Healthpeak Properties Inc (PEAK) 2002 Q3 法說會逐字稿

Please stand by, we're about to begin. Good day, everyone, and welcome to the Health Care Property Investors' third quarter 2002 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to the Chairman and Chief Executive Officer, Mr. Kenneth Roath. Please go ahead, Mr. Roath.

Thank you very much. Good morning everyone. We appreciate all of you taking your time to listen to the earnings announcement release by Health Care Property Investors. Today, I am joined with Flaherty, the President and COO of the company, and I'll obviously have more to say about him and welcoming him to the company. I'm also joined by Jim Reynolds, Executive Vice President and CFO, and I am joined by Ed Henning, Senior VP and General Counsel of the company.

At this point, Ed Henning will complete the forward-looking statement that's required.

Thank you, Ken. Some of the statements made during this conference call will contain forward-looking statements subject to risks and uncertainties which are described from time to time in press releases and SEC reports filed by the company. Forward-looking statements reflect the company's good faith belief and best judgment based upon current information, but they are not guarantees of future performance. Projections of earnings and FFO may not be updated until the next announcement of earnings, and events prior to the next announcement could render the expectations stale.

I will now turn the meeting back over to Ken.

Thank you very much, Ed. I would like to first open up with a comment about the announcement that we put out regarding the succession plan of Health Care Property Investors. I have been with the company for now 17.5 years and obviously I'm not getting any younger. I've had a great experience here in this company. I've been accompanied by some of the finest staff that any company could possibly have, most particularly, Jim Reynolds, who is the Executive Vice President and Chief Financial Officer of the company. He has been with the company for 17 plus years, as I have. Both of us started approximately the same date.

He is a very dedicated employee and it's been my pleasure to work with him. I've also got other individuals on the staff that have incredibly long tenure. , our Senior Vice President of Acquisitions, has been with the company for 17 years, and , Senior VP, Finance, and Chief Accounting Officer of the company has been with the company for about 16.5 years, and Ed Henning, our General Counsel, has been associated with the company in one capacity or another for over 14 years.

We have a lot of longevity in this company, we have a great team in this company -- a lot of wonderful employees that I haven't mentioned, and we're now up to about 46, 47 employees in the company today. There's great longevity with all of them -- other employees as well. They have made this company what it is today, and they will be with the company going forward, and I will continue to remain with the company in a slightly different capacity going forward.

A few months ago, I had the opportunity to have a discussion with Flaherty, and one thing led to another. I had no current intention of taking the action that we have ended up with here, but I am immensely pleased that Flaherty has agreed to join us. He has come in as President and COO, and is expected to take over the functions of Chief Executive Officer around May of next year, when we have our annual shareholders' meeting.

I have known personally for 16 years. He has been known by most all of the board of directors for that same period of time and has had significant contact with the members of the board of directors. His experience, we think, will add tremendously to the future of this company, and the growth in this company, because he has 19 years with Merrill Lynch and the last four or so, or five, he headed up Merrill Lynch's worldwide healthcare group, which he put together and founded for them. So we're very pleased to have with us today. As far as the -- and we welcome him into the company as the future CEO of the company.

With regards to third quarter operations, we had a very good quarter. But it was -- I must say -- slightly less than what I had expected initially. Things do happen during the quarter that you don't -- sometimes don't anticipate, but we are pleased with the results. It was a nice increase over the same quarter a year ago, and we anticipate that the fourth quarter will be very good, and show a big improvement over even the third quarter.

The -- the biggest issue affecting the third quarter negatively is this continuing lagging of some of the operators in the triple net lease portfolio. The good, the positive, thing about that is that those things are getting behind us. I know of I've said this before, but there are fewer and fewer of them. Hopefully, someday we will get back to the experience that we had in the first 14 years of running this company, in which we had little or no lease rollover issues. Certainly none that accounted for write-downs in lease renewals.

Our acquisition program for the quarter continues to show significant improvement. We closed $143 million in transactions during the quarter, bringing the year to date total to 331 million. And we have current signed commitments for about 51 million in additional investments which are expected to close in the fourth quarter. We will have significant other investments that also will close in the fourth quarter.

