Healthpeak Properties Inc (PEAK) 2004 Q4 法說會逐字稿

Good day and welcome to the fourth quarter 2004 Health Care Property Investors Earnings Conference Call. My name is Liz and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If, at any time during the call, you require assistance, please key star followed by 0 and an operator will be happy to assist you. I would now like to turn the call over to your host for today's presentation Mr. Jay Flaherty, Chief Executive Officer for Health Care Property Investors. Please go ahead, sir.

Thank you operator. Hello everyone. I'd like to welcome to you Health Care Property Investors 2004 year end conference call. At this time I'd like to have our Senior Vice President and General Counsel, Ed Henning, read the Forward Statement. Ed.

Thanks, Jay. 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 anything stated in this conference call stale. I'll now turn the call back over to Jay.

Thanks, Ed. For the past several quarters we have employed a consistent program on these calls of having me update you with respect to HCP's people, portfolio, and balance sheet, with Mark Wallace then reporting on our financial results for the recent quarter before I wrapped up with perspective on the current operating environment. Given the significant progress we have made on our people and balance sheet initiatives, I'm going to change up our format and have Mark begin with his report on our financial results and then have our Nashville-based partner, Chuck Elcan, provide a review of 2004 medical office building activities, before I finish the formal remarks with perspective on 2004 and 2005. With that, the let me turn the call over to Senior Vice President and Chief Financial Officer, Mark Wallace.

Thanks, Jay. Good morning and good afternoon everyone.

Today we reported FFO per diluted share for the fourth quarter of $.45 compared to $.46 for the same period in 2003. On a dollar basis, FFO was 6 million compared to 60 million in the fourth quarter of last year. FFO before impairment charges was $.47 per diluted share in the fourth quarter of 2003 while impairment charges had no impact on current quarter FFO per share.

We made investments of 117 million during the quarter primarily our previously announced transaction with Swedish that Chuck will talk about in a moment. That activity brought our gross investments for the year to 538 million, or 438 million net of mezzanine debt repayments. We also sold $170 million of properties this year. With that introduction let me review a few of the items affecting fourth quarter results.

Rental income in the fourth quarter was favorably impact by the recognition of 5.7 million of income related to American Retirement Corporation. That amount recognizes leases with affiliates of ARC on a straight-line basis and results from change in our estimate of the collectability of straight-line rent accruals. Interest and other income in the fourth quarter reflects about $800,000 of asset management fees related to our GE joint venture and a reduced level of mezzanine debt following repayments from ARC and Americas during the third quarter. Interest and other income in the fourth quarter of 2003 was favorably impacted by the reversal of a 3.4 million tax accrual related to American Health Properties.

On our last conference call I talked about some of the items impacting G&A expense this year specifically litigation settlements, income taxes associated with our taxable REIT subsidiary, relocation costs, systems conversion, and Sarbannes-Oxley compliance. G&A expense in the fourth quarter of 2004 includes one additional item. We determined that certain restrict stock and option agreements, primarily related to our Chairman, contain accelerated vesting provisions upon retirement. These provisions impact the amortization period of the related equity compensation such that the amortization period should not extend beyond the eligible retirement date. Accordingly, we recorded a $1.5 million charge during the quarter to revise the amortization period for these arrangements.

Operating costs increased during the quarter from development properties coming on line earlier this year as well as the impact of newly acquired properties. While operating costs predominantly relate to our medical office properties, this quarter the amount also includes $1.6 million increase in our allowance for potential losses on unsecured loan receivables. The increase resulted from one payee that failed to timely pay two of four note obligations upon maturity this quarter, as well as changes in estimates of reserves for our other unsecured notes.

We sold six properties during the year for aggregate proceeds of $18 million and recorded a net gain of 5 million. At year end our balance sheet has 12 properties held for sale with a book value of about 21 million. Our balance sheet includes total debt of 1.5 billion, about 23 percent of which is at floating rates. As you know, we closed on our new $500 million three-year revolving credit facility in October and wrote off $800,000 of unamortized deferred financing costs associated with our previous facility.

In connection with the Ameritas transaction in the third quarter, we assumed $56 million of mortgage debt. That debt was fully repaid in the fourth quarter to an expiration of the early prepayment fee.

Under our dividend reinvestment plan we issued 215,000 shares in the fourth quarter bringing total for the year to 853,000 shares or about $22 million in proceeds.

I suspect a fair number of people are interested in our outlook for 2005 which Jay will talk about more in a moment. As an introduction to his comments let me walk you through how we assessed our starting point as we completed our 2005 annual planning cycle. Simply, we looked at our going in FFO rate for next year by annualizing our fourth quarter results after adjusting for certain items. That math works out to be about $1.74 per diluted share, but let me go through how we got there. We reported FFO per diluted share of $.45 this quarter. To arrive at our going in rate for 2005 we essentially made four adjustments to the reported amount. We added back the charges I mentioned earlier related to stock compensation, bank fund refinancing and loan reserves, we deducted a portion of the ARC adjustment not related to fourth quarter, we gave a full quarter effect to the Swedish acquisition that closed in mid-December and we normalized for the effect of [SAD-101] of rental income. Following that approach we arrive at $.43.5 for the quarter which annualizes to $1.74 per diluted share. I think that's a fair way to look at our starting point for next year.

With that let me turn the call over to Chuck.

Thank you, Mark. HCP's 2004 medical office building operations, acquisitions, dispositions, and development projects are as follows.

Operations. At year end 2004 we believe that HCP is the largest owner and operator of medical office buildings in the country. Through HCP owned MOB's, and in conjunction with our joint venture partners, HCP has an interest in 184 MOB's that total 10 million square feet for a total investment of 885 million.

First I'll talk about owned MOBs. For owned medical office buildings and other assets, rental income was 108.6 million for the year ending December 31, 2004. This compares to 84.6 million for December 31, 2003. The increased rental income was primarily related to properties acquired and development properties placed in service during the year. Occupancy was 94 percent at December 31, 2004, as compared to 93 percent at December 31, 2003. On a same-store basis, revenues less operating expenses were relatively flat year-over-year. This was primarily due to the renegotiation of a master lease in Houston and the loss of two major tenants, one in California and one in Indiana. Subtracting these three tenants same-store sales increased 1 percent.

Now I'll talk about joint venture operations. On October 2nd, 2003, we purchased a portfolio of medical office buildings through our joint venture with GE. Revenues less operating expenses were 11.5 million for the quarter ended December 31, 2004, as compared to 10.3 million for the prior year. Revenues for the year ended December 31, 2004, less operating expenses, were 44.2 million. This result was due to the acquisition of a new property in Florida and improvement in occupancy from 84 percent to 88 percent and contractual collections from tenants.

2004 acquisitions and development. During 2004, medical office properties made up 49 percent of the company's investments. The investments included nine properties that totaled 1.2 million square feet or approximately $217 million.

Acquisitions. There were three acquisitions that totalled 749,000 square feet, or approximately $150 million and are broken down as follows.

Number one: Swedish. The previously announced purchase of three medical office buildings, a 42 percent condominium interest in a fourth medical office building and one retail building for 111 million from Swedish Medical Center in Seattle, Washington. The portfolio also included 2,000 parking spaces and three garages. The going in cap rate for Swedish was 8.1 percent.

Number two: Delta Point. 21.5 million MOB located across the street from University of Medical Center in Las Vegas, Nevada. More than 50 percent of the building is leased to the VA Clinic. The going in cap rate for Delta Point was 9.5 percent.

Number three: Bay Front. Purchased in the GE joint venture for 17.5 million is on the campus of Bay Front Medical Center in St. Petersburg, Florida. The going in cap rate for Bay Front was 8 percent.

The benefits of the three acquisitions to HCP are as follows. Number one, the three MOB acquisitions are on the campus of or associated with the leading not for profit hospital systems in their respected markets. This helps further HCP's portfolio diversification with the not for profit hospitals. Number two, the Bay Front acquisition includes certain rights to develop a new medical office building on the Bay Front campus. Number three, Swedish. Swedish is the premier system in the Pacific Northwest. There's potential up side through operating efficiencies and Swedish's growth provides future opportunity to develop and acquire additional medical office buildings.

2005 acquisition pipeline. To date we have witnessed a somewhat reduced volume of portfolio offerings compared to the first quarter of 2004. In late 2004, we saw more product becoming available from owners who own medical office buildings on the campus of hospitals. We are seeing less volume from the hospitals themselves. We expect to see a handful of offerings from non-hospital owners and heard rumor of a few hospital systems that may bring small portfolios to the market. Recently we have seen more focus by hospitals to provide MOB development opportunities via RFP processes rather than outright disposition of existing MOBs.

Dispositions. During 2004, the company disposed of 29 nonstrategic medical office properties that resulted in proceeds of 154 million and a net gain of 13.1 million.

New development. There were four development projects placed in service during 2004 that totaled 414,000 square feet for approximately 67 million and are broken down as follows. Parkway Medical Tower, Reston, Virginia. 146,000 square feet, $27 million project, it's currently 53 percent occupied with 15,000 square feet of new leases pending. Number two, Southern Hills Medical Center, Las Vegas, Nevada. 101,000 square feet, $17 million portfolio property, currently 87 percent occupied. Number three, Skyridge Medical Center, Phase II, Denver, Colorado. 110,000 square feet, $16 million project, currently 84 percent occupied. Number four, North Central Medical Center, McKinney, Texas, 57,000 square feet, $7 million project, currently 77 percent occupied. Each of these four properties is on the campus of an HCA hospital or HCA affiliate and is subject to operating and support agreements. Additionally, all four of these properties came on line at a 9.25 percent cap rate and all four on balance sheet for HCP.

2005 potential development pipeline. The company's investment in new MOB development projects for 2005 is expected to meet or exceed the dollar volume expended during 2004.

That concludes our 2004 medical office review. I will now turn it back over to Jay.

Thanks, Chuck. I'd like to provide this audience with a bit of perspective regarding Chuck's operation. On our October 2003 conference call to announce MedCap I identified four specific reasons behind our strategic thought process. One, premier portfolio of medical office building real estate. Two, leading team of medical office building management. Three, the potential for a significant uptick with our relationship with HCA. And four, critical mass for HCP in the important Nashville health care community. I must say 16 months later our expectations for each of these four criteria have been exceeded. MedCap is now successfully integrated within HCP and Chuck Elcan, Tom Klaritch and their team have done a superb job.

I'm going to cover a number of different topics including review of our portfolio, repurchase options, our dividend, compensation, and some thoughts on the impact of the President's proposed budget.

The portfolio review. Our real-estate portfolio is in as good a shape as it has ever been. Paul Gallagher's asset management team with the assistance of our new MRI information technology system, has systematically reviewed each property. Best practice, real estate, industry surveillance procedures have been implemented across the board and regular portfolio reviews have become a part of the operating rhythm of the company. At December 31st, 2004, our real-estate portfolio, as a percent of revenues less expenses, will be broken down as follows. Skilled nursing, 23 percent. Senior housing, 23 percent. Acute care hospitals, 26 percent. Medical office buildings, 22 percent. Other, principally lab/pharma real estate, 6 percent.

The 23 percent exposure to skilled nursing facilities compares to a 26 percent concentration at September 30, 2002, is the lowest percentage in the history of our company, and represents a conscious decision to reduce our exposure to this sector in light of the federal and state budget situation as well as the prospect for reductions in government reimbursement. In fact, the combined direct exposure to the Medicare and Medicaid programs in our portfolio is now well under 50 percent. This is also the lowest level in the history of our company. These are themes that I've spoken on since joining the company in the fourth quarter of 2002 and were the subject of my Letter To Shareholders in last year's annual report. That said, the SNF sector is relatively healthy at the present time with Kindred, our largest SNF operator, at 4 percent of revenues, performing particularly well. Overall our SNF cash flow coverage is 1.85 times before management fees, 1.4 times after. We are watching the President's budget process closely as it relates to the SNF sector and I will comment on that in just a moment.

As Chuck has reviewed our MOB activity I will move on to senior housing where our two largest operators, American Retirement Corp. at 13 percent of HCP revenues, and Ameritas at 6 percent of HCP revenues are each performing well and trading at or near 52-week highs in the stock market. American Retirement Corp in particular continues to exceed expectations and has recently completed an offering which further de leverages their balance sheet. Our overall senior housing coverages are 1.3 times before management fee and 1.1 times after.

Our two principal operators in the acute care hospital sector Tenet, representing 12 percent of HCP revenues, and HealthSouth at 4 percent of HCP revenues, continue to find themselves as the source of headline news. Both companies have good liquidity and access to the fixed income markets, as demonstrated by the recent up sizing and completion of a long-term debt issue for Tenet and the reportedly strong demand for HealthSouth's new $715 million bank facility. If you dig into the detail on our seven Tenet hospitals you would see that 2004 same store revenues from these seven properties declined by $900,000 or 1.6 percent of their 2003 levels. This decline was generally across each of the seven properties and was impacted in the additional rent component of the overall rent formula. Our hospital coverages of 1.8 times after management fees are somewhat misleading as they reflect the exclusion of our HealthSouth properties and include the impact of a new bad debt policy instituted by Tenet in the third quarter of 2004 as well as hurricanes at some of the Tenet properties in our portfolio.

Repurchase options. During 2004, there were no purchase options exercised by operators in our triple net portfolio. For 2005, and 2006, 6 million and 5 million respectively of rental income are subject to repurchase options. This represents 1.6 percent and 1.4 percent respectively of 2004 HCP revenues. During the recently completed quarter our Slidell, Louisiana, Tenet hospital renewed for another five-year period. This renewal completes a 14-month window in which HCP has either renewed or restructured investments with its two largest operators that extend until 2009 and 2010 in the case of Tenet, and 2013 and 2014 in the case of American Retirement Corp, leases representing 25 percent of 2004 HCP revenues.

Dividend. At last month's Board of Directors meeting HCP's Board approved a modest increase in the annualized dividend rate for HCP's 2005 dividend to $1.68 per share from the $1.67 per share level in 2004. This action continues the policy of moderating the rate of growth in our dividend, implemented two years ago in January 2003, so as to reduce the payout ratio of the company. The reduction in the payout ratio from 95 percent in 2002, to 93 percent in 2004, represents progress on this initiative.

Compensation. For the second consecutive year I have recommended and the board's compensation committee has approved, a freeze in officer salaries. HCP's senior management team, with the exception of myself, received increases in total compensation at an average rate that was below HCP's 16 percent total return to shareholders for 2004. By the way, this increase was highly skewed to the component of total compensation represented by long-term equity grants which typically vest over five years. For myself, I received no increase year-over-year in either base salary or total compensation.

I think some perspective on the Board's thought process is appropriate. HCP's directors are pleased with the successful completion of a number of initiatives that have been achieved over the past 2 months. The Board itself has added four new independent directors, revamped its committee structure, and made significant changes to its corporate governance measures, resulting in a top quartile ranking for the HCP board.

The management team has added a significant expertise and the MedCap acquisition has been successfully integrated. A complete overhaul of the company's IT system has been put in place, a property by property portfolio review, which triggered a significant level of property dispositions and impairment charges, is now behind us, the balance sheet has been largely refinanced, including a new $500 million line of credit resulting in a conservative 26 percent debt to total market capitalization at year end 2004. We have also delivered on our stated goals of reducing our revenue stream of direct exposure to the Medicare and Medicare reimbursement programs and have begun to achieve some success in penetrating the nonprofit hospital space as evidenced by our Swedish medical acquisition and some of the activity in MedCap's 2005 pipeline.

In a sense, much of the downside risk has been taken out of HCP since May 2003, and my comments regarding our investments with American Retirement Corp and Tenent a few minutes ago amplify this point. Now, HCP's board is looking for the management team to take advantage of the business platform we have put together creating up side and build upon the $1.74 metric that Mark reviewed through quality investment activity during 2005. By accelerating the growth rate of earnings and realizing additional improvement in HCP's payout ratio we can consider resuming more significant increases in the dividend in the years to come. This is a challenge that I and the HCP senior management team not only accept but embrace as evidenced by the significant component of long-term equity grants in our overall compensation.

Let me wrap up with some comments on at the President's proposed budget as it relates to our business. At 30,000 feet our take on the proposal is that it is more or less neutral for acute care hospitals, a slight negative for in patient rehabilitation hospitals, and somewhere between modestly negative to significantly negative for SNFs. The savings projected to come out of SNF operators via the RUGS refinement, are at the high end of expectations. The specific RUG analysis is being performed by the urban institute and is expected to be released this spring.

One potential positive for HCP's SNF portfolio relates to the provider tax which is proposed to be phased down from 6 percent to 3 percent. As this is a state by state issue, we look at our SNF concentrations by state and assess where we might have exposure. In other words, if you have significant SNF investments in the 6 percent states you may have downside exposure. On the other hand, if your largest concentrations are in states that are be low the 3 percent threshold there is an up side potential. HCP's single largest SNF exposure by state, is the state of Indiana which currently has no provider tax but is expected to have one in July 2005. The President's proposed budget is, of course, nothing more than a proposal at this time, and how this shakes out in the coming months is of interest to us as the final details made very well impact our SNF investment strategies.

With that, let me stop there and take your questions. Operator.

Ladies and gentlemen, at this time we will conduct a question-and-answer session. If you would like to ask a question at this time please key star followed by 1 on your telephone. If your question has been answered and you wish to withdraw your registration, please key star 2. Your first question comes from the line of A. J. Rice from Merrill Lynch. Please go ahead, sir.

Yes, first hello everybody, I wanted to just get some clarification on one of Jay's comments in the prepared remarks. You said the revenue from the Tenet hospitals declined 900,000 year to year I guess, if I heard you right. Is that due to restructuring of those leases somehow, or is that a bonus payment that you're no longer -- they're no longer hitting, or what is the cause of that?

The rank calculations on our seven Tenet properties have a base rent, and then they have an additional rent component that's a function of the operating results at each of those seven hospitals.

Right.

The $900,000 year-over-year 2004 to 2003 reduction in the overall rent from the seven hospitals came out of the additional rent component of our overall formula and would have resulted -- did result from generally across the board declines in the operating performance of those seven hospitals in '04 versus '03.

I guess I'm just trying to figure out where they're at relative to how much is that sort of additional rent versus the baseline rent and how much exposure you have that basically that the level that you exited '04 stays pretty much the same in '05 or are you assuming some further pressure on that?

We have spent a few amount of times with the Tenet folks and have kind of dug into the details with respect to each of those seven properties. And our view is that, for a variety of reasons we think that the decline that we saw in '04 versus '03 has stabilized. Each property is a little bit different. For example, the Slidell, Louisiana, property I referred to as the property that renewed during the month of December. That property, that hospital, had lost a managed care contract effective July 1st of last year. That contract was put -- was replaced during the fourth quarter, so there was a few months there of some period of time where that contract was not in force. We can go through each of the properties, but our overall take is that we believe the performance of those seven properties at this point was, you know, was stabilized and bottomed during 2004.

Okay. The other question I would maybe put to you this first round of questions would be, you've talked a lot about why you're cautious about the skilled nursing area and how you've tried to downsize your government exposure which means doing less in the skilled nursing area. Obviously, you know, market conditions can create opportunities. There's an unsolicited bid put forth on Beverly Enterprises, apparently looking at the real-estate value there and getting people looking at real estate values across the board, does that make you think that there may be opportunities in the SNF area going into this year that haven't been there the last few years, or are you going to be sort of cautious toward that area?

I think my remarks with respect to the amount of time we're spending on what's going on in Washington should underscore the attention that -- the topic you raised in your question is getting from us. The last couple of years have been pretty good times for the SNF sector. You've had effectively subsidies from the federal Medicare government running to the state-based Medicaid programs. We anticipated, as is proposed by the way in the budget, that that subsidy would go away this year. So it may well be that as this works its way through Congress, there might be an opportunity -- there maybe some dislocation that comes into this space, and, you know, certainly if you look at our company's investment approach of, you know, recent years, we tend to kind of gravitate towards situations where there could be some challenges as a means of deploying our shareholders' capital with the expectation that we can do a good job for our shareholders in that regard.

So the bottom to your question, A. J., it's something we're watching quite carefully. And we have prepared ourselves both with respect to what we've done with our balance sheet and what we've done with our concentrations in this area to have a significant amount of wherewithal to deploy into the space where we could conclude that was the smart thing to do for our shareholders.

Thanks a lot.

Your next question comes from the line of Greg Andrews from Greenstreet Advisors. Please go ahead.

Good morning.

Hi.

You commented on the budget as perhaps being a modest to significant negative for the nursing home industry. Could you elaborate a little bit on what would tilt it more to the modest end of the spectrum as opposed to what would make it a more significant negative? What would be kind of the difference between those two scenarios?

Couple comments there. You got to look at in totality. That budget's got a lot of things in it. We talked about the provider tax, the threshold there going down from 6 percent to 3 percent. There's a proposal in there for people to get long-term care insurance and incentives to do so. So that's probably a net positive if that were to work its way through. There's been a lot of discussion you probably see it in the popular press in recent weeks where, in the new head of CMS has been quoted publicly as wanting to I think, crack down, those are his words, not mine, on some of the ganging -- again, his words, not mine -- of what was going on with respect to eligibility for Medicaid, a lot of moving assets away from the individuals so that certain eligibility criteria could be met, so there's focus on that to kind of stop a lot of that from continuing on. We think that's net-net a good thing. The RUG refinement that will be owe that's probably the biggest issue in terms of getting the most attention. We'll see where the Urban Institute comes out there in the spring, so that could have some variability, Greg.

What is the Urban Institute's role, exactly? Are they making some recommendation?

They're being asked to make a recommendation. So there's a lot there. The other aspect of the question you asked is you just can't generalize across the entire sector. You've really got to dig in and look at state by state where you've got exposure and it could very well be that the -- this proposal might be particularly good for one or more of our states where we've got facilities, but might not be so great for some of the states where you have exposure. So it's -- you've got -- we've got a portfolio here that is in several states and we've got a number of proposals that are on the table and where this shakes out in the next several months is something that we're watching carefully.

Thanks. Then the purchase options that operators have in '05 and '06 you gave some good detail on that, but you didn't really talk about what kind of yield those rents represent today. Do you have some sense of that, that you can share with us?

I don't have as of this morning.

But probably it's fair to say that it's north of ten if these are deals that were done, you know, --.

I wouldn't want to guess. I would say the average -- Mark took you through the metrics on our investment activity for '04. The average yield on those investments was 9.16 percent. I would imagine that the leases that are subject to repurchase options in '05 and '06 are probably at yields north of the 9.16 percent level we achieved in 2004.

Okay. And then on -- what was the -- what was the yield so to speak on the 170 million and also what was the timing of the -- of those dispositions during the year?

The majority, Greg, of those dispositions dropped right at the end of February. It was a portfolio of non-core MOBs that Chuck had alluded to and the cap rate for that particular portfolio, again, these were properties that didn't fit our long-term criteria in terms of where we want to be deploying our shareholders cap under that space. The cap rate on 2004 net operating income for that disposition was 10.3.

Okay. And then -- great. Then lastly, I think it was Chuck said that '05 developments would be at least equal to or greater than in '04. I just wasn't clear whether that was what was expected to roll out in '05 or whether that was dollars going into development.

You should take that as dollars going in. In other words, there was $67 million that went into development in 2004 and, you know, Chuck and we believe that that dollar amount will be met or exceeded in terms of our 2005 development activity for medical office buildings. I would add that some of those developments are scheduled to close in Q4 of '05, so whether they actually come on service in Q4 of '05 or perhaps flip over into Q1 of '06, you know, we'll be updating this audience as the year goes by, but that was meant to give some sense of the development magnitude in the MOB development area that we are anticipating in '05.

Generally that's a business that you think, you know, you'll -- is sustainable at the current level and maybe will even grow a bit going forward?

Certainly for '05. Again, that's the period of time we're most focused on for the purpose of this call this morning.

Sorry. One last question. On the development, the four project you mentioned, or Chuck mentioned that rolled out during '04, that he went through in some detail, he gave various occupancies at present but I understand, I guess, there are support agreements from HCA which I assume is kind of like a master lease that provides you with income even on space that's not occupied. Am I correct in my understanding, and what kind of terms do those support agreements have?

Chuck?

Yes, that is correct, and normally those support agreements are anywhere from 10 to 12 years and they burn on and burn off, meaning once the properties hit a stabilized occupancy HCA burns back off of them and if it drops under stabilized occupancy they come back on. And I think, as I mentioned, those properties all came online at a 9.25 cap rate.

Okay. So the occupancy figures don't really -- I mean, they're of interest, but they don't really impact your cash flow in the short term?

That's correct.

Perfect. Thank you.

Your next question comes from the line of Jerry Doctrow from Legg Mason.

Good morning. I had a few things I want to circle back on, some of the specific numbers for the quarter. And maybe, Mark, this might be best directed to you. The 5.7 million from American Retirement which goes into the rent you said a portion of that is relevant to the quarter and I'm assuming would continue and a portion was for earlier periods. Can you just walk me through the detail there?

Yeah, we had historically recognized rental income on a cash basis for American Retirement Corporation, of the 5.7 adjustment, that's the cumulative to bring the leases up to include the income, assuming we had always recognized them on a straight-line button basis. Of the 5.7 about 2.7 relates to periods prior to 2004, if we had been on a straight-line basis. So you really have about -- so you really have about 3 million that we would have recognized from a straight-line basis in 2004 if we had determined that that was the appropriate basis to be on at the beginning of the year. So net-net of all that there's about 3 million that's -- roughly 3 million that's continuing.

And that would be spread evenly over the year? Doesn't affect the 101 stuff?

That's correct.

If you can just walk me through maybe your other adjustments, and maybe if we can kind of go down the line, I guess as I see it, one is on the operating expenses, you were giving us some pluses and minuses there. It was a little quick. I just wondered if you could go through that again.

On the operating expenses the biggest item was a $1.6 million increase in loan loss reserve, and that was really triggered by two things. There was one loan to a payee who owes us a series of four notes, and we have been in discussions with them regarding those notes. The payments have sort of been inconsistent historically but in the fourth quarter there were two notes that matured and they did not make the principal payments, so therefore we decided to reserve not only those notes but all related notes. And then there was one other --.

So that would be a one-time item that wouldn't be repeated or it would be go forward in terms of your additional reserves?

That's correct.

That would be one time. Sorry, go ahead.

Okay. Then there was one other note that was also included. The first one I talked about was the majority of the 1.6. There was a small portion of the 1.6 that relates to another note where it was an operator who was doing a renovation. They have an overrun, they were having HUD financing. We're in discussions with them. The expectation is that they will get additional financing from HUD and that we'll put them in a better position to repay us the notes that they owe us, but given the current situation we thought it was better to increase our reserves on that note but we didn't fully reserve it.

And is this -- are these kind of mezzanine loans? Is that the way -- rate way to think about them, or are these normal property loans?

These are unsecured loans that we've made in the past.

Okay. And you're not in that business going tore ward?

Jerry, as we've talked before I think we're, as a general matter, the answer to your question is no, we're not. We sometimes will become active in the context of an overall larger transaction. For example, this last note that Mark just alluded to that the expectation is will be taken out with HUD financing that was actually created three years ago coming away from a property that was repurchased by one of our operators. The property, the owner, the operator, repurchased the property subject to a re-purchase option. We had a gain on it. It was in part cash, in part note, and the note was meant to be taken out by a subsequent HUD financing to be closed in 2004. The financing application is still spending in HUD. It didn't happen in 2004, so we felt the prudent course of action was to reserve approximately 50 percent of that loan.

Let me if I could just give you a little perspective also on the amount here. At year end we only had $6 million of unsecured loans in our balance.

Okay. And then just last couple of items, one was G&A and I think minority interest as well was different than what we expected. Can you just touch on what was going on with those two?

G&A reflects a couple of things. As I said, the increase. I kind of look at it on the sequential quarter basis. It includes the 1.5 million that I talked about previously which was the adjustment for changing the amortization period on some of the stock options and restricted stock agreements. Now, if you back that out, you were at about 9.6 million last quarter and down to about 9 million this quarter. I actually would have expected to the go down slightly more than that in the fourth quarter. However, as you probably are aware everybody is sort of wrapping up year-end Sarbannes-Oxley compliance issues at the end of the year and almost everybody is experiencing those fees being higher than what they previously anticipated.

So in terms of run rate going forward it should be something under nine, or do you have a sense of what the S-OX, the one-time S-OX would be?

You know, I don't. I think we're in the process of trying to review what the right number should be for S-OX going into Year Two. The S-OX for this year that we've incurred was about 1.5. How much it will go down next year, you know, is something we'll have to sort of see as we get the estimates in.

And that was 1.5 in total over the whole year?

For this year, correct.

My last item is on the minority interest. That came in lower than we had expected. I thought you had said last quarter it was about 3. Came in1.1. Was there something going on there? What's the run rate there?

I don't -- to tell you the truth I don't know of anything specifically there. Let me look and we'll circle back to you here before the end of the call.

Okay. I think the only thing, just to make sure I'm getting this right, the net effect of all this is I see some widening out and I guess maybe after I take out the one-time, a little widening out in your spread between your FFO and FAD because there's a little more straight-line rent coming in from American Retirement. Is that kind of the right net-net way to think about this?

Certainly as it relates to that American Retirement Corp investment, I would agree with that.

Thanks.

The change in the financial condition of American Retirement Corp has been both significant in magnitude and sudden with respect to the change. In the last six to seven months the stock has more than tripled, and they've actually -- people ought to think about American Retirement Corp with respect to our relationship with them as having been a consumer of cash from the '02 to '04 time frame and now moving into a mode here in '05 where they could very well be a provider of cash as they -- their financial situation continues to improve and they have got some small loans that are -- they're able to pay off given the de-leveraging of their balance sheet that's occurred.

Your next question comes the line of Jordan Sadler with Smith Barney.

Good morning or good afternoon. I just wanted to touch base a little bit more on this ARC accrual. The decision was as a result of their improving operating conditions, most noticeable by the end of this year?

Yeah. I mean, it was largely impacted by two things. One, the management team there has done a terrific job. They've been doing that all year. But then when we restructured these investments, Jordan, in the third quarter, of our 2004, that changed both the profile, the investment from our perspective, and also the profiling of the investment from ARC's standpoint as the mezzanine loan was converted into long-term sale-lease back. So as part of our normal view in the fourth quarter it became quite clear that there had been a -- an enormous change in the financial wherewithal of American Retirement corp.

So most of this adjustment probably relates to stuff you owned prior to the second or third quarter, the assets you bought in from them, right?

Yes.

Okay. So were you previously accounting for all of the American Retirement's rent on a cash basis and now you're just using the normal straight line pursuant to the rent agreement?

Yes, under the sale-lease back.

There's no additional GAAP, I mean? You're accruing the full amount now?

Yes, that's correct.

Yes.

Okay. And then just to circle up on -- and finish up on American Retirement, what is the amount of loans that are eligible for repayment or assets that are eligible for repurchase by them in 2005?

I want to say it's order of magnitude of about 5 million.

Okay. Is there a rate?

Yeah, those were loans that were made at the time we did the restructuring, so I want to say, round numbers, probably in the 9 percent zone, something like that.

Okay.

The more significant point is isn't the dollar volume of the payments but that they're in the financial condition they are now where they can, you know, be taking the proceeds from their recently completed equity offering and, up, begin to kind of clean up their balance sheet, if you will.

Sure. I guess my question was more going towards one of your earlier comments about the percent of rent that becomes eligible for redemption or -- as these guys are able to repurchase assets in the next couple of years. Can you maybe give us some color on what percent of your assets are subject to repurchase agreements?

Yeah, I thought I took everybody through that.

No, not just for the full year. I just mean as a percent of the total portfolio, percent of total investment.

Well, the way we've expressed it is the percent of 2004 revenues. So, in other words, for 2005, there are repurchase options that are exercisable in 2005 that were they to be exercised, would constitute 1.6 percent of 2004 revenues in 2005. That's the amount that we're at risk for. So 1.6 percent in 2005, it's that same metric is 1.4 percent for 2006, we happen to think that those are a very good metrics from a standpoint of our intent on growing our earnings and being able to continue to see the growth in dividends that -- and increase the growth in dividends that we all want to achieve. My other comment relating to the activity that we did in 2004 related to American Retirement Corp and Tenet, where in the case of Tenet we had the leases renew, and in the cases of American Retirement Corp we restructured the mezzanine debt, which as most of you will recall was pre-payable in the fourth quarter of this year, and so we restructured that and termed those out in the form of these ten-year sale/lease-backs. So we've really, by our way of thinking, have taken out an enormous amount of the potential revenue risk that we saw, say as recommend as 12 months ago from two two investments.

And the cap rate to use just so we could back into the capital inflows you guys might receive off of that?

I think previously when we talked about the restructured American Retirement Corp --.

No, I just mean on the pending repurchase.

We'd have to get back to you on that, Jordan.

I'll circle back with you guys later.

I don't want to guess on that.

No problem. Just in your '05 guidance,I know you're using the 4Q as a run rate, what are you thinking in terms of acquisitions and disposition activity at this point? Would it be more robust or similar to '04?

I think with respect to the answer to that question, consistent with what we did last year, we are not going to comment on a particular dollar volume at this point of the year, and, again, consistent with the way we did it last year, our thought process is as follows. When you take a look at our business platform, we are operating meaningfully in four different sectors that tend to do different things at different times. We have different products, whether they be sale/lease-backs, mezzanine debt, or development, and you heard Chuck comment on the '04 and the '05 development activity. We have some assets that can be owned on our balance sheet, some assets that might be owned in a joint venture where we, at the present time, own 33 percent of that joint venture. When you put all that together and then try and figure out the timing of when these investments can drop, it requires a greater level of precision to talk about volume number for all of 2005 than we feel is responsible in February of '05.

As a case in point, please recall that in the case of that Swedish transaction, which we actually were awarded that mandate in May of 2004, I got questions from one of the analysts on this call both at the July call and the October call we had, asking me to comment on the rumors that we had acquired that portfolio, which I respectfully declined since we had not closed the transaction. That transaction as you know ended up closing in the middle of December so that gives you some sense of some of the time delays that can enter into these transactions.

So because of our business platform, what we're doing with our investments, and some of the importance of when these investments drop we just feel it's irresponsible this early in the year to be talking about an '05 number. We do plan at our next call, which I think is either in late April or early May, to comment very specifically about the acquisition and disposition activity closed at that point in time, and at that point, as we did last year, we will have, in our view, greater visibility on the remainder of the year and will be prepared to talk about an acquisition, property acquisition volume target. So that's our complete thought process on that.

My last question is just on the dispositions. I thought maybe your visibility into that might be a little bit better. Are you guys culling the portfolio like you did this year? You sold 154 million. Is that still ongoing, that initiative?

No, I think on the last call we talked about that as really came out of Paul's team's, you know, bottom's up review, and I think you should expect a diminimus amount of dispositions in '05. That was much more kind of a one-time let's go through there and see what we've got and see if we want to take some action.

With respect to our triple net portfolio I think Mark commented specifically at year end on the number of properties that are held for disposition. The only other variable there would be properties in the -- in our joint venture with GE. Now we're talking about medical office building properties.

As you know, they've had, you know, a history, if you will, of being more short-term oriented, and there's always the potential there that there could be some disposition activity as well as obviously acquisition activity out of that joint venture, but I think an important metric to focus on, one I focused on, you go back and look at the bottom-bottom line in 2004's investment activity is the following metric. Our gross property acquisitions were 538 million. If you reduce that by the $100 million of mezzanine debt that was retired as part of those transactions, our net property acquisition number was 438 million. If you further reduce that by the dispositions that we executed in 2004 our net investment activity in 2004 was $268 million.

Okay. Thank you.

Thank you.

Your next question comes from the line of Robert Belzer, Prudential Equity Group. Please go ahead.

Few questions today. First, object the loan loss reserve of 1.6 million could you indicate the facility type for the loans?

They were assisted living.

Okay. Great. Moving on, I'm interpreting the couple of items you mentioned that affected the hospital coverage, the new bad debt policy and also the hurricanes, obviously the hurricanes are one-time. How about the new bad debt policy? Could that be viewed as some of that as one-time compression that hurt their ratio in 2004?

Actually, Robert, I think that's very similar to kind of the straight line, American Retirement straight line analysis Mark took you through. There's a component that was one time, but part of it reflect a new business strategy on the part of Tenet, but the important thing I think poor the coverage, which is why, you know, there's a probably disproportionate amount of noise in that coverage ratio is that the cumulative effect of the bad debt policy, which Tenet put in place in their second quarter, got pushed down to the specific properties in the third quarter. So as we took a look at our coverage ratios, there was this blip in the third quarter, and it was a cumulative effect of that change in bad debt policy that had been actually by corporate at Tenet pushed down, so that was my comment relating to that.

With respect to HealthSouth we have elect not to put the coverage ratios for our nine inpatient HealthSouth properties into that coverage ratio until such time as HealthSouth releases its '03 at this point and '04 10-K. That is expected to come out this spring. If I had to speculate I would speculate that on our next call I will be taking questions from some of the people in this audience trying to explain the sudden up particular in our coverages for acute care hospital sector. That would be my speculation.

Okay. Great. And then you have outstanding balance of 300 million on the bank line. What are your thoughts of terming that out?

Our thoughts are as follows. As part of the new bank line that our Senior Vice President and Treasurer Talya Nevo was able to execute and put in place in September of 2004, among the improvements from a covenant standpoint and a pricing standpoint that she was able to achieve was the removal of effectively a penalty that was triggered once the previous bank line was more than 50 percent drawn on. In other words, once we hit a 50 percent trigger there was incremental interest rates and fees that were applied to that. We obviously had got that removed at the present time.

At the present time, our total floating rate exposure to total debt is 23 percent. The reality is it actually lower than that because that does not reflect the amount of fixed rate debt we have put in place against the MedCap portfolio. So at 20 to 21 percent which is the way we calculate our total floating rate exposure right now, we're very comfortable that that is a reasonable level.

I think you should expect to see us finance going forward most -- the driver of that external financing in the capital market will be a function of our net investment activity and as I've indicated on the previous call, given the metrics on our balance sheet, particularly the one that has our total debt to total market cap at the present time of 26 percent you should not expect to see us in the equity markets any time soon. Rather, you would expect -- you should expect to see us in terms of our financing for property acquisition activity near term when we decide to do that, which is not now, by the way. You ought to see that take place in the long-term debt capital market.

Okay. Just on acquisition cap rates, Jay, they've obviously compressed the -- you're reporting 8 percent. