Healthpeak Properties Inc (PEAK) 2017 Q1 法說會逐字稿

Good morning, and welcome to the HCP First Quarter Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Andrew Johns, Vice President, Finance and Investor Relations. Please go ahead.

Welcome to HCP's First Quarter Financial Results Conference Call. Today's conference will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risk and risk factors are described in our press release and included in our financial filings to the SEC. We do not undertake any duty to update forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on the call. In exhibit 3 of the 8-K we published to the SEC today, we reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the Reg G requirements. We have also provided reconciliations of these measures to the most comparable GAAP measures in our quarterly report on Form 10-Q, which has been filed today with the SEC and is available on the website at www.hcpi.com.

I will now turn the call over to our Chief Executive Officer, Tom Herzog.

Thank you, Andrew, and welcome to HCP's First Quarter Earnings Call. Joining me on the call today are: Pete Scott, CFO; and Justin Hutchens, President. Also in the room and available for the Q&A portion of the call are Mike McKee, Executive Chairman; Senior Managing Directors, John Bergschneider, Life Science; Tom Klaritch, MOBs; and Kendall Young, Senior Housing; and our General Counsel, Troy McHenry.

Let me start by saying that the first quarter was very positive and productive in advancing our strategic initiatives. Our cash, same property performance for the quarter was 4.0% and we reaffirmed the guidance range for both same property performance and FFO has adjusted. We signed a new lease with a life science tenant at The Cove, bringing phases 1 and 2 of The Cove to 100% leased. We sold $1.8 billion of non-core assets during the quarter, including the completion of the previously discussed Brookdale 64 transaction for $1.125 billion and the RIDEA 2 transaction for $480 million net. These sales are critical steps in advancing our stated goals of reducing leverage and Brookdale concentration.

We executed the disposition of our troubled Four Seasons mezzanine and senior debt positions for $136 million, which resulted in a $51 million partial reversal of 2015 impairments. This converted a substantially non-earning asset into proceeds that can be engaged in core real estate. Although this investment did not meet our expectations over its life, we did earn a modest positive return of approximately 4% IRR.

Lastly, we generated proceeds of $121 million from the sale of 6 other non-core assets including 4 life science properties in Salt Lake City. We used the proceeds from these sales to delever and continue moving our balance sheet towards BBB+, Baa1 credit metrics.

HCP's total portfolio is now 95% private pay and we are excited about the quality of our 3 core segments of senior housing, MOBs and life science. In senior housing, our pro forma Brookdale coverage will be a solid 1.2x with concentration of 27%, which we plan to continue to reduce over time. Despite the headwinds of near-term supply and wage pressure, we continue to believe the enormous demographic shift of seniors commencing in the next 2 to 3 years will be overwhelmingly positive for both IL and need-based AL senior housing.

In MOBs, 82% of our assets are on campus and an additional 8% adjacent to hospitals for a total of 90%. Our occupancy, same property performance results and tenant retention have remained consistently strong and steady, and we have MOB redevelopment opportunities of $75 million to $100 million per year for the next several years at 9% to 12% cash on cash returns, further improving the quality of this portfolio while producing strong unlevered IRRs.

In Life Science, our portfolio is almost fully occupied. Our development pipeline, totaling $800 million for both life science and MOBs, is expected to produce strong, stabilized lease yield spreads versus corresponding cap rates of 150 to 200 basis points on average and we have an entitled Life Science Land Bank of almost $1.8 million, developable square feet in San Francisco and San Diego. While our business is performing at or above our expectations, we still have certain challenges that we are actively addressing. As Brookdale announced last quarter, they are considering strategic alternatives. Although we are not in a position to comment on their progress, Brookdale has been a good partner and we will continue to take actions with them to find mutually beneficial ways for HCP to reduce concentration and improve our portfolio over time.

In addition, we saw some deterioration in the real estate operations that support our Tandem mezzanine debt investment. However, we have continued to receive our regularly scheduled interest payments and as the estimated collateral value currently exceeds the loan balances, no impairment write-down is required. We have a number of alternatives at Tandem, and of note, this is the last of our high-levered debt investments. Pete will discuss Tandem further in a minute.

Now let me comment on some changes in our management team. As announced last month, our good friend and associate, Justin Hutchens, will be leaving his role as President of HCP in June to become CEO of the U.K.-based care home operator, HC-One. Justin will be missed. During his time here, Justin played an important role in the transformation of HCP, including his instrumental contribution to the Brookdale 64 and RIDEA 2 transactions. Kai Hsiao is also planning to return to his operating routes, likely over the next couple of months but has graciously offered to help the team with the transition. Justin and Kai, with their long and deep experience in senior housing, did important work in building out our senior housing operational infrastructure, which will benefit the company for years to come.

I am pleased to announce that Kendall Young has assumed the position of Senior Managing Director of our Senior Housing platform. Kendall has over 30 years of real estate industry experience, including the past 7 years at HCP leading our senior housing investment activity. Elevating Kendall will provide stability within the Senior Housing team, as his broad skill set encompasses deal origination and asset management across a spectrum of real estate equity and debt investments. He is responsible for asset management of global real estate portfolios at his 2 previous employers, Strategic Value Partners and Merrill Lynch, and he also spent 13 years at GE Real Estate where he is responsible for both transactions and asset management. We're also fortunate to have recently hired Paul Batel, as Senior Vice President, Senior Housing Asset Management. Paul has a wide breadth of senior housing experience from operations to investments to FP&A. Paul spent a significant portion of his career working within senior housing companies owned by, or affiliated with, Fortress Investment Group, including Brookdale, Holiday and New Senior. While at Holiday, Paul worked directly with Kai, which has allowed us to fill his important role with a known talent. Paul will report to Kendall, and together, they make a very complementary team, fully equipped to successfully lead our senior housing business. With Justin's impending departure, we have engaged Russell Reynolds to conduct a search for a Chief Investment Officer. The search is well underway and we are prioritizing candidates with strong familiarity in the private pay health care real estate space. We are pleased with the caliber of potential candidates we are seeing.

In the interim, Mike McKee, our Executive Chairman, will temporarily take on leadership of HCP's investment committee. I'm sure most of you are aware that Mike has deep real estate investment experience, given he spent two decades leading two of the country's largest private real estate companies. Additionally, each of our three Senior Managing Directors will continue to source and underwrite acquisitions in their respective property types.

In summary, we continue to successfully execute on all three pillars of our previously communicated strategic plan which include: ongoing improvement of our portfolio quality, moving our balance sheet to BBB+ Baa1 over time and growing our high-quality cash flows. The team has been working hard, our trajectory is positive and we are continuing to make rapid progress. With that, I'll turn it over to Pete to walk through our financial and operating results. Pete?

