Healthcare Realty Trust Inc (HR) 2012 Q4 法說會逐字稿

Good morning and welcome to the Healthcare Trust of America Fourth Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Robert Milligan. Please go ahead.

Thank you. Joining us today on the call are Scott Peters, our President and Chief Executive Officer, and Kellie Pruitt, our Chief Financial Officer. Upon conclusion of our prepared remarks, we'll be happy to take your questions. This call is being webcast live from our website and will be available for replay for the next 90 days.

You can also find our earnings release and supplemental package through the Investor Relations section of our website or that of the SEC. During the course of the call, we'll make forward-looking statements. These forward-looking statements are based on the current beliefs of management and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For more detailed description on some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website.

I will now turn the call over to Scott Peters, President and CEO of Healthcare Trust of America. Scott?

Thank you, Robert, and good morning. I would like to thank everyone for joining us today as we discuss our fourth quarter results that were filed last night along with our fourth quarter supplement. It was another good quarter for Healthcare Trust of America, and we appreciate the opportunity to discuss our results and our outlook for 2013.

This is our third quarter reporting as a public company since our listing on the New York Stock Exchange on June 6, 2012. Since then we have continued to reach out and meet with many of you on this call over the last eight months and truly appreciate the opportunities for those meetings and a chance to discuss the medical office building sector and specifically HTA.

We understand that this process will continue, and we look forward to continuing our communication in 2013. Please do not hesitate to contact Kellie Pruitt or Robert Milligan or myself should the need arise in the future.

I will start by discussing our fourth quarter performance but will also end with a brief overview of HTA for those of you who are looking at the Company for the first time.

Our fourth quarter results were consistent with our company's business plan objectives. Focusing on asset management, and our regional operating performance, continued discipline in our acquisition philosophy regarding on campus core critical MOB's, and maintaining the focus of an investment grade balance sheet.

In the fourth quarter we grew our same store cash NOI by 3.8%; grew normalized FFO per share by 23%; took the percentage of our portfolio managed internally to greater than 70%, a number that is now 80%; and acquired a class A on-campus MOB in Dallas for $27 million which established another key healthcare system relationship for HTA going forward in the future. With the Dallas acquisition, our 2012 full-year acquisitions platform totaled $295 million, and we expanded our asset base by more than 10%.

From a balance sheet perspective, we maintained a strong balance sheet with leverage of less than 33%, maintained flexibility with liquidity to pursue acquisition opportunities, and focused our attention on improving the investment grade rating for HTA and our ability to begin to access the public bond markets and long-term debt.

From a credit rating perspective, we continued to communicate the strong underlying real estate fundamentals associated with the ownership of MOBs as an asset class that produces steady and predictable performance and provides a stable yield to investors over the long term.

The recent Affordable Care Act has increased the opportunity for us to acquire long-term tenants in our assets with credit-rated balance sheets. Our Company's focus is on being an MOB-dedicated pure play investment platform without development risk that we believe sets us apart in our sector.

HTA currently has 56% of our 2012 annual base rent is directly leased to credit-rated tenants and approximately 40% with investment grade ratings. We believe that the trends in the MOB space will continue over the next five to 10 years, and that the MOB sector will be the farthest removed from continued risk of government health care funding cuts.

As I mentioned earlier, one of our main focuses for 2012 and 2013 has been and will be the internalization of property management and leasing functions in our markets to a regional and local footprint. For the year we transitioned 5 million square feet of space to our asset management platform. As a result, as of this month, we internally managed approximately 80% of our space for over 9.9 million square feet through our regional offices in Charleston, Indianapolis, Atlanta, and our corporate office here in Scottsdale.

Our goal for 2013 is to move this up to 85% or 90%, at which time we will consider our platform fully built out and utilized appropriately with the capacity to accommodate significant acquisition growth.

The focus of our internal property management and leasing platform is threefold. One, improve our touch and feel with our tenants; two, engage directly with the health care systems about their plans, needs, and campus objectives; and, three, improve our overall enterprise value through our local teams' deep knowledge of their local and regional markets.