The investments closed in the fourth quarter included about $113 million loan and a $12 million equity investment in American Retirement. There is no effect on that transaction, however, in the third quarter. It'll commence recording the effect of that in the fourth quarter. The pipeline of investment opportunities remains very strong. We have looked at something in the neighborhood of $6 billion of investment opportunities for the year. I would say that that is slightly higher than we've experienced in some other years.

Recently, we have seen an influx of a fair amount of new inquiries for financing of transactions -- there was a lull there for a couple of months, but just in the last month or so it's picked up again. And we currently have under review approximately 1.8 billion in investment opportunities. I want to remind all of you, there is a lot of hard work that goes into closing transactions. Sometimes you get very close to the goal line and you don't -- you aren't able to close the transaction. We will work very diligently on that. We expect to exceed our goal for the year in acquisitions to be closed, which was 400 million, and we expect that in the year 2003 that we will exceed that amount.

We are seeing opportunities in skilled nursing facilities, assisted living facilities, retirement communities, life science, medical office, and wellness facilities. We do think that the acquisition program is running on target, as we had expected. The next issue, the competitive advantage that Health Care Property has over all of our competition in raising capital and financing of &&&&&&&& unid: ... competitive advantage that Health Care Property has over all of our competition in raising capital and financing of the company.

As you know, earlier we announced we did a 10-year debt financing transaction that was immensely successful. We closed it at 169 basis points over the 10-year treasury. You may recall that I mentioned that we went out to raise 200 million and within three hours the book of inquiries or interests in buying our paper exceeded 1.1 billion.

That is a great vote of confidence for this company and as a result of that we were able to complete that transaction, as I say, at 169 basis points over the 10 year treasury which is significantly lower than most of the debt raised by our competition. The other issue - another segment of our competitive advantage in raising capital is our drip program, which is running around $100 million a year and that is low cost new funds to the company.

That is new equity coming into the company. As it comes in it does have the tendency to de-leverage the rate and it holds down our earnings growth, but it is a very good method of issuance and very low cost method of issuance of new equity. And we will put those funds to work in good investments going forward.

And lastly, just recently we announced a new $490 million bank line. That is an increase of about $100 million in the size of the line over the previous line and the spread at the same time was brought in by about 10 percent. The spread is 112.5 basis points over Libor on that money. That is very low cost money to the company.

The bank line was lead by Bank of New York, who's done just an outstanding job for us. They are committed into the line of 65 million. Then we have Bank of America and Wachovia, each in for about 60 million. Wells Fargo and 50 million and then Fleet Bank, Deutsche Bank, CS First Boston, each in at 35 million. There are a total of 14 banks in the line.

We appreciate their strong support of Health Care Property Investors. And then lastly, during the quarter, we paid our 67 consecutive quarterly common stock cash dividend. We increased it again by one cent to 82 cents. The Board of Directors of the company meets next week and at that time they will review and take under consideration the next dividend. That would be Tuesday, the 29th of the month.

Preliminary estimates for 2003 are for an increase of FFO ranging between 17 and 20 cents. This bodes very well for the company and shows a substantial return to growth in the company and that will be very good for the dividend going forward.

At this point, I would like to turn the meeting over to Jim Reynolds who will have more detailed comments on some of these issues and on additional financial issues.

Thank you Ken.

As you know, we had an 87 cent third quarter FFO number, funds from operations. It's important because that was up three cents from last year. It continues our progress in returning to earnings growth, you will recall that we were flat last year and actually flat on FFO growth through the first quarter of this year.

We expect to notch it up a little further in the fourth quarter. Our expectation there is for an 89 cent quarter, which would give us 343 for the year at the low end of our range. Few more words on the fourth quarter. I think many of you will recall that we collect a lot of rent from our hospitals in the first quarter of the year and then we're required by FCC SAB release 101 to defer those to the second and third quarter.

But the net result is that we have no income from that revenue stream in the fourth quarter, so we start in the hole about three cents for the fourth quarter and still expect to earn 89 cents. The things that will contribute to that strong performance in the fourth quarter are acquisitions, including American Retirement, the commitments that we have outstanding, our lowered costs of financing and a higher use of the bank line and some of our construction projects which have been in process for a year now have come on line.

One in August, a $9 million lab project in Utah, and another one will come on line in November, our Idaho hospital project which is a $28 million project. Ken already talked about the expectation for next year, which would be up 17 to 20 cents. To achieve that we need a continued good financing environment, which we expect to continue and I'll talk about some more.

We expect to have an aggressive acquisition program as we had this year, and we expect better growth from our triple net internal portfolio. A few more words on the exceptionally good financing environment that we're in, which has really been great for our company.

Ken talked about the 10-year note program and the new bank line and the fact that we're raising a lot of money through our dividend reinvestment program. Just to show you how good the debt markets have been, we're - for nine months our average debt balances are up about $100 million, but the average rate on those balances is down over a full percentage point to an average 6.4 percent.

Both the bank borrowings and the 10-year note issuance have been drivers in that. The bank line today stands at about $200 million outstanding, at 2.6 percent. Also during the year, we've increased our average debt maturities to five years. A year ago they were only four years.

Looking forward to additional financing opportunities, in the next year we have 47 million of notes or other debt coming due at 7.7 percent. We could refinance that at a lower rate were they to be due today. We also have a preferred stock issue outstanding at 8.6 percent, which may become an opportunity.

A number of the executives of the company attended the NIC conference last week in Washington D.C., there were nursing home operators there, assisted living operators and retirement operators. Some of the common complaints that we heard was about the high cost of liability insurance and also the self-insured retention that operators are required to keep.

They were also talking about the high cost of workers compensation insurance in many states and some about the continuing nursing shortage. In addition to that, the nursing homes have to contend with the fall off in the Medicare cliff funding, which currently is costing them about a 10 percent rate cut. As a result of all these factors, we expect that some nursing home operators will have lower margins because of these issues.

A number of our operators have improved their margins, though, in the past two to three years and we think that most, if not all of them, will do fine under the new lower Medicare rates. We do continue to expect Medicaid increases of an average of two percent in our 18 core states. was out with an announcement on their liability insurance requirements within the last couple of weeks.

I just want to note for you that we have no exposure to Florida nursing homes with . Our major concentration is in Tennessee and our lease rates with are well below market. They've done very well in our facilities.

Turning a little bit to the assisted living and retirement operators that were at the NIC. The mood was quite a bit better with that group of people. They continue to fill what unstabilized facilities that aren't completely full at this point. There is good news on that front.

There are a number of operators that have now turned the corridor on operating cash flows, and are now positive. In particular, one of our operators in the Southeast was able to do a merger acquisition transaction using their stock and they are now stockpiling cash. They are doing quite well.

And I think there are a number of other operators who are either at operating cash flow break even or will have it in the near future. Now on the medical office building portfolio, has had a very good year and a wide growth in the third quarter over the same quarter last year with 2.6 million.

About half of that was due to acquisitions. Same store growth for the nine months over nine months on 83 buildings was up $2.2 million. A significant piece of that is the improvement in our San Diego market. We did have a vacancy in the quarter in three Houston clinic buildings, which has reduced our occupancy to 89 percent.

That should be back up to 90 by year-end, but we won't reach our goal of 91 or 92 percent. Finally, on the American Retirement transaction, I'll give you a few more details on that. From ARC's perspective and having talked with the quite a bit lately, the transaction was very good for them. They paid all of their lenders in full.

They refinanced their entire portfolio over an 18-month period. That was no mean feat. The nine core facilities that underlie our transaction remain under their control and they were not - they did not have to resort to a sales lease back at a higher rate that would have a $200 million tax gain.

Their average pay rate when aggregating how our subordinate loan in the first mortgages, is about eight percent. From our perspective, we will do very well with the accrual between the pay rate and the 19.5 percent accrual rate. But there are also assets that we would like to own.

And we think that that's very important. We also know that ARC has an excellent operating management and that their operating incomes are improving. From an accounting standpoint, our initial pay rate is nine percent. It grows to 11.2 percent in year five and the average rate is about 10 percent.