Thanks, Tom. Let's start with first quarter results. We reported FFO as adjusted of $0.51 per share, which was in line with our expectations. Our total portfolio has delivered solid same-store cash NOI growth of 4% in the first quarter, with growth across all of our core lines of business.

Looking at our individual sectors. Our SHOP platform generated same-store cash NOI growth of 2.9% in the quarter, which was driven by 3.5% rate growth and lower-than-expected expense growth, partially offset by a decline in occupancy, which came down 60 basis points sequentially, reflecting typical seasonality, and down 130 basis points from the prior year. The year-over-year occupancy decline was impacted by a stronger flu season this year, recent competition coming online as well as some units being taken off-line due to revenue-enhancing renovation projects. We experienced growth within all 3 SHOP segments: independent living, assisted living, and CCRCs. While we are pleased with the performance of this quarter, we continue to monitor occupancy trends industry-wide, given our first quarter performance was driven primarily through rate growth and increased margins.

For our senior housing triple-net portfolio, same-store cash NOI grew 5.1% in the first quarter, reflecting rent steps and higher contribution from our Sunrise portfolio. Adjusting for the positive Sunrise impacts and some negative impact from the Brookdale rent reallocation, as we previously disclosed, normalized cash NOI growth would be more in line with expected triple-net growth of 2.5% to 3%.

Turning to Life Science, our same-store portfolio remains 97% leased and delivered year-over-year cash NOI growth of 4.7% in the first quarter, consistent with last quarter's performance, driven by lease escalators, strong leasing activity and positive mark-to-market on lease renewals. In Medical office, occupancy remains steady at 92% and same-store cash NOI grew 4.4% over the prior year, reflecting a solid retention rate of 84% in the quarter, and driven by lease escalators, strong leasing activity and lower operating expenses.

Let me spend a few minutes discussing Four Seasons and Tandem. On Four Seasons, as Tom mentioned earlier, we monetized our Four Seasons debt investments in late March, generating $136 million of total proceeds and a $51 million impairment recovery or $0.10 per share, which we recognized in NAREIT FFO, but exclude from FFO as adjusted. Recall that we have placed our senior secured notes on cost recovery status in July 2015 and harvesting this investment allows us to recycle the capital into income-generating assets. Moving on to Tandem. Let me quickly recap this debt investment since this is our last meaningful exposure to the skilled nursing sector. Tandem is a $257 million mezzanine loan with the initial investment by HCP occurring in 2012. The collateral for the mezzanine loan is a portfolio of assets operated by Consulate Health Care. Note, we put this on our watch list in the third quarter of 2016. In April 2017, in an effort for Consulate to preserve cash as a result of its [Key Tan] lawsuit, they failed to pay the full amount of their rent to Tandem, creating an event of default. We have entered into a forbearance agreement with Tandem through June 30 of this year, subject to continuing to receive our regularly scheduled interest payments. The forbearance period provides Tandem with additional time to complete some recapitalization initiatives, including the sale of some underperforming assets. During the first 4 months of the year, we have received our regular cash interest payments in full. Additionally, our loan had debt service coverage of 1.27x, which is based on the underlying EBITDAR of the collateral and provides us with some cushion as we evaluate all of our options.

Moving on to the balance sheet. During the quarter, we received $1.8 billion of proceeds from dispositions. Also during the quarter, we repaid $408 million on our revolver, $472 million of secured mortgage debt and our GBP 137 million 2012 term loan. We ended the quarter with $764 million of cash on our balance sheet.

Importantly, subsequent to the quarter end, we repaid an additional $131 million on our revolver and yesterday, we paid $250 million of maturing senior notes. We now have no significant senior note or secured debt maturities until early 2019.

In our supplemental, we outlined our key debt ratios as of the quarter end, which shows net to adjusted EBITDA of 5.8x on an annualized quarterly basis, and financial leverage of 45.7%. Note that these reported debt metrics are as of a point in time, and in particular, the 5.8x is artificially allowed as we benefited from a full quarter of income from the Brookdale 64 portfolio and we repaid debt at the very end of the quarter. We remain on track to achieve our balance sheet targets of low to mid-6x net debt to adjusted EBITDA and financial leverage in the 43% to 44% range by year end.

Now let me spend a minute on revenue enhancing CapEx, since this topic came up on our last quarterly call. Since the last call, we completed a thorough analysis of projects in the SHOP segment. Based on this analysis, we have concluded we are generating unlevered returns in the high single-digits, sufficient to warrant the investment and cover our cost of capital. What is challenging in estimating these returns are the operational impacts such as units taken off-line during construction or pure defensive spending to keep up with competition. Going forward, we will continue to refine our analysis with additional data and plan to enhance our asset management systems to better capture spending and performance data.

Now turning to our full-year 2017 guidance. We are increasing our full-year 2017 NAREIT FFO per share to range between $1.99 and $2.05, up from $1.88 to $1.94, as a result of the positive impact of the impairment recovery on the Four Seasons loan. However, we removed this impairment recovery from FFO as adjusted. We are reaffirming FFO as adjusted per share to range between $1.89 and $1.95. We also continue to expect full-year 2017 cash same-property NOI growth across the whole portfolio to be between 2.5% and 3.5%. I would note that we are expecting our same property growth rate of 4% in the first quarter to decelerate in the second quarter due to lease expirations in our medical office and Life Science portfolio, along with lower contribution from our Sunrise assets in the triple net portfolio. In addition, we expect FFO as adjusted to show a sequential decline from the first quarter to the second quarter, as the first quarter benefited from nearly a full quarter of income from the Brookdale 64 portfolio.

Page 38 of our supplemental provides the assumptions embedded in our 2017 guidance along with a comparison to the guidance provided in conjunction with our Fourth Quarter Earnings Call in February. The assumptions remain largely unchanged, except for NAREIT FFO and EPS for reasons I have previously discussed. Finally, I'd like to point out two additional disclosure items: First, we have added a stand-alone document with all of the required non-GAAP disclosures and reconciliations. This document is attached as an exhibit to our Form 8-K along with the earnings release and supplemental. It can also be accessed via a hyperlink within our supplemental. Second, we've enhanced our FAD transparency disclosure around joint venture FAD capital and CCRC entrance fees. We hope you find this enhanced disclosure useful.

With that, I'd like to turn the call over to Justin.

Thank you, Pete. I've spent 8.5 years in the healthcare REIT sector, including my 2 years here at HCP. Although there was never a timetable established, I've always thought, for the right opportunity, I'd return to the Senior Care operating side of the business, where I spent 15 years previously. I've accepted an exciting offer to join HC-One, a prominent care home operator, where as the CEO of the company, I will have the honor of passionately leading over 13,000 highly-experienced senior health and social care professionals as they execute the critically important duty of delivering the kindest care and services to residents in 230 locations throughout the United Kingdom. Although I'm very excited about my new role, it was a difficult decision to leave HCP. I've truly enjoyed my eventful and exciting time here over the past couple of years working alongside a talented group of people as we tackled the opportunity to significantly reposition the company, which is in great hands with a gifted and dedicated team of professionals, and since HCP is a capital partner at HC-One, I look forward to our ongoing relationship. I wish Mike, Tom, and the rest of the Board and management team the very best as they continue to differentiate HCP as a high-quality industry-leading and diversified healthcare REIT.

With that, I'll turn the call back over to Tom.

Thank you, Justin, and with that, operator, we will take the first question.

(Operator Instructions) Our first question will come from Juan Sanabria with Bank of America.

If I can just first ask on the CIO role, post Justin's departure, what skill sets are you looking to fill, kind of background you're hoping for and timeframe for filling the seat?

Hey Juan, it's Tom Herzog. Yes, so we have undergone a search, as I indicated in the remarks with Russell Reynolds, we're well underway. We're seeing a lot of high-quality candidates. We've been pleased with what we're seeing. We do -- we really are working toward seeking somebody with private pay healthcare real estate experience, so that's something we're focused on. So we'll see where that plays, but we've had a good start on it at this point.

And any sort of sense of timing and/or do want somebody with operational expertise or not necessarily?

Well, we'll see. We've got a variety of different skill sets that are coming across to us, and then we'll evaluate those. As far as timeframe, we'll be patient to make sure we get the right person. This is an extremely important hire for us. So again, we're off to a good start, but we're going to take our time and make the right choice.

Great. And then just on the RIDEA side of the business, you guys noted expenses were a little bit below what you were expecting. What drove that? Any worry that if it's staffing, that you could see further occupancy slippage if you're pulling back on staffing because of a dip in occupancy? And how should we think about occupancy going forward? It seems like you had some redevelopments starting off, taking some units off-line, but I think for the year you were expecting units to come back online, so if you could just clarify that, that would be great.

Yes, good question. Let me turn that to Kendall Young.

Yes. So in regards to our expenses, they were managed tightly by Brookdale in the first quarter and that was reflected in the 1.5% growth over the prior year. Included in that is wage growth of approximately 4% and that was offset by -- partially offset by lower labor and food costs that were attributable to the lower occupancy.

And on the occupancy front, what are you guys expecting from here in terms of calling back the lost occupancy from the (inaudible) and/or effects from redevelopments?

So maybe I'll just walk through in the entirety, our SHOP performance and our guidance, and I'll help answer that question. And let me first point out that our SHOP represents 20% of HCP's overall cash NOI. So relating to our SHOP Q1 performance, walk you through the components. In the first quarter, we grew 2.9% over the prior year, which was at the high-end of our guidance range of 2% to 3%. The components included year-over-year rate growth of 3.5% year-over-year occupancy decline of 130 basis points and year-over-year expense growth of 1.5%. For the full year, we are reaffirming our guidance range of 2% to 3%. The components of our full-year guidance include rate growth of 3% to 4% and occupancy decline of approximately 100 basis points and expense growth of 2% to 3%. And a little color on our first quarter occupancy, on a sequential basis, occupancy dropped 60 basis points, primarily due to seasonality and a stronger flu season. On a year-over-year basis, occupancy is down 130 basis points. This decline is driven by various factors including competitive pressures. We took units off-line first in a few properties for renovation and the flu, and all these had roughly equal impact on the year-over-year occupancy decline. And this year, the flu spread earlier, lasted longer and had a greater number of cases, which resulted in a higher number of move-outs in our properties. And our portfolio was more heavily weighted in areas where the flu had a more severe impact, such as the Southeast. And as the flu lasted longer, we expect further impact in the early part of the second quarter. We talked about expenses. So looking at last year, we invested $35 million of revenue-enhancing CapEx and this year, we're investing an additional $30 million, which had help support our rate growth and occupancy assumptions.

Great. And then, just maybe on Tandem, why the comfort in not needing a write down there, and what are your expectations on getting that debt actually repaid? I think there was an ability to pre-pay that at some point. Is that something you guys think could happen, or how should we think about cash flows for that loan?

I think, as Tom mentioned in his prepared remarks, it's a collateral dependent loan and the fair value of the collateral exceeds the carrying amount of the loan, we will continue to update that fair value of the collateral going forward. But at the moment, we don't believe there's a need to take a write down on that. With regards to just Tandem generally, a few other points I would make, as I talked about in my prepared remarks, it has been a bit of a bumpy ride, and this loan is our last highly levered mezz loan and really our last direct exposure to the SNF business. But generally, it's a small amount of our overall business, it's 1% of our enterprise value. The forbearance agreement that we signed with Tandem gives them a short-term breathing room basically, to execute on some of these recapitalization initiatives. I think depending upon how those play out, we'll know more about what will ultimately happen with this division, but it's too soon to say at this point in time.

The next question will come from Nick Yulico with UBS.

Just going back to Tandem. I just want to make sure I understood this. So the guidance for the year assumes that you're going to have that investment income in place for the entire year?

Yes. Although, as I've mentioned, some of these non-core sales, to the extent they are successful in getting done, we will get a portion of our loan repaid, so we have not assumed the full amount for the entire year. We've assumed a smaller amount, subsequent to some of these initiatives.

Okay, so I guess that means, from a (inaudible) standpoint, is it, does that impact starts in third quarter then? That, that loan balance may be closed down?

Yes, yes.

I'd say, Nick, just to add to what Pete's saying is that, it's too early to tell. The loan is still current. There is sufficient collateral value and we're working through alternatives and they have a number of alternatives that they are considering, that could be favorable. So it's too early to tell at this point. But even if there was an issue with it on a cash basis, this thing has got coverage that still produces cash flow that would service all or the majority of the debt. So we'll see where that plays out, more to come on that.

Okay. And then, just on senior housing, topic of supply impact, I'm wondering if, I don't know if it's Tom, or Kendall or someone else who can maybe talk a little bit about where you think this -- if the supply impact is getting worse over the next year, I mean we're starting to hear stories of some buildings that can't lease-up, not yours, but competitors, and they're offering 3-year rate locks and it's pretty enticing for some people to move, especially if they're more IL type of tenants who can move more easily. I mean, where -- is that -- have you heard of that type of issue before in the sector, a 3-year rate lock? I'm just curious on the historical perspective, what that looks like.