By managing the properties with HTA employees, we are able to respond better and faster to tenant needs. This is critical to establish and maintaining strong overall retention in our markets. It was 87% in the fourth quarter. This is the primary benefit of our platform -- the ability to understand our markets, competitive building and leasing opportunities surrounding each individual asset in our portfolio.

Since our last call, we accelerated the rollout of our full platform. We opened up our fourth regional office in Atlanta, which is now fully staffed to include full property management and leasing. We also put in place our leasing team for the Southwest region, which is based in Scottsdale. Although these transitions from third party providers to our new internal teams will take some time to bear some fruit, we believe that these position us to provide the detailed attention and operational excellence that these major competitive markets require.

Turning to leasing, we experienced good levels of leasing activity in the third and fourth quarters that were represented in our numbers. While our ending occupancy was relatively flat, we continue to balance rate, concessions, and occupancy to maximize performance. Right now, this is manifesting itself in renewals with longer lead times and lower concessions.

In 2013, we have 8.2% of our GLA, or [932,000] square feet up for renewal. That excludes month-to-month renewals with approximately 40% of that occurring in the first quarter. Our renewals for this period is consistent with recent performance, and we expect to retain our tenants at a rate similar to the third and fourth quarter.

Our cash releasing spreads are essentially flat. This is a significant improvement from 2011 and early 2012 when mid-teen leases were rolling down. The longer a lease has been aging with annual rent escalators the more likely it is over market. Fortunately, we have entered into over 70% of our leases in the last five years and remain comfortable with our rental rates.

The Company has and expects to maintain a strong balance sheet that provides the flexibility and liquidity for growth. As I mentioned previously, we had total leverage less than 33%. We also had available liquidity of over $515 million including over $500 million available on our revolving credit facility. We have been investment grade since July 2011.

On the acquisition front, we were able to expand our portfolio by more than 10% in 2012 by acquiring 295 million in high-quality, predominantly on-campus MOBs. These were acquired with an average cap rate of 7.8%, which is reflective of opportunities and relationships we had established previously. We certainly recognize the cap rates for high quality MOBs have come down from those levels.

We will continue to be disciplined and selective in the assets that we pursue. Given our size, we have the ability to take a rifle shot approach acquiring single assets at a time and still demonstrate meaningful portfolio expansion similar to the 10% expansion we demonstrated in 2012.

Additionally, as a dedicated owner of MOBs with a national leasing and operating platform that has acquired over 2 billion in MOBs over the last five years, we certainly believe we have the capacity to underwrite and operate larger portfolios than might come to market, especially ones that allow us to generate operational and leasing efficiencies expand in the key markets. However, we will only pursue these transactions in situations where we can grow our NAV.

In the fourth quarter this consisted of our $27 million acquisition of the Forest Park Pavilion in the last week of December. Forest Park is a physician-owned health care system that currently operates two hospitals, and is in the process of developing four new ones. This purchase price represents a going-in cap rate of 7.29%, 100% lease with 3% annual rent bumps. Importantly, we also see further opportunities to grow with Forest Park over the next three to six months as they continue to expand.

The Pavilion is on the West Park Medical Center Dallas campus, which is located in the strategic North Dallas medical community. The hospital has 84 beds and 22 operating rooms serving more than 450 physicians who have medical privileges. Their facilities are state of the art, technically exceptional, and focus on physicians and patients opting for private pay insurance covered medicine.

Our investment philosophy is simple. We view the quality of our portfolio and acquisitions relative to several key fundamentals-- health care system locations, affiliation with leading health care systems, strength of the tenants and associated cash flows and the long-term growth potential of the assets, and the core critical nature of the campus and the infrastructure. We also focus on geographic areas where we can utilize or expand our asset management platform and generate efficiencies and benefit from local real estate knowledge.

We are currently seeing many opportunities to acquire assets in the market today. As we have predicted with you previously, the certainty around the implementation of the Affordable Care Act has enabled health care systems and developers to move forward with their plans to reallocate capital from their existing MOBs and to other uses. Public REITs who are dedicated to the sector and have lower cost of capital are certainly the logical buyers and will start to consolidate the fragmented ownership in this space.

Obviously, our acquisition program is also based on the premise that each must be accretive financially and generate an increase in NAV. We are pleased with the results of this quarter and all of 2012 and look forward to 2013. Now for a more in-depth look at our financial and operating results of the quarter, I'll turn the call over to Kellie.

Thank you, Scott. I'll start with our fourth quarter results. Normalized FFO, which is adjusted for certain listing and normalizing items, increased 23.1% to $0.16 per diluted share compared to $0.13 per diluted share a year ago. FFO growth is primarily driven by our same-store portfolio growth, year-to-date investments in MOB's of $295 million, lower share count resulting from the tender offer, offset by an increase in G&A expense and slightly higher interest expense.

I'm also happy to announce that normalized FAD was $0.14 per share in the fourth quarter, ending the year with run rate coverage of our dividend, particularly with our Forest Park acquisition at the end of the quarter.

I'm sorry, this is the operator. I'm sorry for interrupting, but we really can't hear you very well at all.

How's this?

Much better, thank you.

Our same-store cash NOI growth reflected the benefits of our transition to in-house property management with 3.8% growth in the fourth quarter. The increase in NOI was primarily due to contractual rent increases on our in-place leases, lower concessions. including free rent periods on new leases, and expense savings. For the full year, we grew same-store NOI by 2%, driven primarily by contractual rent increases and expense savings.

On the leasing front, in 2012 we had 1,166,000 square feet, or 10% of our portfolio rolling, and we had 1,008,000 square feet of retention bringing our average rate to 86.5% for the year.

Our year-to-date acquisitions were a culmination of our focus on the $25 million to $75 million relationship-driven strategy with local developers and health systems. The $295 million in assets we acquired in 2012 helped drive additional FFO per share.

Listing expenses for the quarter totaled $5 million. This expense is primarily related to our LTIP program, but also includes some additional items related to the class B-1 share conversion and our year one SOX implementation. The LTIP program was implemented to align our executives and our new middle management team with shareholder returns. We have one more quarter left of these expenses, with an expected Q1 listing number of around $5 million.

Our G&A expense was $5.7 million for the fourth quarter and is consistent with our previous guidance on G&A. Keep in mind that we do not do development, and are therefore required to expense the vast majority of our overhead type costs instead of running them through our capitalization. It does, however, include the cost of our leasing platform which is vital to our success.

Similar to our peers, we expect our first quarter of 2013 G&A to be higher than the trend for the rest of the year as we have stock compensation, year-end accounting and SOX work being completed, and the shareholder communications all hitting in the period.

Before I discuss our balance sheet, I want to make a brief comment about our liquidity. On December 1, we were added to the RMZ. This had a favorable impact on our volume, and then on December 6, the Company's Class B-1 shares were converted to Class A shares pursuant to our phased-in liquidity plan. This more than doubled our public float from 43 million tradable shares to 100 million today. Based on the size of our Company, as well as the future conversion dates of our Class B-2 and B-3 shares, we expect to be added to other equity indices over the course of 2013.

I would also like to point out that our Board of Directors and management have acquired over 125,000 shares of our stock in the open market since our listing, and we strongly believe in the long-term value of the Company.

Now I will discuss our balance sheet. We ended the quarter with over $515 million of liquidity from our line of credit and cash on hand following our Forest Park MOB acquisition and the repayment of secured debt upon maturity during the fourth quarter. We ended the year with $16 million in cash and $503 million available on our line of credit. Our total debt to capitalization and debt to annualized adjusted EBITDA stayed consistent with the previous quarter at 32.8% and 5.5 times, respectively.

As we continue to focus on our Investment Grade Status, we remain centered on strengthening our credit profile. This year, we raised over $1 billion in unsecured debt commitments, reduced our secured debt ratio from 25% last year to 18% in 2012, and we have reduced our average cost of debt to 4.1% from 5.25% a year ago.

Looking to 2013, we have $157 million of secured debt expiring, the majority of which is pre-payable. We plan to refinance these maturities with longer term, unsecured debt. Given the continued strength of the debt markets, we expect to execute our debut bond issuance in the very near term. Although treasury rates have increased, credit spreads are still attractive. We believe we could issue 10-year bonds today at a very favorable rate.

Looking forward, we intend to continue to tap the bond markets as we execute on our strategy of laddering maturities and increasing the tenor of our debt structure. This will match fund our longer term leases and acquisitions. In 2013 we expect to lower our secured debt ratio to below 15%, as long as acquisitions continue to be unencumbered, and we expect to continue our low leverage strategy ranging from 30% to 40%.

One final comment regarding our 2012 transition to a public company before turning to the 2013 outlook. Given the timing of our listing in 2012, we were required to be compliant with Sarbanes Oxley and our auditors will be rendering an opinion in our Form 10K that is due March 15th. It has been a fairly demanding process on the Company, but it has gone very well, and we are looking forward to putting this behind us.

I want to finish up with our 2013 outlook. Our portfolio projections are generally in line with our previous comments with expected same store growth of 2% to 3%. MOBs are steady and predictable performers, and we are comfortable with that range.

In late December we filed our first Shelf registration statement, and in January we instituted a $250 million ATM program. We intend to be very prudent and disciplined with our use of the ATM as we would with any future equity raise. We believe it is a great thing to have in our toolbox but we would only look to use it when we are trading at premiums to NAV, and we have smaller-sized acquisition opportunities at cap rates that are accretive to NAV.

We also expect to start recycling some of our non-core assets in 2013 and will look to complete that process over the next 12 to 24 months.

In summary, 2012 was an exciting year for HTA as we gained access to the public markets with our listing. We now have multiple sources of capital to compliment and manage our fortress balance sheet and to continue our disciplined growth.

That concludes my prepared remarks, I will now turn it back to Scott.

Thank you, Kellie. As I mentioned in my introduction, we recognize that many of you on the phone are new to the HTA story. For those who are, I will now provide a quick overview of HTA and allow our covering analysts a moment to develop their questions.

At HTA, we offer investors an uncomplicated story in what we believe is an attractive industry with steady and predictable performance and growth. We are focused on owning medical office buildings that are located on-campus or affiliated with leading health systems across the country. We believe that with the favorable demographic trends and the implementation of the Affordable Care Act, which does not really kick in until 2014, well-located MOBs are positioned to become the central hub for healthcare in this country over the next 5 to 10 years.

From a portfolio perspective, HTA has put together a company with over $3 billion in assets, representing over 12.6 million square feet of space located in 27 states. Over 95% of our portfolio is affiliated with leading health care systems, with over 72% of it being located directly on or adjacent to a health care system campus. These locations provide for the most efficient patient care and generally have high barriers for competition.

We do not do development, but value the local and regional developers that do have the development relationship with health care systems, and we seek to be a preferred owner of those assets and continue to develop that relationship.

Our occupancy remains stable at 91%, and our retention for the quarter and year to date was 87%. As of December 31, HTA's portfolio consists of a mix of 35% single-tenant long-term leased space and 65% multitenant space. This mix allows for a blend of stable, long term credit-rated leases predominantly with healthcare systems and the traditional multitenanted spaces generally desired by physicians or physician groups. These terms are typically shorter with three to five to seven years.

This mix also allows us to have 57% percent credit-rated tenants with 40% investment grade. Again, we are excited to be focused on the MOB sector and believe the tailwinds caused by the Affordable Care Act and the aging demographics are only starting to begin.

With that, we thank you for joining us and will open up the call for questions, and we will also have -- apparently, there's been some trouble with the communication. We'll certainly have this transcript up so that folks can see the whole transcript.

This is the operator. (Operator Instructions)

And, Amy, the Company will redial in to see if we can improve the connection. So hold on one minute, thank you.

(Operator Instructions)

All right, I believe we are back on now.

Matthew Spencer, Robert W. Baird.

Hey, good morning, guys, I'm here with Dave Rogers as well. You mentioned in your prepared comments that the acquisition yields for 2012 were around 7.8%. I was wondering if you could add some color around the size of your acquisition pipeline and maybe how far (inaudible) from price?

Well, I think that -- and this is Scott and, again, thank you for joining the call. I certainly apologize for any miscommunication from a telephone perspective.

But I think that we have -- we have always said that we want to be nimble, we want to execute what we think is a $25 million to $75 million rifle approach to acquisitions. We mentioned (technical difficulty) from the call that we've acquired over $2 billion of assets in the last four and a half, five years. So we've been able to use relationships. We've had a couple of acquisitions during 2012 that (technical difficulty) relationships (technical difficulty) as others to see where they may or may not trade. We are very comfortable that we can continue to execute our business plan, find good acquisitions, carry on the relationships, and see those be accretive to us from an NAV perspective and an applied cap rate from a trading perspective.

Great, thanks. And your 2013 expirations -- do you have the mix between the multi- and single-tenant lease expirations, and could you maybe add some color regarding release spreads for the two that you're expecting?

Most of the, I would say, predominantly, are lease expirations in 2013 are the multitenanted. We have had two larger expirations, but we've already renewed those. And what you've heard from other folks has been consistent with us. They were actually renewed favorably up.

So we don't have any large renewals. As we've talked about, 40% of our renewals of the 8.3% occur in the first quarter. We're fortunate that we're looking already at the second and third quarter for leasing. So from a leasing perspective, we feel very comfortable with continuing to see some good activity.

James Milam, Sandler O'Neill.

I just wanted to ask -- the same-store growth of 3.8%, Kellie, I think you outlined some of that was concessions burning off and then normal fixed bumps. I guess I'm -- can you, sort of, reconcile that number to the 2% to 3% same-store growth that you guys are projecting for 2013? And maybe if there is any potential upside in that guidance that you gave us?

Well, this being public now -- and this is Scott, and I know we've been at this now for the third quarter. We certainly want to be very cautious. We want to be consistent. We think that the MOB space is a great space to be in. I think the 3.8% was, frankly, a lot of really hard effort and work in the fourth quarter. I think we're at 2.2% for the whole year. Third quarter, we were about 2.7%.

I think what we're going to try to do is what we have told folks -- we're going to target 2% to 3%. We think that there's opportunities from our internalization platform where we certainly are going to push for the higher range, and we're going to see how that plays out over the next 12 to 24 months as we see what we think is the true Affordable Care Act to start to kick in.

So I guess consistent conservative, we feel very comfortable with the 2% to 3%, and we'll certainly work for as much as we can do.

Okay, and I guess on the -- from an occupancy perspective, do you guys -- what is your goal for the year in terms of improving the occupancy in the multitenant portfolio?

We'd like to see a couple of basis points, 2 or 3 basis points. If we're 91% occupied right now, we'd like to see it up for the whole portfolio to 92%. That would be our goal right now -- 92%, 93%. That means that we need to move the multitenanted platform up 3 or 4 basis points. We've seen that improvement in Indianapolis.

We're seeing, we think, with Atlanta and Arizona, we can show some tremendous advancement. The economy is improving here. We've brought both of those large, very competitive cities in-house. So we're excited about the opportunities for 2013.

Okay, thanks. And then my last one -- the unsecured bond offering, it sounds like you're getting close to making a decision on that or, I guess, maybe even issuing bonds. Is there a specific catalyst or any type of event that you guys are waiting for? Are you hoping to see a little more rebound issuance before you guys come? Or is it just there's something else that maybe I'm not aware of or should be thinking about?

