. We will experience a rent reduction of approximately $9.5 million annually. After the sale is completed, 96% of our NOI and 98% of our revenues will be derived from private-pay properties.

We consider this a big positive as it further reduces our exposure to government funded properties, and increases our focus on private-pay properties. As I already mentioned, we completed the sale of one skilled-nursing facility for $2.6 million, and expect the sales of the remaining senior-living assets and medical office buildings likely to close during early to mid 2014.

Before I turn the call over to Rick, I want to take a moment to discuss the announcement we made in September regarding restructuring of our management agreement with REIT Management and Research or RMR, and certain corporate-governance changes. Beginning in 2014 the base-management fee will be paid to RMR based on the lower of historical investment costs for SNH total-market capitalization instead of solely historical-investment cost. And 10% of the fee will be paid in SNH common shares instead of cash.

In addition, incentive management fee paid to RMR will no longer be paid based solely upon the growth in FFO, but instead based upon total shareholder return in excess of benchmarks established by SNH's independent trustees and disclosed in our annual proxy statements. Between now and year end, the independent trustees with industry consultants will establish the appropriate benchmarks. The incentive fee will be paid in SNH common shares that we'll invest over time and are subject to a claw-back provision.

On the corporate governance side we are making two significant enhancements based on feedback from the investment community. First, at our next Annual Meeting, our board will be recommending the annual election of all trustees, rather than the current staggered three-year term structure. Second, our board is determined to let the shareholders-rights plan, also known as the Poison Pill, expire in April 2014.

We view these changes positive for our shareholders as RMR's financial incentives will be better aligned with shareholder returns. And SNH's business strategy of owning high-quality product and properties, and paying an attractive and safe dividend has not changed. Our board is considering possible additional corporate and government enhancements that may be announced in the coming months based upon further feedback from our shareholder community.

With that I will turn it over to Rick to provide a more detailed discussion on our financial results.

Thank you, Dave and good morning, everyone.

I will now review our third quarter, year-over-year financial results. For the third quarter of 2013 we generated normalized FFO of $78.8 million, up 5.4% from the third quarter of last year. On a per-share basis normalized FFO for the quarter was $0.42 per share, compared to $0.43 per share for the same period last year. Normalized FFO per share continued to be impacted by the timing differences of our capital raise earlier this year until we were able to fully invest the proceeds in August.

Normalized FFO per share was also impacted by lower than expected NOI for our same-store medical office portfolio, primarily related to the decrease in occupancy and lower rates on renewals, as well as decline in certain reimbursable expenses. However, we expect our medical office segment to improve in the fourth quarter.

Looking first at the income statement. Rental income for the quarter was $112 million, down 1.3% from last year. This decline was due to the transfer of 10 previously triple-net leased communities to our managed senior living segments during the third and fourth quarters of 2012. The decline was partially offset by the acquisition of five triple-net leased senior living communities and 13 medical office buildings since July 1, 2012. 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 $2.4 million for the same period last year due to the transfer of the 10 previously leased communities to our TRS. Residence fees in services grew to $75 million during the quarter due to the acquisition of six managed senior-living communities and the transfer of the 10 formerly leased communities to our managed portfolio since July 1, 2012.

Property operating expenses for the quarter increased to $74.7 million dollars due to the external growth from acquisitions in the transfer of the 10 formerly leased communities to our managed senior-living portfolio. Approximately $17 million of property-operating expenses were derived from our medical office buildings, compared to $15.6 million last year, and approximately $58 million was derived from our managed senior-living communities, compared to $31 million last year.

General and administrative expenses for the quarter were $7.8 million compared to $8.4 million for the same period last year. The decline in G&A is a result of a state franchise tax refund and a decline in professional fees. As a percentage of total revenues, G&A was 4.2%, compared to 5.4% last year. Interest expense declined 3.3% to $29.4 million this quarter compared to last year. During the quarter we prepaid a mortgage note encumbering two of our properties totaling $13.6 million, with a weighted average interest rate of 6.5%, and recorded a loss on early extinguishment of debt of approximately $150,000.

Since July 1, 2012, we have paid down $230 million of secured debt at a weighted average interest rate of 6.4%, and during the same time period we assumed $77 million of secured debt at a weighted average interest rate of 6.1%. We also recognized a loss of early extinguishment of debt of approximately $550,000 during the quarter related to the amendment of our credit facility.