Yes, specifically to that question, we have not heard of, at least in any of our buildings, having to offer those 3-year rate locks. I'm sure that occurs out there, I don't know how widely spread it is. We haven't heard about that. So maybe just to talk about new supply and our thoughts on the market and how it impacts our -- how new supplies impacted our properties. So if you look at the NIC data, it shows the construction starts have slowed since the peak in the fourth quarter of 2015. So that rate peaked at 4.5% and it's 3.2% currently and again, that's construction starts. Most of the current pending deliveries, so the end of construction currently, we think will occur in 2017 and into early 2018. So we expect softness in the senior housing fundamentals through 2017 and into mid-2018, as the new completions are absorbed. Looking at units that are currently under construction, about 5% of our total company NOI is exposed to new supply within a 5-mile radius of our SHOP portfolio. This is roughly evenly split between assisted living and independent living. We think our properties have strong demand drivers in their markets, including affordability, and we are proactively investing CapEx into properties that are facing new supply in order to keep them competitive. So now looking at our -- the impact on our portfolio, starting with our independent living. And our independent living portfolio is over 60% of our SHOP portfolio, and the growth of new supply in independent living has been much lower than the growth rate in assisted living. Houston was our only independent living market impacted by new openings over the past 24 months and that was 3 properties, 3 openings. And while our Houston properties did experience a decline in occupancy, we did outperform the NIC average for both occupancy and rate in that market. Looking at our assisted living portfolio, we did have greater exposure to new supply, with 17 communities impacted by new openings over the past 2 years, of which 4 are in our top 10 markets, and in these 4 markets, again, our occupancy and revenue growth both outpaced the NIC averages for supply and revenue growth. While there has been an impact from new supply, we've been able to outperform the NIC averages through investing in our assets, and collectively the properties that saw new supply in the past 2 years had positive NOI growth of approximately 2% and we believe this is due to the CapEx that we have invested and also our rates in our properties are typically below the market price leaders.

Hey, Nick, it's Herzog again. I'll just add, I guess, something more general to Kendall's remarks. I think it's important to note that we view from a SHOP perspective, senior housing perspective, some of these headwinds to be short term. New supply, wage pressures, et cetera. Over the long term, we still feel very favorable about this business and the -- for a couple of reasons. First, the supply deliveries are going to start to normalize, beginning in '18, looking at what all the experts say and what we've looked at. Second, everybody's aware that baby boomers are turning 75, and they're hitting in about 2020, that's about 2.5 years from now. That 75-plus population's going to grow by almost 50% over a decade, and that's going to be a massive opportunity. So when we look at the top 99 NIC markets and the average penetration, we see a huge opportunity in front of us, and we do plan to be well-positioned to capture our share of this growth. So despite the fact that we've got a few things we will work through over the next couple of years, we think we're pretty well-positioned, and I'll repeat what Kendall said, we have almost 2/3 of our SHOP business is in IL rather than AL, which has been less exposed to new supplies, so we're feeling pretty good from where we sit right now.

Our next question will be from Rich Anderson of Mizuho.

So in light of your sale of Four Seasons, I'm curious what the longer term or the strategy might be for the U.K. in general and specifically, HC-One. I'm just curious how you feel about that investment long-term. I know you guys love each other, but conflicts of interest potentially being an issue, no offense, Justin, I mean, is that something that's on your mind? Just curious how you look at that investment today.

I'll save Justin from answering that. I'll take that one, this is Tom. With the sale of Four Seasons, that was good to monetize that, I think, for us. HC-One, we've been aware and we've had built into our guidance that there's likely to be a prepayment of that loan. We're in no hurry to get prepaid on it. It's got lots of collateral value behind it, we feel good about it. It's earning about an 8 or a little north of an 8. But it's probably going to get prepaid in the next month or 2. And as to Europe as a whole, we're still looking at taking a pause on Europe. So when HC-One does get repaid, assuming it does in the near-term, prepaid, we'll repatriate those funds in the United States. So that's our current plans and as to, again as to the U.K. portfolio, we'll be assessing that over the next period of time.

Okay. Has that anything to do with kind of the move -- the Justin move or is it just your general view of the market?

No, it's the opposite. The Justin move might've caused us to hang on longer. No, we've had -- there was a change in tax rule, and that took the effective tax rate and it gets kind of complicated, I won't go into the details, but it took us from an effective 5% to an effective 13% taxes, and we couple that with the hedging that we have to do and the fact that we had to have the infrastructure over there. We made a decision to discontinue expanding that portfolio and absolutely, Justin's move, from our perspective, having a friend over in Europe is a plus. But we're still assessing the U.K.

Okay, fair enough. And then, what's your perspective on the Duke HTA transaction MOBs? How does it change your thought process about your disposition strategy in MOB? Did you get fore handle on some of your assets? Is that something you might start to consider, given the price point discovery that was just made recently.

Rich, this is Mike McKee, let me take that. Of course we look as others did and participated in the process on Duke. I think that the result is indicative of the strong demand that we have seen in the MOB space and it puts a spotlight on the cap rate compression that we've seen in recent months, as you've noted. Having said that, when you step back, we also think that the transaction validates for us the repositioning we've done with a big specialty office focus when you combine our MOB portfolio and our Life Science platforms. So after the HTA purchase itself, it's probably best I think, to let the market decide how that actually works out as they go through the execution. It certainly was a bold move at that pricing. We think we have as good, or better, a platform than anyone in the country today, here, and we're going to continue to prioritize that area for growth. And in terms of harvesting, I must say that we have longer-term plans to grow it, we're deep into the relationships that we have. I don't think we have any near-term plans to harvest, but in terms of just validating the value of these portfolios that are at scale, yesterday was a very interesting day.

Our next question comes from Smedes Rose with Citi.

I wanted to ask you, you mentioned reducing or continuing to reduce your exposure to Brookdale, just wondering if you had any updated thoughts around where you'd like that exposure to end up? And then you also mentioned that it sounds like you're kind of bullish on the RIDEA industry or portfolio longer-term. What sort of percentage exposure that would you expect to end up having in that area?

Yes, it's Tom again. As for Brookdale, your question was, what kind of exposure would we like to have to Brookdale? We're currently, pro forma the 25 assets that are held for sale right now, we'd be at about 27% concentration and our intent is to work together with Brookdale and bring that down to probably somewhere in the 20% range or below. So that's been a plan that we've had for a while. As for RIDEA, we haven't set a target on that yet. We've got a good amount of senior housing exposure as it is, happens to be today, there's fair amount of it in triple-net, which feels pretty good to us right now. There's fewer triple-net deals to do in the future, so we'll probably see more RIDEA and less triple-net, but as far as the blend between MOBs and Life Science and senior housing, that is yet to be determined exactly where that falls out, so we will certainly also want to see our exposure built further in MOBs and in Life Science as well. More vertically in Life Science in San Francisco and San Diego, and at some point, we'll probably get our opportunity to look at Boston as well. Those were our 3 great markets in our opinion, and that's how are we thinking about the 3 portfolios.

The next question is from Vikram Malhotra, Morgan Stanley.

Just in on the SHOP portfolio, you had I think 3% same-store growth in AL and 1.8% in IL. Can you just maybe just break that down for us, in terms of occupancy and rate? And then in the guidance, if the growth assumed in both those segments are very different.

So if you look at the difference in the SPP growth, the -- it was mainly due to occupancy, so both the IL and assisted living rate growth was around 4% and then the difference in the NOI growth was in the -- there were 2 independent living properties that were taken off-line due to revenue-enhancing CapEx projects. So if you exclude those 2 projects, properties, the SPP growth for independent living would've been 3.2%.

They're pretty well in line with our expectations, I guess.

And in the guidance, is the growth somewhat similar?

I think, Kendall, you gave the guidance for the growth in total for IL versus AL.

We don't.

We don't typically lay that out. So yes, I'll think we'll pass on that part of the question.

Okay. And then just in your triple-net portfolio, can you just update us on plans or where you are in reducing the additional properties that you had outlined? And specifically, just on the triple-net side, I think there's Capital Senior Living and remaining, where rent coverage is, I think 105 or lower. Can you maybe just update us on what goes on, and is there any plans for disposition there?

So on the Brookdale 25, we are in the process of selling most of those properties. We're in discussions with various parties and there's been significant interest, and we do expect to sell those by the end of the year. On the question of Capital Senior Living, the lease, there are -- I think it is a lease that has 6-or-so properties in it. Capital Senior Living is addressing the performance issue, and we do have a corporate guarantee on that lease with a -- which we consider a pretty good credit.

Okay, I'm sorry, just last. What is in the remaining bucket?

Is that in the remaining...

In your triple-net -- senior housing triple-net, where the rent coverage is 0.81.

Okay. So they're -- in the -- I tell you what, we've got -- I think we have...

We have that right now. We have that broken out.

There are 3 groups in there. They are -- 2 of them have very strong credits, and the other group is something that they'll be coming up on a lease expiration and we will likely transition those properties to a new operator.

Okay, great. And just last one, if I may, just on -- going back to the MOB question. I would've thought, if for example you had -- you did win out on the Duke portfolio, it would helped you reduce Brookdale. But are there other portfolios in your knowledge just out there that are sizable and given the pricing we've seen, that you expect more to come to market?

Tom Klaritch. The transaction volume actually has been pretty typical this year of what it's been in the past, albeit up. Without the Duke portfolio, it's about $10 billion a year. We're seeing something kind of in that range and normally we see 1 or 2 sizable transactions per year. I think there's talk of a couple of that size, kind of in the $300 million to $500 million range, there's no details on them right now. But we would anticipate a large portfolio sometime during the year.

The next question will come from Jordan Sadler with KeyBanc Capital Markets.

I guess, my first question is really back to SHOP. I'm looking at the full year guidance, I'm sorry if you addressed this, but it looks to me you did sequentially, there was a 3.2% cash same-store NOI growth and the occupancy, obviously, dipped 60 basis points. I am curious if you can give a sense of what the rent increase was and how that sort of played versus the expense change, sequentially. And then if you're at 2.9% year-over-year in the first quarter, is it a little bit difficult to get to the midpoint of the NOI range for the full year in SHOP? Or are you on track?

So let's first address the sequential growth. So we had -- our rate growth was around at 3.5% to 4% and we had the expense controls that allowed us to have a lower expense growth. And then the -- just to back up, if we -- Jordan, if we came in at 2.9% in the first quarter and we're still guiding to a mid-range of 2.5%, we're looking at rate growth during the year of 3% to 4%, we have factored in now occupancy declining 100 basis points and then we have expense growth coming in at 2% to 3% for some of the reasons that we described earlier. That actually gives us just a little bit of cushion for the remaining 3 quarters of the year being -- we started out the first quarter at 2.9%, we're guiding to 2.5%. So I might've missed the detail your...

No, I recognize that you're ahead in 1Q. My question was more relating to the continued wage pressure, which you contained well in the first half but also the elongated impact of the flu and of course, the increase of deliveries Kendall discussed throughout the rest of the year and into mid '18. So I thought maybe, does it get more difficult throughout the year?

I think if you look at -- put occupancy and rate growth in the same bucket and so our overall revenue growth. So we've invested a significant amount of CapEx in our properties last year and continue to do it this year focused on the properties that will be facing new competition. We think occupancies will recover following what has been a very severe flu season. If you look at some of the new competition, our properties will be facing, especially in the IL, those properties that are coming online won't come online until later 2017 and starting in 2018. The rates we have in our properties are typically below the market leader level, so while there may be some impact in new supply, it's typically not as great as if you are a price leader in that market. And then if you look at the 20 properties where we've had new competition in the last 2 years, we've grown the NOI in those properties by approximately 2%. So some of the things that I mentioned before, like the CapEx and getting in the facing of new competition, getting our property ready to face that new competition, we've still been able to generate growth. So we think that where we are on our estimates for the year are today, we're -- our best guess is where we will be.

And if I could quickly follow-up. In terms of investment opportunity, where are you focused now? MOBs look -- I don't know if you've been priced out of that market or if everybody but for 1 has been priced out of that market today. But where are you going to put your dollars going forward?

We're looking at a number of deals in all 3 of the segments right now that we have committed to invest in. The first quarter was very busy with transactions but more making adjustments to our portfolio. And that stuff has a long lead time as you know, and a lot of that culminated in the first quarter of '17 on the disposition side. At the same time, we've been gearing up and have been working hard on the acquisitions and we have a number of things that we are looking at in all 3 segments. So as to being priced out of MOBs, let's say that over the last several months and, Tom Klaritch and I talked about this, this morning, there probably has been a 25 basis points pricing adjustment in MOBs across the entire segment. But when we look at purchasing assets, we're looking at how we're trading relative to NAB. If we buy assets and we can buy them with discounted dollars based on where we're trading and invest that market. From a cost of capital perspective and a current funding perspective, we're definitely not priced out of MOBs or life science and certainly not senior housing. So we are still wide open for business in all 3 of those segments on an accretive basis.

And Tom, this is Mike McKee again. I'll just add -- I think you have to be careful extrapolating off of the Duke execution and pricing. There's a lot that went into that paying for a platform over and above what the asset values were. So we'll see -- there's no question, as I mentioned earlier, there's been cap rates compression, but I wouldn't use Duke as the new market lever by any means.

