Diversified Healthcare Trust (DHC) 2016 Q2 法說會逐字稿

Good morning, and welcome to the Senior Housing Properties Trust second-quarter financial results conference call.

(Operator Instructions)

I would now like to turn the conference over to Brad Shepherd, Director of Investor relations. Please go ahead.

Thank you and good morning, everyone.

Joining me on today's call are David Hegarty, President and Chief Operating Officer and Rick Siedel, Chief Financial Officer and Treasurer. Today's call includes a presentation by management followed by a question and answer session.

I would like to note that the transcription, recording, and retransmission of today's conference call are strictly prohibited without the prior written consent of Senior Housing. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon Senior Housing's present beliefs and expectations as of today Friday, August 5, 2016.

The company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC. In addition, this call may contain non-GAAP numbers, including normalized funds from operations or normalized FFO and cash-based net operating income or cash NOI.

A reconciliation of these non-GAAP figures to net income and the components to calculate 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 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 SEC. Investors are cautioned not to place undo reliance upon any forward-looking statements.

Now I'd like to turn the call over to Dave.

Thank you Brad and good morning everyone.

Thank you for joining us this morning on today's a second-quarter earnings call. Earlier this morning we reported normalized funds from operations on normalized FFO of $0.47 per share for the second quarter. An increase of 6.8% year-over-year.

As Rick will explain later we have removed estimates of percentage rent from our calculations of normalized FFO. The impact of this change in the quarter was a reduction of a penny per share of normalized FFO, or we otherwise would have reported $0.48 per share. This strong performance was achieved through solid operating results across all sectors and attractive financing during the quarter.

In the second quarter, we continued to focus on adding value for selective accretive acquisitions, internal growth, more efficient operations, as well as lining up attractive long-term financing, which closed after the quarter end. Highlights for this quarter were that we grew normalized FFO per share year-over-year by 6.8%, grew consolidated same property cash NOI by 2% year-over-year, achieved a solid 8.5% same-store NOI growth in our managed senior living portfolio year-over-year, continued to lead the healthcare REIT sector is a 97% private pay portfolio, skilled nursing facilities that are dependent upon government programs account for only 2.6% of our portfolio, maintained our normalized FFO payer ratio at 83%, achieved a year-to-date total return on the stock of over 50%.

During the quarter, acquired seven triple net lease senior living communities for $112 million, one managed senior living community for $8.4 million, and one life science medical office building in Florida for $45 million. This brings our year-to-date total acquisitions to approximately $188 million. We sold one skilled nursing facility for $9.1 million and subsequent to quarter end, sold four MOBs for $20.2 million bringing our year-to-date total dispositions to approximately $30 million.

And finally subsequent to quarter end we closed on the $620 million, ten-year secured financing, allowing us to term up the majority of the outstanding borrowings under the revolving credit facility. Our carefully constructed portfolio continues to illustrate our strategy of owning well diversified private pay-focused healthcare assets.

In the second quarter, approximately 40% of our NOI was attributed to triple net lease senior living communities; 16% to manage senior living communities and 42% to medical office buildings. At the end of the second quarter, our triple net lease senior living portfolio consisted of 236 properties, generating quarterly NOI of $66 million, a 7.6% increase over the prior year. These communities continue to perform very well with same-store cash NOI increasing 1.4% year-over-year.

The triple net senior living portfolio had a combined occupancy of 85.4% and rent coverage of 1.33 times for the 12 months ended March 31, 2016. The coverage ratios of our leases remain very strong overall. We've seen occupancies impacted on the margin by new competition in certain markets and several of our tenants are focused on the stressing rate growth over occupancy.

We continue to be comfortable with our tenants ability to cover the rent due to us. At the end of the second quarter our managed senior living portfolio consisted of 67 properties, generating quarterly NOI of $26 million, a 17% increase over the prior year. The percentage of NOI that the managed senior living portfolio represents, remains a relatively small percentage of our total NOI at 16%. On a same-store basis, NOI in our 46 managed senior living communities, grew 8.5% year-over-year.

This performance was driven by the same-store margins increasing over 200 basis points to 25.7% from 23.6% last year. While revenue and occupancy were down, average monthly rates increased 1.7% and our managers continue to be very focused on controlling labor and other operating costs. We will strive to increase occupancy at our managed portfolio by investing capital in our communities, retaining quality professionals and maintaining our preferred status as a provider of choice in our markets.