During the third quarter we recognized a gain on sale of $1.1 million related to the sale of one skilled-nursing facility previously classified as held for sale. Income from discontinued operations was $1.2 million for the quarter, which included operating results of the seven medical office buildings for sale.

We currently have 10 senior living communities and 7 medical office buildings classified as held for sale, and two rehab hospitals under agreement to sell for $90 million. We expect to sell these properties by midyear 2014. Once our rehab hospitals are sold, and the leases are transferred to the new operator, we will reduce Five Star's rental payment by $9.5 million or approximately a 10.5% cap rate on the sale.

We expect to reinvest the proceeds into private-pay properties and will experience moderate dilution. We believe that divesting assets that are impacted by the uncertainty surrounded government funded programs and reinvesting the proceeds into private-pay assets will improve our overall portfolio and risk profile. Even today we stand as the public health care REIT with the lowest exposure to government-funded properties.

Moving to the balance sheet. In September we announced an amendment to our existing $750 million unsecured revolving-credit facility. We extended the facility's maturity date from June 2015 to January 2018, and reduced the rate from LIBOR plus 160 basis points to LIBOR plus 130 basis points.

The facility fee was reduced from 35 basis points to 30 basis points, and we also have an option to extend the facility by one year to January 2019. Since July 1 we closed over $101 million of acquisitions. We also invested $6.6 million into revenue producing capital improvements at our leased senior-living communities.

During the quarter we spent $3.5 million on tenant improvements and leasing costs, our recurring capital expenditures include $1.5 million at our medical office buildings and $2.6 million at our managed senior-living communities. We also incurred approximately $3 million of development and redevelopment capital expenditures, primarily at our managed senior-living communities, which will be higher than normal until our significant one-time projects are completed over the next year.

As September 30, we had $52 million of cash on hand, $1.1 billion of unsecured senior notes, $703 million of secured debt in capitol leases, and $125 million outstanding on our line of credit. At quarter end our debt-to-market capitalization ratio was a conservative 30%, and our debt-to-book capitalization ratio was 41%. 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 $115 million outstanding on our line of credit. Our credit statistics remain amongst the strongest of all healthcare REITS with adjusted EBITDA over interest expense of 3.7 times, and debt over annualized-adjusted EBITDA of 4.4 times. We have excellent liquidity to fund future acquisitions with no need to access the capital markets for the foreseeable future.

During the remainder of 2013 and into 2014 we will continue to be focused on opportunities to grow cash flow, pay consistent and safe save dividend while maintaining a conservative balance sheet.

With that, Dave and I are happy to take your questions.

(Operator Instructions)

First question is from the line of Juan Sanabria, Bank of America. Please go ahead.

Hi gentlemen, I was just hoping you could comment on the acquisition environment. I believe you briefly spoken about $300 million to $400 million of transactions for the year. I think you got about $200 million to-date, and how you feel about that, and just asset pricing?

Yes, okay, on the acquisition environment I'd say we are continuing to consider the single opportunities, smaller transactions. So I'd say by year end, it is always a possibility of significant transactions, but of the bread-and-butter transactions I think we are probably more in the neighborhood of $250 million to $300 million expectation at this time.

So I think it is a challenge to win some of the larger transactions in this environment because I think pricing is getting a little bit frothy. But we are still trying to hold the line on our investment parameters.

What kind of cap ratio do we expect for the $27 million that's under agreement? Those four properties?

That should be North of 8%.

Okay. And can you give any color on the same-store MOB portfolio had a rough period year-over-year. Kind of what you're expectations are going forward.

Seems like margins came back a bit, I think you said that reimbursements were part of the problem. But any color on how should you should think about going forward?

Yes, we did have a stellar third quarter on the MOB same store. We do expect -- (multiple voices)

We had a tough time. Yes, not stellar.

We do expect the fourth quarter to improve. Occupancies did go down year-over-year and we will be working on that to get some leases signed up there. And pushed the rates where we can.

You also mentioned that we had higher utility expenses, real estate expenses during the quarter. Unusually high, so we don't expect that moving forward and we do intend -- we do believe this will improve in the fourth quarter going forward.

Right. We did have some occupancies--some leases expired during the period that were not renewed so there was a bit of down time until it gets renewed, but the prospects are looking pretty good for most of the space.

Great. Just one last question on the dispositions of those 17 assets, the senior living and the SNFs. Can you just remind us on the NOI attributable to those properties -- that you are looking to dispose of?