Then next question is from Michael Mueller with JP Morgan.

I guess, just first following up on the prior question. As you think about capital deployment and asset sales on a go-forward basis, how do you think about like a reasonable base case is to what you'd like to do on the sales side, on the development side and maybe on the acquisition side. So that's the first question. And then the second question is, can you just walk through the San Diego land sale that you did? And should we expect more of that to come?

Yes. Okay, so from a sales side, I think we've outlined our plans. We've got the Brookdale 25, we've got some repayment -- prepayment likely coming in HC-One. We'll be reflecting some further Brookdale activity and we'll be assessing Europe. So that's from a sales perspective. And we'll see what all transpires in that in 2017. From an acquisition perspective, as we sit here today, we've built kind of a nice little arsenal of cash and funds. We've got a little over $0.5 billion that we can invest without raising new funds and that's after spending $350 million on development. So we definitely have plans to complete some acquisitions this year and I would highly expect that as long as we identify opportunities that we feel the pricing is strong or favorable, that we're going to see acquisitions greater than that. And as I said, the development, that's about $350 million. So from a sale acquisition involvement perspective, that's how we characterize that. John Bergschneider is with us and as for the San Diego sale, how are you thinking about land and other types of transactions?

Hey Michael, it's Jonathan Bergschneider here. The sale in San Diego is actually fairly neat outcome down there. That land parcel was the last remnant of land that was acquired from the Slough acquisition back in 2007. Carlsbad, I would call a secondary or tertiary land market in San Diego, so rental rates are fairly muted down there compared to a South San Francisco or Torrey Pines. In the case of that sale, we worked with a buyer, a developer that looked to reentitle that land to residential and retail. That higher and better use allowed them to rationalize a sales price that was more in line with our above market land basis. So we were able to actually execute on that site, getting out from the basis so we thought that was a really good execution down there and takes us out of the Carlsbad market completely. In terms of other land sales, we do believe that development will be an integral part of our business going forward along with acquisition redevelopment. So we will continue to look at opportunistic sales, where we do see a higher and better use but right now most of our land sites are concentrated in the core markets where we see integral to our portfolio.

Next up, we have Michael Carroll with RBC Capital Markets.

Tom, can you give us some more color on your comments earlier regarding your investing in the life science space? How do you plan in competing in these top markets? I know there's a lot of capital shaping deals. I mean should we think about more of a stabilized acquisitions or ground-up type developments -- type of deals you're going to pursue.

I'm going to start with them and turn it to our expert again, John. When we look at life science in the 2 major clusters that we're involved, there just isn't -- there isn't a lot of new land and there's a lot of demand coming at that space, I mean, that's shown by our 97%-approximately occupancy. We love this campus within clusters concept because it allows us to work with major tenants as they grow. And so we think of it as growing vertically within San Francisco and San Diego. We've already got a huge presence in San Francisco and we've got some additional work to do in San Diego. But rather than me get a whole lot deeper, Jon, why don't you expand on that? I think it's a great question.

Thanks, Tom. Michael it's Jon Bergschneider here. I think generally, we feel really good about the health of the life science industry, in particular, in those core markets and where we positioned ourselves with land sales and sizable mass. We really have the opportunity to grow this portfolio in its organic sense from the mark-to-market leases as we roll the portfolio in the next 3 years for about 5% below market. And so as we see those properties come to market, from a lease perspective, we think we can pop rents. Our land sites that are well-positioned to also accommodate that growth, so we really have a 1-2 punch in growing this portfolio. Really, where we see opportunity on the development side, spreads of 150 to 200 basis points over the existing cap rates, we feel is a really solid and attractive premium for the risk-adjusted return that we're taking on development in core markets. So we don't see that as a tapped-out market, plenty of opportunities and we're really going rely upon prudent investment, redevelopment and development to grow the business in those core markets.

Okay, and with regard to San Francisco, do you plan on kind of remaining focused on South San Francisco? Or is there something you can pursue in the city?

Yes. We've primarily maintained a strong peninsula presence. Historically, we felt that's a very safe and rational back given where talents in the clusters are distributed in the Bay Area. We absolutely will continue to capitalize on the momentum of success that we saw at The Cove in the first 2 phases. We've already broken ground and coming out on Phase 3 as a first mover damage that we implemented or took advantage of, I think it served us well. As far as the city in terms of Mission Bay, we have not posted a flag there. Generally speaking, we believe a rising tide raises all ships seeing as how successfully over the overarching bay area market will continue to trek along and we'll selectively develop in South San Francisco and maybe look at some opportunities on the peninsula going forward.

Our next question will come from Sheila McGrath with Evercore ISI.

You mentioned a deceleration in life science and MOB in second quarter given some lease expirations. I'm wondering if you could give a little more detail on those expirations? Your progress backfilling the space and where the rents are versus market.

Tom, do you want to start?

Our leasing pipeline is actually very good this year. Where -- for renewals, we already have a pipeline that's executed or commenced that's half of what our target was for the year. And the mark-to-market on those renewals is generally in the kind of 1% range, for the quarter, it was 0.6%, but we have a large basement space that we leased this quarter that drove the number down a little bit. But we see, in general, that's kind of where we're going -- where we expect renewals to occur. Even on the new leasing side, we are seeing, again, our pipeline is about 40% of where we expected to be for the year, so way ahead of where we should be in the first quarter. So we're pretty confident with our activity.

And Jon Bergschneider?

Yes, Shiela, it's Jon. In terms of life sciences, we've got 700,000 square feet of remaining expirations, a real big driver in the down tick on the same-stores, really a long-term lease with client in South San Francisco that's expiring off of a 15-year term, so we have a pretty high rent on that number or on that lease, about 130,000 feet. The good thing is we have 100% of that space already leased. So overall, right into new leases, what would be a downtick understandably in the rents, we will not have any downtime from an occupancy perspective, which is critical given the importance of that space of our portfolio. As we said before, generally, above market on '17, below market on '18 and below market in total for the next 3 years. So we're feeling pretty good.

Okay, great. And just a follow up on given the cap rate compression in MOB, I'm just curious if you look at your portfolio MOB versus life science, how you think the internal growth profile compares to one another over the next 3 or 5 years.

You mean as far as investment? Or just NOI...

No just internal growth profile of the 2 different asset classes over time.

I think internal assets...

MOB versus life science.

Internal NOI growth is probably pretty similar between the 2 guys, would you agree with that?

Yes. And we've been fairly consistent for the past, actually, 13 years. Kind of always in that 2% to 3% range, we might have an odd year. We bumped above 3% or below 2%, but we've been very consistent both in same-store growth and occupancy.