We don't have any final decisions on our accounting, but one way of accounting for it might be of the average 10 percent pay rate initially. It's likely that the way that transaction is accounted for will change over time. I would encourage analysts and investors to read ARC releases for more detailed information and you can make your own independent judgment about their success and our transaction.

Thank you. Back to you Ken.

Thank you Jim. At this point, we'll turn it over to questions from the people who are in attendance today. Operator?

Thank you gentlemen. Today's question and answer session will be conducted electronically. If you would like to ask a question today you may do so by pressing the star key followed by the digit one on your touchtone phone.

Again, star one. If you are on a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. We'll pause just a moment to assemble a roster.

We'll go first today to of Merrill Lynch.

Hi. Thanks operator. Good morning everybody. I was wondering if you could give us color on the eight assisted living facilities you have that are still showing up below 90 percent occupancy. Try to understand if these locations are all run by the same operator and it looks like these eight properties have been open for a while.

And I'm just wondering at what point do you - if they don't fill up, at what point do you think about these as potential sale candidates?

, this is Jim Reynolds. I think they are with different operators. There's only one that's under 50 percent. We've talked to that particular operator several times. We have a solution to it and he'd rather lose money than take our solution.

So, we think we ultimately will have the solution on the one that is below 50 percent. I don't expect any issues coming out of that portfolio at all, anything significant from us. I mean those operators either, you know, the facilities are grouped with other properties or they're well along their way to getting to break even.

So I really don't expect anything significant in the way of a negative coming out of it.

OK. Then, you guys have recently been involved in some development projects in the biotech area as well as the ongoing hospital MOB project you have underway. Just wondering, is this an area of increasing - do you guys see this an increasing opportunity that we should focus on as we develop our models?

Or are these development projects going to remain opportunistic things that you choose to pursue and remain a relatively small portion of the overall investment pie?

This is Ken. The - this is an area that we have looked at for a long time. I'm sure it's five, six years ago we looked at some biotech properties to invest in. I think right now it will remain opportunistic. We have studied that market very carefully.

And I think the investment in that segment will be opportunistic, taking advantage of transactions that we think, you know, can add and bring real benefit to the company and at the same time trying to minimize the risks that are perceived in that type of an investment.

You know, I'm very hopeful that it will grow but I'm actually more hopeful that we will get business from healthcare laboratories and other types of healthcare facilities more so than maybe just the biotech type of properties.

OK. And then maybe just one last question. In the managed portfolio, if I read the press release correctly, for the 83 properties it looked like you had a nice pop in operating income even though the occupancy drifted off a little bit.

And I as just wondering what was behind that?

, It's Jim, the three - we got a nice payment to the - part of the termination on the three buildings that went vacant in Houston. That payment will likely tide us over. On of those facilities is already - we already have an offer on it, and we think the second one will go quickly, so the payments that we received from the prior operator will likely mean that the economics on those three buildings will be just fine over time.

OK, great. Thank you very much.

Thank you .

And we will go next to at Salomon Smith Barney.

Hi guys.

Hello Jordan, how are you.

OK. Just to clarify on ACR, I understand that you said you are going first start up in 9% pay rate, moving up 11.2% or so, an average of 10%. Does that mean there - just to be clear, there's no accrual up to 19%, within ?

No, to be - just to be clear, we don't have a final answer -

Oh, you don't?

To some extent, it is dependent on how well ARC does over time, and we will be looking at that on a quarterly basis. So I think our accounting will change with time, and we don't know for sure even what we are going to do in the fourth quarter. But I throw out the 10% as a conservative place to start.

OK. Also, can you speak to the comp package of Mr. Flaherty, and the overlap over the next, lets say, over the next twelve to eighteen months?

This is Ken Roath again. The compensation package, which will be published in the proxy statement - his initial compensation, is $475,000, and he received $60,000 stock grants, which vest over a seven-year period. And we think that shows a lot of his commitment to this company in long-term. He will participate in bonus arrangements as they take place. In May of next year, it is expected my compensations will be substantially reduced, because he will be taking over as CEO of the company, and his compensation will then match my compensation at that point and time.

OK. Just speaking a little bit to the Medicare, Cliff, I know you provided some color in the release. Could you identify what portion of your tenants might be most at risk, just a guestimate maybe, and to what extent -- maybe characterize that risk a little bit?

Jordan, this is Jim Reynolds. I think the best way - what I said before is that the operators have really improved their margins dramatically, if you look back over the last two years. so I think they are in a position where, for the most part, they are all going to be able to live with this - the new lower rates, and hopefully they will be able to cut costs to cover some of it. I do think that there are a couple of firms out there that even make public statements that if they didn't get some relief, they would be in trouble, and those might - those are -- maybe the couple firms that have just recently come out of bankruptcy, or maybe there is one firm that hasn't emerged from bankruptcy, so I think if you are going to look for a place where there might be a problem, it might be those couple of areas.

OK. I think has a question for you as well.

Hi. With regard to the same store growth in the managed portfolio, how do you get positive growth after a 400 basis point reduction in occupancy?

Well, the reduction in occupancy has happened just recently. It is in - we did have fees paid to us with the facilities that were terminated in Houston. So we - you will likely see a showup some lower NOY maybe in the fourth quarter. But we think that occupancy - actually we think it is kind of a good time in some respects, because we have been able to do better, and the occupancy hasn't picked up yet. And we do expect that ultimately we'll get at least into the low 90s.

How much of that $2.2 million is in the form of fees?

About $1.2.

OK, and last question I have is on the topic of Medicare and nursing homes, what do you think the implications will be on your coverages - you know, portfolio wide, as a result of the potential lost Medicare reimbursements?

I haven't done that computation, Rich.

OK, thank you.

We will go next to of Prudential Securities.

Hello.

Hi Robert.

Yes, a few questions. First on the termination fee, did you run that through the revenue line in the managed care portfolio?

Yes.

OK. Second, with regard to American Retirement, in your 2003 guidance, do you have any accrued interest in that assumption from the loan?

I think we are assuming about a 10% rate, which would be higher than the initial pay rate of 9%.

OK. And then, just in your - again in your guidance, what kind of assumption are you using for the same-facility growth in '03?

We're conferencing here. I think it is probably below 1%.

Significantly, Jim, or -

No.

-- just a little? And then finally, you reported coverage, Jim, on a portfolio level this quarter, which is always - the detail is always appreciated. In your out coverage, do you have the unstablized portfolio excluded from that coverage number?

I am sorry, Robert, could you repeat the question?

Yes, you reported your portfolio coverage in your supplement -

Yes.

-- this quarter, and I am looking at that coverage. Does that exclude the unstablized portfolio, the coverage you reported? It was 1.1 before management fees, and 0.9 after.

Yes, it excludes those facilities.

Ok, and then the number you list in the release as unstablized, I can't - my last question is how much do you intend to take the bank lineup before you have issued that, or whatever, common issue?

I think our target is on average to be about half utilized on the bank line, so $200 to $250 million.

OK. Great. That's all my questions today, thanks.

Thanks Robert.

Again, ladies and gentlemen, just a reminder it is star, one, to ask your question, and also remember to turn off your mute function to allow your signal to reach our equipment. And we'll go next to , Morgan Stanley.

Jim, can you walk me through the fourth quarter guidance. If you did 87 cents this quarter, and you're starting three cents in a whole due to the revenue recognition stuff, is the entire five cents differential therefore just made up from the developments coming on line in acquisitions?

Yes, remember they're very significant because we've got the transaction, which is 125 million. We've got commitments of around 50 million. We've got the construction coming online, and we've got higher utilization of the bank line at about 2.5 percent, so it drives a pretty -- it's an excellent number.

OK. And what are you guys assuming for capital costs for '03 in your guidance? Are you assuming this stays fairly the same -- are you including, you know, an increase in the cost in '03?

I think our preliminary thinking was that we'd have a little bit better utilization on the bank line, but maybe higher short-term rates, at least some amount.

OK. And then, last question, is there any -- I mean, is there a stock price that you have in mind that you might wind up suspending the drip or the stock purchase plan if the stock proceeds below, or are you guys basically committed to this program going forward, no matter what?

Rob, this is Ken Roath. We have, you know -- the company has the options in this type of transaction to evaluate it on a month-by-month basis, and, you know, if we determine it's beneficial, we will continue the program. And right now, we think it's very beneficial to the company. It's exceptionally beneficial to the company for us to continue with this program at this time.

I'm not looking for a lower stock price, I think, is the real answer.

OK. Thanks guys.

We'll go next to at Legg Mason.

Hi. One technical one and then a broader one. Jim, I was wondering if we could get this -- the SAB 101, the actual adjustments for the quarter.

The way it tracks through is about $4 million of cash comes in in the first quarter, 2.4 goes into the second quarter, 1.6 is in in the third quarter.

OK, and then zero, basically, in the fourth.

Zero in the fourth, yes.

OK. All right, fine. And I think people are sort of dancing around this, but do your assumptions for next year assume a capital raise of common issuance -- equity issuance as well? Does your guidance have that in?

Yes it would. That also depends on how successful we are with the drip program, how successful we are and how soon we add additional acquisitions to the company. So, you know, exactly the timing on that is uncertain. But yes, we would have an additional equity offering.

OK. And then -- sort of a broader question, I guess rather than trying to ask it all these sort of little ones. There seems to be a lot of little items that, I think, Ken you described it earlier as sort of -- you know, chipping away at, I guess, growth on kind of the core portfolio, and I don't know, wonder if you could maybe categorize a little bit. I mean, I think there was some -- this write-down of the hospital in Utah, there's the facilities that might roll down. There's some other stuff that you're selling off. Do we really see that coming as an ? Is there something you can do to manage that better, because all these things have been kind of kicking around for several quarters? Again, I don't want to try and go through each and every one on the phone, but I was wondering if you could maybe speak to the general issue.

Just -- I'll comment on one of them, and then Jim can comment. I mean, the hospital, you know, that was an acquisition that we acquired from American Health Properties. The rent was way above market when we acquired it. That was priced into the acquisition. The situation, however, is we dealt with the problem early and we have taken a write-down early. We could have gone the other way and continued to receive rent for the next couple of years at a higher level and then possibly take a big write-down at that point in time. So we are in -- we are stepping up front and we're taking some of those losses right now that we didn't have to take for another couple of years -- or actually, about a year from now.

So -- but that was the transaction that we knew existed that was an American Health Properties transaction and the only difference is that the timing -- that we brought it in now rather than two years from now. On the other one, Jim has some comments.

I would just say that without that, you would have same-store growth of a half million dollars higher for the quarter and the nine months. So we would be in positive territory. There are a couple of transactions which have taken a long time, and I think at the end of the day, we're probably going to do well because we've got good solutions. But it's taken quite a while in some cases to get new nursing home operators up and going in some of those facilities. And maybe we stuck with one or two assisting living operators longer than we should have, but I think most of that's behind us. And we really -- when you look at internal growth next year, I think you should be pleased.

OK.

I think, Jerry, that that last comment that Jim made -- we have ramps that we know we're going to ramp up on a number of these properties, which will add significantly to the growth next year and beyond. We have not straight lined that in any way. I mean, that's all to come on those properties. So we've taken the hit up front on those transactions, and hopefully, we will benefit from it. It's a very difficult decision to make, should you sell a property and take a loss now -- listen, it's no different than banks have in their portfolios, you know, when they have real estate investments. Do they hold it? Do they sell it? You know, when and how do you get rid of it, and what's the best thing?

I think Jim mentioned the fact that we've got some properties that went into bankruptcy and they had just taken much longer than we had anticipated to get rid of them and bring in a new operator and set him up and get them going, and get new rents on those properties that we've been receiving nothing on for some time.

OK. And how would you -- like five more vacant ones kicking around to be sold, when do you think that those might be gone?

Well, I'm sorry ...

There's like five more.

There's a net one increase in the vacant facilities. Of the three that went vacant, one we already are signing up a contract on, and we have good prospects for the second one. So, I mean, I don't know. I think if you look at the history, if we chip away at that list at two a quarter -- it's probably the rate that they'll get done.

OK. And just any thoughts about the -- are you still comfortable with the step-ups in the dividend given the relatively slow growth in the portfolio?

Well, , we just told you that next year's guidance would be 17 to 20 cents. The dividend increases, if you do a penny a quarter like we've done to 16 cents, that would mean that the payout ratio would then start to come back down and improve over time. I am not here to comment on what the board of directors will or will not do at their next meeting. That is the prerogative of the full board to determine, and so I have no comment on where the dividend will go.

The dividend payout ratio, as I say, is a little on the high side, maybe significantly on the high side, but it should start to improve over time as we go forward.

OK, all right. Thanks. And also just Jim, sorry, want to welcome you to the fray. I'm sure you're looking forward to this interrogation several quarters in the future, here.

, I have to apologize, I should have allowed or let -- not allowed, but let speak early on. I'm embarrassed about that, I'm going to make a comment. , welcome to the group, and would you like to add something to the conference?

Thanks for making that comment. The only other comment I'd make is that I'm very excited about joining this team. It's a fantastic team; it's a high-quality team; it's a team I've worked with closely for over 16 years, and delighted to be here and excited about what we're going to be doing going forward.

OK, well, we're looking forward to grilling you in the future.

With that, that basically -- let's see if anybody else has any questions.

Yes, we'll take our next question from at Credit Suisse First Boston.

Hi, good afternoon. Thanks. Just wanted to clarify. In terms of the acquisitions that are expected to close in the fourth quarter, did you say there are about 50 million that are currently signed?

It's about 51 million or so that are currently signed. But there will be other transactions that will be completed during the quarter.

OK, great, thank you. And in terms of next year's guidance, are you expecting the same range, range around 400 million in acquisitions, or slightly higher?

Slightly higher than 400 million.

Slightly higher. And the timing of that, would you say that ...

That will be Mr. Flaherty's prerogative. I'm sorry, the timing?

I'm saying, just -- yeah. The timing of the acquisitions, you say, evenly spread out, or more towards the beginning ...

That's pretty much the way we budget it, you know, within the company. Yes.

OK, great. Thank you so much.

Thank you.

And we'll take our last question for today from of .

Hi, on the acquisitions for next year, what is the breakdown of product type you expect?

, that is virtually impossible to project. You know, there would be a strong bias towards, you know, assisted living, CCRC, retirement communities and nursing homes, in spite of the difficulties that they've experienced. The demographics are so compelling for that segment of the business that it should remain good business for a long time to come for the company. We are always interested in good medical office buildings, and the only reason I don't put them in that category is because the slight return on those is slightly slower or less than what we get on the other kinds of investments, so you pursue those with the best returns for you first.

We're also very keenly interested in diversifying the portfolio into hospitals or specialty hospitals. And other kinds of biotech or laboratory space. We're really interested in everything in this company, because we want to diversify. That's been the hallmark of this company is the diversification that we've got in the portfolio. It's served us well in the past, because any single segment of the business can get into trouble over time.

The medical office buildings and assisted living facilities are run by the dynamics of real estate, whereas all the rest of our investments are the dynamics of healthcare, and healthcare is continued to expected to do well as the population ages in this country.

OK, thanks very much.

That's an overall, but I can't give you specifics, I'm sorry.

OK, thanks very much.

Mr. Roath, I'll turn the call to you now for additional or closing remarks.

Well, we would like to thank everybody who was in attendance today, and we'd like to thank our investors for their interest in the company. This is a great company, and I think under the future leadership of Flaherty, together with the first-class team that is here at this company, I've already mentioned them, they are the guys that have made this company what it is. I'm only the guy up front for them. This is a great company and we expect good things and good earnings growth coming out of 2003 and 2004. I'm very optimistic for the future at this point in time.

Thank you very much everyone, and have a good day.

Ladies and gentlemen, thank you for your participation in our third quarter earnings release conference call. This does conclude our call for today, and you may disconnect at this time.