Yes, some of these, the 10 senior-living facilities for sale, and they are underperforming there's really not a true -- these -- although we are collecting rent on those 10 senior-living communities, our tenants experiencing negative margins on them. So selling these will not only help them on the performance of their other properties in the leases, we can actually take the proceeds and put them into other private-pay senior-living facilities for us.

The impact on SNH would be that to the extent we received proceeds we take those proceeds and reinvest them another assets. If the rent--the original rent on the property whatever differential or short fall there is gets put back onto the master leases. So, if we bought -- if we had property for $10 million and the rent was $1 million, if we sell it for $5 million, we give the tenant a rent concession of 10% on $5 million or $500,000 -- $50,000 -- $500,000.

That differential of 500,000 from the original rent just gets put back on the master lease and distributes over the remaining properties in that master lease. So we are really talking about how much we can reinvest the net proceeds, and what cap rate we can do. So if it was today it would probably be about a 1.5%, 2% dilutive effect on the net proceeds which is effectively a couple hundred thousand dollars per annum.

On the medical office buildings, some of those buildings are vacant today and already in our numbers. So with the net proceeds I think we will probably come out neutral to a little bit dilutive on that.

Okay. So for the senior living, because of the master lease it's going to be a wash, it is just a question of the cap rate you can reinvest the proceeds at? Is that correct, sorry?

That's correct.

Okay, thanks, guys.

(Operator Instructions)

We will go to the line of Tayo Okusanya with Jefferies. Please go ahead.

Yes, good morning, everyone. Dave, just wanted to dig a little bit more into the Sunrise assets.

You mentioned on the call about the margins around that is know about 14%. Could you talk about what occupancy levels are with that portfolio and ultimately your efforts to get operating margins kind of closer towards the rest of the RIDEA portfolio, how that's going and how do you expect that to manifest over the next 12 months to 18 months?

Sure. You are correct, that in the presentation we said 14% was the margin for the quarter for those assets.

The occupancies at those properties are about 80%, high 70%s to 80%. And we expect that we are putting capital into the properties right now to make them more competitive.

For the most part most of our capital will still continue to be put into the properties over this coming next couple of quarters. So we would expect to see increasing occupancy at those properties.

One of the things that makes it not comparable to our existing RIDEA assets, same-store assets, is that these assets are roughly 40% skilled nursing and 60% assisted living. So the margins are going to be not as good as the existing RIDEA assets, because the same-store RIDEA is about 75% independent living and 25% assisted living. So the best margins are independent living. So I would expect this portfolio to probably be in the neighborhood of 20%, 25% margins as opposed to the 30% to 40% margins we can achieve on our existing RIDEA assets, if not better actually.

Got it. How much and CapEx are you still putting into the assets? Are you still running around the $2000 to $2500 per unit that you were talking about, or that you guided to?

Yes, overall, yes. I'd say the normal recurring is more like $1500. But with an extra $1000 or so of structural cost and so on.

Okay. That's helpful. The $100.5 million of acquisitions that you made, could you give us what the split is between the MOB piece and the senior housing piece in regards to the cap rate you paid on each of those pieces?

It is 50%-50% dollar wise. And the cap rates for the senior housing is in the low 8%s versus the MOB which is about 7.25%, 7.5% --up 7.5%.

Okay. Then last one for me, just with everything going on with Commonwealth at this point, whatever ultimate decision gets made on that end, do you expect that to have further implications for changes to corporate governance at SNH? And what potentially could the additional changes be?

I don't know what will happen at CWH. I think we would have to take into consideration what they are doing, but our Board is really going to make its own decision on what it is going to do as far as corporate governance matters. And the management fee structure--we have five different REITs with the same manager and so it would be -- you couldn't justify really one REIT paying a different fee structure than another REIT paying a different fee structure. So as far as that type of analysis that probably would be if there is some change there we would have to seriously consider making such a change at SNH.

As far as each of our bylaws and declaration of trust and so on, I have some differences between them. And so what might be appropriate for one REIT might not be appropriate for another. So I think down the road we'd be looking at the Board composition and things of that nature.

Got it, okay. That's helpful. Thank you.

You're welcome.

Our next question comes from the line of Daniel Bernstein with Stifel. Please go ahead.

Good morning.

Good morning.

On the MOB's, I just wanted go a little bit further into what you are expecting to improve. If you're expecting occupancies to improve as you lease up some of the vacated properties or space, what are you thinking in terms of rent growth?

Should we'd be expecting occupancies to go up but then rents to continue to roll down in the margins as well. I just wanted to get a little bit more clarity on what you are expecting -- how do you expect the NOI MOBs to improve?

We do have some expected occupancy increases at certain locations, so that should be a pickup.

As far as rental rates, I think for the traditional MOBs that's going to be more or less flat to maybe a little positive. But I think some of the concerns we have, or issues we've had, is with some of the maybe non-core MOB buildings. And a number of leases were executed pre recession that are rolling over now it is been a challenge to achieve the same rental rates today.

So I'd say net-net, I would say that flat is probably will come out. Maybe plus or minus a percent, but I think we're pretty much at status quo today and we would expect to somewhat improved.

Is there any pressure for you to put additional CapEx or TI to get those leases? In other words, the NOI might go up, but if I think on an accurate CapEx basis am I going to see the NOI go down? I'm just trying to think about what kind of pressures you're seeing in terms of CapEx and TI?

We are spending regular CapEx on some of the buildings, particularly some of the older buildings we have on 2141 K Street and the other one is on 19th Street in Washington, D.C. Even at Cedar Sinai we're doing a fair amount of renovations to the lobbies and elevators and things of that nature. As far as the tenant space itself, I'm not expecting significant increase in TI required to release the space.

Okay. On the managed assets, if you took out the Sunrise assets do you have any data that you can provide on a quarter-over-quarter performance, again for the non-Sunrise assets? When I look at the supplement I don't have an apples-to-apples basis to how you did sequentially on occupancy, rate, margin, et cetera.

Yes, if we took out the 10 Sunrise and we had just the 30 managed senior-living communities, I think we said on the call that the margins would be about 28%, and that's a little higher than it was year-over-year. It is consistent with the second quarter to this quarter. It is somewhat flat this quarter.

I assume the occupancy improves sequentially. It look like 20 basis points in the supplemental but again it is not apples-to-apples, is that about right, 20 basis points or so?

That's probably in line.

Okay, then the other question I had is most of your acquisitions in the senior housing side has been put into TRS to manage the assets. Can you go over maybe again the criteria of using triple net versus TRS?

And is it your preference now to basically do senior housing acquisitions place them into the managed portfolio? And does the construction dated that you see at Nick map alter that thinking at all?

Currently our expectation is to continue to put them into the TRS assets. It definitely is a transaction-by-transaction analysis that we do.

But we don't feel threatened for say the next year or two on the fact that new construction will impact occupancies at properties. I think we feel that the demographics and the local analysis we do at each acquisition suggest that there is still a decent amount of upside potential. So we are still staying with the TRS model for now -- for, I'd say, the next several quarters at least.

And if a significant transaction comes along I think we'd probably evaluate that even further whether or not which way we should do it. But I think we still have quite a bit of running room.

Okay That's all for me, thank you.

Thanks.

Our next question today comes from the line of Michael Carroll, representing RBC Capital Markets. Please go ahead.

Can you guys give us an update on that two portfolios you're currently marketing for sale? What type of interest have you received already and when can we expect these sales to be completed?

We have a good amount of interest. I'd say all the skilled nursing and senior housing assets for the most part were actively getting good, solid offers in on each of those properties.

It is conceivable we could sell some them before year end, close on them. Otherwise I'd say it could slip into the first quarter on the senior housing side of things.

Medical office buildings, a little bit later marketing effort, but there is good amount of interest in the properties. So I think it is a little longer time for this sales efforts, but then again they don't need healthcare regulatory approvals to close on. So closing again is most likely to occur mostly in the first quarter next year.

These are the senior housing assets. These are mostly leased to Five Star, right? So can we expect a pretty good pickup in Five Star's coverage ratios?

Yes. I think in the presentation-- in the script I had mentioned that 40 basis point pickup in occupancy and about 5 basis point pickup in coverage ratio.

And are all the assets leased to Five Star or only some of them?

All 10 are leased to Five Star.

Okay. Great. Thanks, guys.

You're welcome.

I'd now like should the conference back over to the speakers for closing remarks. Thank you.

Thank you all for joining us and we will be at NAREIT in just a couple weeks from now, so we look forward to seeing many of you at that conference personally. Thank you. Have a good day.

That does conclude our comments for today. We thank you for your participation and using the AT&T executive teleconference.