Yes, I would mirror that comment on life science as we generally trend towards fixed-rate escalators in the 3% to 4% range. With a little bit of downtime, we tick that down slightly to a range of 2.5% to 3.5% year-over-year. South San Francisco hot markets were 3.5% and up, and San Diego, more on 3%, so it depends on the concentration we've got, we feel pretty good about where we're at and similar to (inaudible) the portfolio.

The next question is from Todd Stender of Wells Fargo.

Shiela had a great question, I'm going to hopefully piggyback on it. It has to do with the growth. I guess, sticking with the MOB same-store growth question. By our measures and a lot of the industry folks look at your percent on campus and then high percentage of multitenant versus single tenant, and when you get the same store growth guidance of 2% to 3%, it just seems like you're under punching your weight, only because we look at the peer play guys of doing 3% same-store growth. Can you guys just talk about maybe what the prospects are of achieving maybe like what's become the benchmark of 3% same-store NOI growth and MOBs.

I think the 3%, if you look at our portfolio, we're probably one of the more mature portfolios in the industry. We've been around for, if not the longest, close to the longest time and we have a higher percentage of multitenant buildings in our portfolio. If you look at the, some of the newer MOB portfolios out there, they have more single tenants with built-in escalators. So for a couple of years, you'll get that 3% growth, maybe a little higher, but they tend to be binary. So a single tenant building is either full or empty. So as time goes on, you might see some degradation in that, but I think long-term, typical growth rates for MOBs are going to be in the 2% to 3% rate range unless you have some major occurrence in rate or something that we're just not seeing especially since the recession.

For mature portfolio, I think the 2% to 3% range is in line.

How about just on the multitenant? Just because if you can push rate, we're seeing pretty high release in spreads, how do you think about just the multitenant, which is probably a pretty good pricing power at this point in the cycle?

The multitenant, again, we're -- we've always seen kind of that 1% to 3% as far as releasing spreads. Our retention rate has always been in kind of that 80% range. And you figure 15% of the portfolio rolling with our built-in escalators, that again equates to about a high-2% to 3% range. You've got occupancy in a multitenant portfolio with the rollover tends to stay in that kind of 91% to 93% range, and that's where we've been.

Hey, Todd, I would add a couple of things. This is Tom Herzog. When we think about on-campus, of course, that's irreplaceable property just based on location. It has the redevelopment opportunity that we talked about with an older portfolio. But the other thing is, we really do end up having quite sticky tenants in these properties and one of the things that has to be considered when you're looking at same-property performance is that TIs do not get included in the SPP results. And if you got sticky tenants, you have less TI dollars that are spent and I think that can often be missed in the calculation of what are your true cash, if you will, same-property performance results inclusive of TIs.

The next question will come from Drew Babin of Robert W. Baird.

One question on MOB lease expirations throughout the rest of the year. Are there any big jump in leases or anything that will be copied in the way it modeled or in other words, can you give us kind of a breakdown by quarter of the expiration for the year?

The expirations are fairly consistent. There's no really major leases rolling. Our lease -- our average lease size is kind of in that 3,000-square-foot range. We do have some 10,000, 8,000 square-foot leases but we don't have the really large spaces, upwards of 20,000 feet or more to roll, so we tend to be fairly consistent.

Okay, that's helpful. And one follow on, on the SHOP supply growth on the independent living side, it looks like Denver and Chicago are seeing new properties -- new HCP properties, and I was hoping you could explain your positioning relative to those assets in those markets? And what are those or what specific markets where you'll deploy quite a bit of CapEx to keep up?

So we are evaluating a few projects there to ensure that our properties are competitive. We think we are in a good position to compete in those markets against the new supply.

The next question comes from Jeffrey Pehl with Goldman Sachs.

Just a quick one from me on the 25 communities, you're still marking the sale for Brookdale, the Brookdale assets. Do you have a sense of the cap rates or the peering of pricing you're seeing in these 25 assets?

Yes, yes, we do. And I don't want to get too specific on that as you can imagine. But these are probably somewhere, I don't know, call it low 6s, something like that. This isn't -- and this isn't a large amount of proceeds coming in. So versus like the Brookdale 64, it's more -- and I'm not trying to set pricing as I throw a number out there for proceeds, but if I throw a round number out, you're talking like $160 million or $170 million or $150 million. It's -- this is not going to be a material outcome to our 2017 results.

The next question is from Tayo Okusanya with Jefferies.

I just have one quick question, it's actually about London and the Four Seasons transaction. I know a while ago there has been some talk about trying to convert those ruins into actual real estate that could be a pretty attractive play. I'm just wondering why you didn't go down that route and you went down the route of just kind of selling and getting out of the investments?

Tayo, it's good question, and one we talked about a lot before we made our decision. One has to weigh the distraction of the journey in that type of a process as to whether it is worth what we're seeking to achieve, especially when there's a lot of risk around it and we decided to sell the position to a group that are absolute experts in working through these types of transactions and let them work together with the current owners to favorable outcome.

Next up is Chad Vanacore of Stifel.

Just one quick big picture question since we're running low on time. You've been repositioning the portfolio for about a year now, you've exited skilled nursing, you've reduced your footprint exposure, and you've addressed most of the issues in that lending platform. What kind of critical issues are left to address and when do you think you would consider that portfolio stabilized and mostly major excuse in your rearview mirror?

Sure. It's starting to feel like it's getting pretty stabilized. We're much more playing offense right now than defense as we gear up our investment pipeline and consider about where -- and consider where we want to grow. As far as the remaining things, again, it's just -- we've got some work to do on Brookdale. We're assessing the U.K. and then there's just a manual pruning. We've got the HC-One debt that will prepay most likely. And beyond that, we've got a fair amount of proceeds without having to go to market to invest and so we're very optimistic right now as to where we stand and we're ready to start playing offense in a bigger way.

Next up is John Kim of BMO Capital.

It sounds like your relationship with Justin will likely continue as he's going to be the CEO of one of your partners. I'm wondering if the departure of Kai is also a similar circumstance where he's also going to -- a partner of yours?

Well, I won't speak to Kai in that -- Kai's departure and Justin's are completely unrelated, just in case you're wondering. They both had a desire to get back toward their operating roots and we're in full support of Kai. He has made us aware of his plans for a while. He's been an absolute true professional in giving us plenty of lead time and gracious in helping us with the transition. And I just think Kai is a real pro from an ops perspective and hope that where he lands that we're able to do some business together. So we'll see how that all plays out, but that would be our hope.

So is your expectation that he is going to be working with you as just an operating partner?

I have no idea. But we'll find out where Kai lands.

This is Mike McKee, let me add something there. He's -- one of the phenomenons that is going on here and I mean to stay very general when I say this, but these are 2 of the best-known operators at scale that are living today, Justin and Kai. They're very popular in terms of their skill sets and their backgrounds and they have been quite attractively approached for self a number of months now. We've known that. We appreciate that and I think it speaks a lot to the needs in the industry to get to people who can operate at scale. So when you kind of feel it from the inside, this is very natural and understandable. And the kinds of offers or inquiries that have come at them, it's not my place or our place to talk specifically about that, but I think as a job -- as a broad stroke, I would just note that they are considerable, they are compelling and hard to turn around when you've got the kind of background that they have. Luckily, as Tom said in his opening, they have left us a much better place in terms of how we look at things, the infrastructure we have in place with Kendall and Paul, we have -- we're very comfortable that we're covered in the senior housing space. We'll add some additional folks underneath them but the ones we have are well-trained and able to move us forward. And I think, generally speaking, I think it's highly likely to get into a personal relationship we have built with these folks and I would say, Justin has been effusive and gracious in how he's described this, I think we will have a long relationship here. It's hard to be specific because we don't know among the many offers being considered where Kai might land, but I think the personal relationship is deep and will be throughout our mutual careers, would be my comment on it.

My second question is on the redevelopments, the $49 million in your -- all in your MOB portfolio. Can you just give us some color on what you're doing to these assets to get to that 9% to 12% return?

This is Tom, I'll take that. Really, it's a complete redo of the asset. We go into the building and we have our portfolio ranked as to who are the best candidates from a occupancy upside, rate upside, age of building standpoint and then we go in and look at every major system in the building: the window system, the electrical system, the HVAC, all the common areas and bathrooms and we completely redo the building including upgrades to the façades. So these are fairly long-lived assets and it repositions the building almost as it's a new asset.

The next question is a follow-up from Smedes Rose with Citi.

It's Michael Bilerman for Smedes. Mike, I was wondering if I could quick review just sort of on the management changes. And if you go back a past couple of years, you made a pretty big deal about trying to bring in this new management team, the hiring of Tom, the hiring of Justin, the hiring of Kai and some other people. And you also gave a lot of reassurances about bringing that team and providing them the opportunity at HCP. And I recognize there's always other people trying to poach people away. But I guess, what confidence can you give your investors that your future hires and your most recent hires aren't missed, are in the company for the longer term. And perhaps what do you think went wrong other than -- for people to choose something else other than just monetary concerns or go back to bad operating roots, what is it about HCP that wasn't there for them that you could provide that -- where the confidence you had in telling the Street that this is the new team, failed?

Well, Michael, I don't feel that we have failed at all. I think if you work around these hallways and watching this team work and have the opportunity that I have to watch them day in and day out, you would see an excitement and camaraderie and a sense of teamwork, that is what we aspire to. When we started this journey, we talked about -- I talked about HCP 3.0. I've been here as of yesterday 1 year and we have gone through a hell of a lot. I think that the recovery of this company, the turnaround of this company, the repositioning of this company is well-known and well-documented and these things have to shake themselves out over time. We are building a new team. You don't build a world champion just in 6 months or in 3 decisions or 4 decisions. You do it a step at a time. I just mentioned a minute ago and I just incorporated by reference the story around Justin and Kai and you know them well, I encourage you to talk to them face-to-face and ask the question about why they're moving, but as I said it is very natural and it feels very natural. So the world is changing. Brookdale, the largest in the space, has got -- have been looking for a strategic options, people are rotating around, you hear lots of things about some of the private equity investments in senior housing that are maturing and may be turning over and may be coming out eventually for sale. So there is a lot of movement in this space but we just finished a board meeting in a strategic session last week and our board left town saying they could not be more pleased with the progress that we have made and the plans we have for the future. So I think right now, Pete and Tom have been in their job just this year but you would not know that if you were here every day. And the opportunity to have Kendall be more visible to the marketplace is terrific. And with John and Tom Klaritch, we've got anchors in those parts of our business. We've added resources, analytically, and we have this one CIO position that is -- were getting a lot of interest. I think we're going to -- you're going to -- everybody, our investors will be pleased when we actually fill it because I think we'll have somebody that will -- I don't have 1 individual in mind when I say this, but I know what the pool is. So we're pleased. Right now this is the place that people want to come and work at. So I don't think we're failing at all, but I think that it is just a natural process to put a new generation in place. And sometimes you take 3 or 4 steps forward, 1 step back and then you take 3 or 4 steps forward. And that's what we're doing.

That's helpful color. Maybe you can you talk a little bit about how you guys evaluated the Duke MOB portfolio, sort of what your pricing level, where you got comfortable at, whether that was with a capital partner or without? And how that may have affected your decision in terms of pricing, how you thought about equity as capital or selling assets to fund that purchase? Just to get an understanding of your investment mindset when presented with opportunities.

Michael, this is Tom Herzog, I'll answer that, in part. I can't obviously go too deep in that. But we looked at deal with the potential of a partner or not a partner. We underwrote it based on what we thought the value of the real estate was and, as with consideration to some of the benefits of the platform, and it is a very nice portfolio and a strong team and there are a lot of good things to say about it. And we assess that as we considered pricing. We looked at what it would do for HCP and one of the things that we strongly took into consideration is that it is somewhat implicative, it makes us larger and we wanted to be careful it didn't turn into just an asset purchase. So it had to do additional things because we've got one of the great MOB platforms and teams in healthcare REIT space. We've got development capabilities, we've got some of the best relationships. So when we looked at it from a pricing perspective, we needed to be very careful to draw the line at a place where we felt that we were doing something that -- in some matter would be accretive and expand our capabilities and those are the types of things we looked at when we considered pricing, when we considered the deal.

Did you have a capital partner in the transaction?

We did not. And Alex, will answer that. We did not start with a capital partner and whether we would've ended up with one or not was to be determined but we could've done that deal easily without a partner if we would've chosen to.

And how would you have thought about funding that just given the size, almost $3 billion? Would you have the considered equity in that case or would you've accelerated in assets sales?

We had about 3 different alternatives and ways that we could fund it with minimal equity. If we had done a deal of that size, we obviously would not be levering up at HCP to do that deal. So we had modeled it out with a certain amount of equity as one of the alternatives and we do have some assets that, some of which I've spoken to that would have created some additional funding that could have been utilized. So we -- again we had options on that.

This concludes our question-and-answer session. I would like to turn the conference back over to Tom Herzog for any closing remarks.

Thank you, operator. I'll close by saying we appreciate your participation and interest in HCP. I thank all of you for joining us and look forward to talking to you all soon. Thanks so much. Bye bye.

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