We're very focused on it. It is something that we -- we're focused on to accomplish in the first half of 2013. We're a great credit story, perhaps the best in health care. We're one of the most stable real estate sector with occupancy, high retention, high position health system, rent coverage, and limited government reimbursement risk with no development risk. So with our very low leverage, it's something that we're believing that we would be very well received in the markets.

From my perspective, it's simply now moving into 2013, focusing on acquisitions, focusing on longer-term debt. We've been at this for eight months now. I think we've got a very good footprint. We've been out to see the fixed income folks, been out to see the credit rating agency, so for us it's (technical difficulty).

Okay, thanks, and then just a last one on the capital front. With the ATM program and -- I guess, first of all, is there -- do you guys have a specific amount of dispositions or assets that you're targeting to sell? And then, I guess, sort of following on to that is that a preferred way for you to raise some additional capital this year versus using the ATM program? Or are you not thinking about them, necessarily, exclusively?

I think it's a combination. We've talked about starting to move out of some of the noncore assets that we have. We've talked about some of the 10% that we think would be opportunistic for us to move out of. I think you're going to see that starting this year. We'd like to move through that. We'd like to match that with acquisitions, of course, from an acquisition perspective. (technical difficulty) just like we did in 2012. We can do that with a rifle approach, we can do that with an accretive acquisition program. We've got enough relationships that we feel very good about.

If a larger portfolio comes along then, of course, we would be moving forward and talking to folks and making sure that we were balancing the balance sheet in the appropriate manner.

Jeff Theiler, Greenstreet Advisors.

Apologies if anything I say you've already talked about. It was a little bit difficult to hear. Can you go over what your same-store occupancy statistics were year-over-year and quarter-over-quarter? I couldn't find that in your earnings release or supplemental.

Our same-store occupancy was just slightly down from year-over-year. Is that what you were asking?

Yes. How slightly?

About 1%.

Down 1% year-over-year? Okay.

Yes.

And then in terms of the G&A, it was up a little bit on a sequential basis. What was the reason for that, and what's your expectation, going forward, in 2013? I know -- I think you said it would be consistent with this quarter, but you have more property management coming onboard, so I think that might bump it up a little bit.

Yes, it's primarily the increase in the staffing for our leasing. We took all of that in-house in the fourth quarter, so that's primarily what it is related to. And we're still fairly consistent that our run rate for 2013 is between $23 million and $24 million.

And then your recent acquisition, the Forest Park Pavilion -- I believe you said it was a 7.29% cap rate going in. Was that a cash or a GAAP number?

That's a cash number.

Todd Stender, Wells Fargo.

Just on that last thought regarding the Forest Park Pavilion acquisition. How were you able to get the deal? Was this through an existing relationship? And if you can go through some of the details for the lease of the largest tenant, maybe just a term and rate? I think, Scott, you mentioned some escalators, too.

Well, this has been a relationship that we have had now for almost a year and a half. I think it's a relationship that is going to pay very good dividends for us, as a company, as they continue to grow, you will see us (technical difficulty). In other words, the take out, and they're on great campuses and, of course, Texas has just tremendous fundamentals.

The fundamentals -- it's 100% leased, and (technical difficulty) 60% of it is with the actual hospital and health care system. They're putting their (inaudible) folks in there, and we like that, we like the blend between the fact that it's not 100% hospital leased. We like the fact that there's multitenants in it. (technical difficulty) It's one of those where if you went to look at it, you would see the true state-of-the-art, the fact that it's core critical to the operation of the hospital that it's on the campus of, and a great asset for us.

Okay, and just based on the timing, I guess it would appear that it was a tax-motivated seller, and was there any assumed debt in the deal?

There is no assumed debt. (technical difficulty) buyer, seller, the discussion about getting the right price for each of us. I think it was -- we did want to get it done by the end of the year. It helps us to be able to say it was at the end of the year. But I don't think (technical difficulty).