Our operators have done a great job enhancing and maintaining services for our residents while also tightly controlling costs. At the end of the second quarter, our MOB portfolio was comprised of 123 properties with over 11.6 million square feet, generating quarterly NOI of $68 million, which is a 2.7% increase over the prior year. Overall occupancy at the end of the second-quarter in our MOB portfolio was a strong 95.9%.

Occupancy of the same-store MOB portfolio decreased 60 basis points to 95.8% in the second-quarter, while the NOI remained flat year over year on a GAAP basis, and was up 70 basis point on a cash basis. Although our reported same-store occupancy experienced a modest decline, if we had excluded the properties we had classified as held for sale, year-over-year occupancy would have been down only six basis points to 96.3%. Similarly our same-store NOI would've increased $300,000, so 47 basis points, while same-store cash basis NOI would've increased $650,000 or 1.1%.

Turning to our acquisition and disposition activities, as mentioned on our last call in the second-quarter we acquired a senior living community in Georgia for $8.4 million and a life science MOB in Florida for $45 million. In June, we entered into a sale leaseback transaction with Five Star for seven assisted living communities for roughly $112 million.

The leases have initial expirations 2028, with two 15-year renewal options and pay a rental rate of 7.5% of the purchase price with 1.25 times coverage. They also carry the same cross to fall provisions and GAAP corporate guarantees as the existing leases. This transaction provides many benefits to us as a senior living community owner beyond an attractive and stable return.

This transaction with Five Star improves the balance sheet of our larger tenant and operating partner and supports our continued investment in Five Star, which we believe remains undervalued in the public markets. Simultaneously, with the sale leaseback, we amended certain management agreements, which will create greater incentives for approved performance at our managed committees.

These second quarter acquisitions, bring our total acquisition volume to approximately $188 million year to date. In June, we sold one skilled nursing facility located in Pennsylvania for approximately $9.1 million. Subsequent to quarter end, in July we sold four MOBs located in Oklahoma, for approximately $20.2 million, bringing that total disposition volume to $30 million year-to-date. These MOBs and one other MOB located in Pennsylvania were reclassified as held for sale at quarter-end.

We continue to monitor the investment opportunities in the senior living and medical office buckets and are being patient for maximizing our risk-adjusted returns. Acquisition activities for the foreseeable future will continue to be modest with individual properties in small portfolios.

I'd now like to turn over to Rick to provide a more detailed discussion on our financial results for the quarter.

Thank you Dave, and good morning everyone.

As Dave pointed out, we changed our calculation of normalized FFO to exclude adjustments for estimated percentage rent. Our calculation of normalized FFO in the first three quarters of each year no longer includes estimates for percentage rent and we will now include all percentage rental income in normalized FFO during the fourth quarter which is when it is recognized in accordance with GAAP.

While there will be no change on a full-year basis, this change will result in lower normalized FFO in the first three quarters of the year and higher normalized FFO in the fourth quarter. We are please with our performance in the quarter with normalized FFO of $111.7 million, an increase of 7.2% compared to last year. And up 6.8% on a per share basis to $0.47 per share. We declared a $0.39 map share dividend in July resulting in a payout ratio of 83%.

Rental income for the quarter increased $8.5 million from the second-quarter of last year to $164 million. This increase is primarily due to the acquisitions of two medical office buildings and 27 triple net lease senior living communities since April 1, 2015, partially offset by the sale of four senior living communities, three of which were skilled nursing facilities, and one MOB during the same period. On a same-store basis, rental income increased $1.6 million.

This increase was primarily due to increased escalation income in our MOB portfolio was well as increases in rental income related to funding capital improvements at certain of our committees within our leased senior living portfolio. Resident fee and services revenues from our 67 managed senior living committees, increased 6% compared to the second-quarter 2015 to $97.4 million.

This increase is primarily attributable to our acquisition of 20 managed senior living committees since April 1, 2015, partially offset by a decrease in occupancy from last year. Property operating expenses from our MOBs and managed senior living committees, increased 4.1% in the second quarter to $97.5 million, compared to the same period last year primarily, due to the acquisitions I just mentioned.

On a consolidated same-store basis property operating expenses decreased $897,000. This decrease is primarily attributable to controlling costs in our managed senior living communities, while continuing to provide high-quality services to our residents, partially offset by increases in operating expenses at our MOBs, particularly real estate taxes, which were largely recoverable from tenants.

General and administrative expenses increased $291,000, or 2.5% to $12 million this quarter, compared to the second-quarter of last year. Within G&A expense, our expense related to business management fees only increased by $150,000 compared to last year, despite growth in our portfolio because the fees continue to be based on market capitalization instead of historical cost through May of 2016.

At 4.6% of revenues for the quarter, S&H remains one of the most efficient companies in the healthcare REIT sector, particularly when considering the size of our portfolio as we continue to benefit from the efficiencies of our management structure. We recorded non-cash impairment charges totaling nearly $5 million in the second-quarter of 2016 related to the five MOBs that were classified as held for sale at June 30. We expect proceeds totaling approximately $23 million from the sale of these five buildings, including the $20.2 million we received in July from the sale of four of these properties.

Partially offsetting the impairment charges, we reported a gain of $4.1 million after all transaction fees and expenses on the sale of one of our skilled nursing facilities that had been net leased to a private senior living company for $9.1 million. This sale furthered reduce our exposure to government reimbursement programs in our senior living portfolio.

Interest expense increased 8.5% to $41 million this quarter, compared to the second-quarter of 2015. The increase was primarily a result of increased borrowings outstanding on the revolver, the $200 million term loan in September of 2015, and the $250 million 30-year senior notes issued in February of 2016. These increases will partially offset by the repayments of $250 million of our senior notes in November of 2015 and $107 million of mortgages that had encumbered 10 of our properties since April 1, 2015.

We recognized $789,000 of dividend income from our investment in RMR during the second-quarter. We expect dividend income to run at approximately $650,000 per quarter going forward, which will result in a total of approximately $2 million in 2016. In addition to the acquisition, as Dave mentioned, in the second-quarter we invested $7.6 million into revenue-producing capital improvements at our triple net lease senior living communities.

Our recurring capital expenditure's for the second-quarter totaled $10.1 million and included $4.8 million at our MOBs for building improvements, $2.7 million on MOB tenant improvements and leasing costs, and $2.6 million at our managed senior living committees. We also spent $10.8 million on development and redevelopment capital projects, with the vast majority of it being spent at our managed senior living committees.

These significant modernization or renovation projects are being completed to give our properties a competitive edge against new supply that enters the market or reposition a property in its respective market. At June 30, 2016, a we had $26 million of cash on hand and $251 million available on our $1 billion revolver.

Subsequent to the second-quarter, in July we closed on a $620 million mortgage secured by our two 1.65 million total square feet Class A life science buildings located in Boston Seaport district. The 10-year loan carries an interest rate of 3.53%. The proceeds of this loan were used to repay the majority of the outsanding balance under the revolving credit facility.

So after this refinancing and the application of the proceeds from the disposition of the four MOBs we now have approximately $900 million of available borrowing capacity under our revolving credit facility. Our total debt to gross book value of real estate assets of end of the second-quarter was 44.8%. And debt to adjusted EBITDA was 6.0 times. Given the quality of our portfolio we're comfortable with our leverage ratios where they are and believe we still have some flexibility to take on a modest amount of additional debt.

With that, I'd like to turn back over to Dave for a final comment.

Thanks Rick.

We continue to be pleased with the performance, diversification and quality of our portfolio. The second-quarter further demonstrates that we are committed to being disciplined in capital sourcing, acquisitions and investing in our own property to drive internal growth.

I believe our discipline is being appreciated in public equity markets and by the support of our shareholders. And we look forward to seeing everyone at the next nine deal roadshows we've scheduled in August for the West Coast and Midwest, as well as conferences that we'll be attending in September.

Thank you very much. I will turn it back to the operator for questions.

(Operator Instructions)

The first question comes from Michael Carroll with RBC Capital Markets.

Thanks. David can you go through some of your -- can you walk us through some of your ongoing asset sales in JV strategies right now? Are you currently marketing any of these assets for sale? And specifically can you provide us an update on the companies interest in joint-venturing the Seaport properties?

Sure. Good morning Mike.

First I'd like to just make one general statement just before answering your question, that I just want everybody to appreciate that this quarter you may have noticed the format presentation, very different for the press, the supplement package we've prepared in our prepared remarks in that we're being very proactive and responsive to the SEC guidance on non-GAAP financial measures.

So we've tried to put all the traditional GAAP measures first and the non-GAAP measures as a second priority. So the format is a little bit different and the biggest effect is really the percentage rent that we now have to be sure to exclude from the first three quarters and put all in the fourth quarter. And Rick can add if you want to say anything to that.

No. It is really largely responsive to some of the interpretive guidance that changed during Q2 and again we just want to be as conservative and transparent as possible.

And we do think it is different than many of our peers have been reporting so far this quarter. Now having taken care of that, talking about your question about potential JVs, capital structure and specifically the Seaport district asset in Boston that we have been talking about potentially doing to JV on. We are open to JV structures as well as -- at the moment this most recent financing that we did took care of just about everything on our revolving credit facility.

So we really don't have an immediate use of proceeds. However, I do expect our new investment activity to pick up somewhat. And we are -- part of what we did with the financing that we put in place was to eliminate one of the moving parts, to trying to put together a JV structure for the Vertex properties in the Seaport district.

So we're still having a number of conversations with several wealth funds and so on about potentially putting a JV structure in place there. But it's just a long process to educate everyone and a lot of sovereign wealth funds move relatively slow in the process. So it's an ongoing process, but that is an option for us. It's not definitive, but it is something that are continuing to work to do.

And then we'll continue to focus on doing some acquisitions. We're going to stick to the -- we're going to still focus on individual assets and small portfolios that complement our existing portfolio, as well as looking for opportunities to expand existing properties to add revenue that way. We did sell the four medical office buildings in Oklahoma at the end of the quarter. And we will continue to sell out skilled nursing facilities and potentially a few other MOBs for the rest of the year.

If you don't pursue the JV strategy in Boston, how do you think about improving your leverage metrics from this point and or how do you plan on funding future investment activity?

It would be again pretty modest looking for future investments. Obviously, if we do something larger of a transaction we would have to use equity as a component or sell assets or the JV structure coming through. So I would say at the moment that there is nothing on the radar screen that would require that.

And then related to the managed senior living portfolio, can you go through some examples on how you're able to reduce expenses and what is the outlook for this bucket going forward?

I think the most significant piece in reducing the expenses within the RIDEA portfolio was the biggest saving we had was in labor, to some extent, as the occupancy was down a little bit, the executive directors had a little more time to focus on managing payroll appropriately, and keeping the building staffed accordingly. So there's obviously is been a large focus on that.

And it's working. And in addition to that, I think some of the strategic purchasing initiatives that have been in place have helped reduce costs. I think Five Star, as our primary operator and the RIDEA portfolio, mentioned on their call a number of different things yesterday that -- where they've seen some pretty substantial savings. We benefit from that as well.

Pretty much all of the operating expense reductions are due to programs like that, that they've been doing proactively to again reduce costs, monitor payroll and so on.

And is this is a good run rate going forward, or do they have more opportunities to continue to reduce costs?

On one hand I don't want to overstate expectations, but on the other hand when you overall look at the margin we'd like to think that there is still some room for growth there.

Okay. Great. Thank you.

Our next question comes from Tayo Okusanya with Jefferies.

A good morning. Just a couple from me.

Rent coverage ratio generally stable for the quarter. The only tenant with the slight dip were the 12th privately owned operators, anything in particular going on over there?

I think a combination of things. One is just the trend that's in the supplemental package is the rolling 12-month period through March 31. And as we've added properties to that portfolio that are leased, (technical difficult) in that -- basically about a 1.2 times coverage. So just as we add properties it's going to bring down the aggregate amount. But, no, I don't think there's anything particularly affecting that performance.

Okay, number two did you give the cap rate for the MOB acquisition that was under in the quarter?

I think we did on the last call; that would be life science property. And just to remind people that was an outstanding investment, that was unique down in the Gainesville Florida area.

There was a brand-new life science building built for RND Manufacturing of vaccines for the US military. And the cash cap rate was about 13.5 and the GAAP was about 15.9 on that investment. And our investment is about $240 a foot I believe. $270 a foot. A modest investment and a great return.

Okay. And then could you talk a little bit about the terms of the secured loan against the Seaport asset and the specifically what LTVs on the asset and potentially what kind of appraisal you got for the value of the building?

Sure. From an appraisal perspective that was really more on the lender side, but we can tell you that the LTV was around 50%. So made sure that the terms were flexible enough that to the extent we do pursue a JV structure, we can do that without seeking further approval.

Perfect. Okay. Thank you.

Our next question comes from Todd Stender with Wells Fargo.

Hello. Thanks. Dave, if you do this on a previous call I apologize, but can you go into that MOB you acquired? It's a very high cap rate, I wanted to get a sense of its triple net lease to what kind of guarantees you have and maybe go through the risk profile to highlight why it is so high?

For one thing we have a presence down in -- it's really Alachua Florida, which is adjacent to Gainesville, Florida and it's with the university down there. And they have a biotech program at the Sid Martin Innovation Center which is right there that takes grad students and get them started into biotech.

We own Progress Center, which is adjacent to it, so as people get companies off the ground, they move into our space typically. And then as they succeed in biotech, either you succeed and get acquired by someone or go public or you don't get FDA approval and you burn through your cash and have to -- we have to find a replacement tenant.

This park is very successful. And the company itself Nanotherapeutics, they kept expanding within our park, Progress Center, and to the point where they landed this major contract with US government. The government is basically guaranteeing them an order flow and factored into the amount that the government is paying is the rent that is payable to us. So it's a 10-year contract. And this is a 15-year sale leaseback for the property.

We feel that we have a corporate guarantee from Nano. We feel that through their formula, basically the rent is coming from the US government, and they have this location. And they're also have a similar program going on over in the Czech Republic. And between the two of them they have a lot of venture capital, so I expect Nano will probably go public at some point.

We feel we are well covered and to either add to the success of that investment, is that at the current time we believe we pretty much have all the space that they are vacating out of Progress Center, released at very comparable rates. So it's very much a success story for us there.

Because its such a high cash cap rate you'll get your money back? (Multiple speakers) Pretty short order?

That's right and we're able to backfill the space pretty quickly.

Thank you Dave.

Rick, did you receive the proceeds from the mortgages on the Vertex building? I want to get a sense of where line of credit stands post Q2.

Yes. We have received it. We closed it in July. Paid down the line. I think the line is around $100 million outstanding right now, so we have $900 million of capacity.

Great. Thanks, and then thank you for your comments in light of the changes of the non-GAAP financial measures. Because the percent rents removed from the first three quarters, is it because there was an estimate that you were booking in each quarter and then now it has to be more realized, which is why it all goes into Q4?

Yes. From a GAAP perspective it's always been recognized in Q4. It's contingent upon rent growth and it's done on an annual basis, so we don't actually get to recognize it for GAAP until the end of the fourth quarter. The SEC's most recent -- sorry, I should start with the reason we used to include an estimate in each of the first three quarters was to normalize FFO so it would be consistent from quarter to quarter throughout the year instead of having a spike in Q4.

The SEC's most recent interpretive guidance that was published back in May had one that was specifically related to individually tailored GAAP and not to deviate from it in the timing and recognition. So again being conservative we said: okay fine, we'll change our calculation and exclude the estimate. We've still provided the estimate in our supplemental in case the analysts are interested. But from a normalized FFO perspective we expect to see a spike in Q4 going forward.

It got it. Thank you.

The next question comes from Juan Sanabria with Bank of America Merrill Lynch.

Hi, thanks. Just following up on Todd's question. What's the dollar amount we should be expecting in percent rent for this year in the fourth quarter? And if you don't have that maybe what was the amount last year?

It is included in the supplemental, in the additional data pages. It's towards the front. But last years percentage rent was $10.2 million and in our estimate for Q2 was $2.5 million.

Okay. And then on the Five Star deal where you changed the management contract and gave them higher fees, what was the driver there? You have tried to work hard to improve the optics around the management contract with RMR. But here you do a related party deal and give them higher fees and lower the performance hurdle, which to me screams maybe contrary to some of your efforts. Could you walk us through the strategies?

Why did Five Star get that, when from my seat, I think you had most of the leverage in the transaction given they had a disgruntled shareholder on their register pushing for change?

I think really the key thing to keep in mind here is that it wasn't all the management contracts that changed. There was an early termination provision that Five Star had requested that we had included in the management contracts that have been entered into since May 2015. So they had a one-time termination option where they could've gotten out of the end of 2016. It required six months notice.

So Q2 was really the period where any renegotiation was going to happen. They did, as a result of that termination option, force our hand to negotiate. And it is only on 17 properties. And that's including the ones that we've added this year.

They came to us with some evidence that market was probably closer to 5%. Historically it was, as you know 3%, and they had a larger share of 35% of the upside after the performance hurdle was reached, on a go forward basis for those 17 properties that's shifted so they'll only share in 20% of the upside. And we really thought lowering the hurdle a little bit was in everyone's best interest, because again if they do pass the threshold and generate high returns we keep 80% of the upside.

So it was really in everyone's best interest to keep them working towards generating high returns.

Okay. Thanks. That is very helpful.

And then on CapEx, you mentioned a bunch of initiatives and different buckets of maintenance CapEx, development, redevelopment. How should we think about that going forward? And I know there is some sort of one-time lower return redevelopment CapEx on some of the sunrise assets and maybe some other properties. But if you could just help us think about the CapEx outlays. What maintenance and what's over and above that might get some returns and maybe might not?

I think really our low payout ratio has enabled us to be pretty aggressive with some of the capital to make sure that our properties are well-positioned to drive future returns, especially in markets where there might be new competition coming online. We certainly don't want occupancy to suffer as a result of physical plant.

So we've really been proactive in pulling some of that stuff up and making sure we're deploying our cash effectively. We've got a number of projects that have been in the works. To some extent occupancy this quarter has been somewhat affected by the disruption of construction at some of our communities. That being said its important to make the investments and to improve the physical plant so that we are well-positioned to compete. We do expect the development or redevelopment CapEx to continue through the rest of the year.

We have a couple of projects that we're really excited about. Largely they're substantial interior or exterior renovations and there's a few projects that we call rehab to home, which is basically taking some of those old skilled nursing units and converting them into higher-end private suites to go after some of the younger patients that are eligible for Medicare and it is higher return type work.

A lot of projects that we are really excited about. They are all moving forward and we're thankful that our low payout ratio enabled us to do it right now.

Could you put any dollar numbers around the maintenance and the redevelopment CapEx? Kind of per quarter or annual basis?

In the managed portfolio, I think on a trailing 12 months basis, we spent some are around $1,451 per unit. That's towards at the higher-end of our rule of thumb $1,000 to $1,500 per unit. It's probably safe to say that it will probably stay towards the higher end of that range.

I do expect a slight decrease next quarter, but again we are encouraging our operators to do the things that they need to do to make sure our properties are in great condition. So that's on a managed side. And on the MOB side, I would say the building improvement projects will largely be a little bit less than what we spent this past quarter, going forward. But we do expect to put some tenant improvement and leasing costs CapEx in over the next -- the rest of the year really.

Okay. Thanks.

The next question comes from Vikram Malhotra with Morgan Stanley.

Thank you.

Just to clarify on the CapEx on the managed side, the $1,400 to $1,500 you referenced, that just maintenance CapEx? And is there other dollars that you are investing over above that, that's not included in your supplement?

I would say that that $1,451 is more the maintenance CapEx. It's excluding the significant development, redevelopment, repositioning CapEx.

(Multiple speakers) What is the all in figure then over the last 12 months?

This quarter we spent a little north of $10 million on those redevelopment projects. We have the --

Right, around $40 million for the year and that's very much on the high-end for us.

Okay and that are you expecting high 7%, 8% returns on that or is that number inaccurate?

On the redevelopment work? I think that's probably a little on the lower side. I think when we analyze some of these projects and look at the expected return were usually north of that. All things being equal I think that's probably, again conservatively a decent expectation.

Is that $40 million number, is that a good run rate over the next 12 months, or is that, do you expect it to go up or down with yearly?

On one hand, as we've pulled a lot of these projects up to do them now, I would naturally expect it to decrease.

We expect a lot of the projects to have been completed. There are a couple that are still going to run into next year, but certainly some of the major projects have been completed or are about to be complete.

Okay. And then on the -- a numbers question on the RIDEA -- on the managed revenues. Can you help -- I think the managed same-store revenues fell a little bit. But if I look at your changes in occupancy and rent combined, it seems they should have been up. Was there any one-time item there?

There is not a lot of one-time in revenue.

Revenue occupancy is clearly down and the rental increases were not sufficient to offset that. I don't think there's anything else in the revenue.

Maybe I'm reading this wrong, give me one second. The occupancy fell about 130 basis points.

That is the same-store number.

The same-store number, yes, it fell 130 basis points and your rent growth was -- 1.7% I am trying to square those two with the total revenue. Your occupancy fell 130; you average monthly rate was 1.7%.

Off the top of my head I can't think of anything.

I can follow up with you, that is fine.

That would be fine.

And then lastly on dispositions, can you remind us or -- of any targets you have even if they are broad targets over the next 12 months or the next six months, any ranges if you can give us on what you plan to divest?

It's predominately going to be some more additional skilled nursing and some medical office buildings. So I'd say for the rest of this year it's likely to actually close, it's probably in the neighborhood of about $50 million. We hope to continue that program into next year too. Right now I think that's what's realistic.

Okay. Great. Thank you very much.

We're showing no more questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Dave Hegarty for any closing remarks.

I would just like to thank everybody for joining us this morning. And we'd love to meet up with you at one of the upcoming conferences. We're going to hit the road soon on non deal roadshows. So we're happy to meet with everyone. Thank you.

The conference has now concluded. Thank you for attending the presentation today. You may now disconnect.