I'm sorry, this is the operator again. You're cutting out pretty badly in your answer.

(technical difficulty).

Okay, thanks, Scott. And can we just hear more color on the lease renewal metrics? I think, Scott, you mentioned that the change in rents were essentially flat. Any color you can provide on tenant improvements and leasing costs on a square-foot basis and maybe how they shook out versus what you're budgeting for?

Our leasing spreads were flat, and that is what we called in the script, if you do not hear it, a significant improvement from the last half of 2011 and the first half of 2012. (technical difficulty) we don't have any (technical difficulty) and so I think when we look at our portfolio, it's a very clear indication from a portfolio that has everything in it and is susceptible to all the different marketplaces -- no lease-up type of issues.

We're flat now, and we think that that is where we think we can maintain and, certainly, in the first half of 2013, see some momentum in the last half of 2013. We have reduced our concessions. In fact, we have reduced our free rent by a little bit, and I think that we're going to continue to do that. But it's still a very -- very challenging market. We're in a great MOB sector, but folks are still struggling out there, and the fact that we can get flat rollover, we can work on reduced concessions, I think bodes well for the portfolio over the next 24 months.

And how about the length of the leases expiring? How long were they? What are they being renewed for? And any color on what you think 2013 will look like. Are folks renewing seven-year leases, for now five years, just with a reduction of visibility maybe with Obama Care. Any thoughts regarding that?

Yes. I think you've heard it from others that have reported. Leases now are a little longer. We're seeing -- I would say that the majority of our leases, 60%, 70% are five years. We are seeing a little bit of a difference in the fact that the health care systems now, while they may not be long triple-net tenants, they may come in and have come in where they're looking for 5,000 square feet or 7,500 square feet, and they're looking at more seven-year term.

So you've got, really, two different components from a health care system perspective right now. One, like Steward up in Boston, wanted the 12-year lease, wanted the consistency. We've seen other health care systems where they just want smaller spaces -- they like the seven-year lease.

So I would say that we've moved out of the three-year lease issue now into traditionally five- and seven-year leases. And I think as we continue to report here into 2013, our disclosures will continue to progress, and we will continue to demonstrate or certainly clarify some of these questions such as that, because they're good questions, they're good answers. We just want to make sure that we get our (technical difficulty) appropriately with disclosures and making sure that we're consistent (technical difficulty).

Sure. And just lastly, I think, Kellie, you indicated that we'll see some listing expenses in the first quarter here. But also there were some non-traded REIT expenses in the fourth quarter. What would they be related to and should we see a little bit more of that, going forward?

You will see that reduce every quarter. I think probably should be fairly minimal in 2013, and those costs are related to our shareholder services on our 58,000 shareholder accounts that we have. So as those have moved to brokerage accounts, we've seen the cost of that platform decrease.

Jeff Theiler, Greenstreet Advisors.

Sorry, a quick follow-up on the fourth quarter results. I'm trying to square the 3.8% NOI growth with the 1% occupancy reduction and flat releasing spreads and probably contractual escalators of 2% to 3%. What am I missing?

Well, okay, so our full-year same-store (technical difficulty) was 2%, which kind of equals the contractual (technical difficulty) escalators, I understand that. So with the contractual escalators of 2% in 2012, we had, with flat cash releasing spreads, we also had the expense savings for bringing the property management in-house. That probably is about 0.5% of that and, again, the decline of 1% in 2012. So I think it all settles out to about 2%, when you combine them all together.

Okay, so essentially that growth was driven by bringing the property management in-house onto the different line item, right?

Yes, yes, plus our (inaudible).

-- Q&A session, I would like to turn the conference back over to Scott Peters for any closing remarks.

Well, I just wanted to thank everybody for joining us. We apologize for, apparently, some phone issues, and we will assure that we will get those corrected for the next call. Please, again, call and follow up with any questions. We'll make sure that we get a full transcript out on the website so that anyone who may have been interrupted in any situation can get on there and read it in its entirety. Thank you.

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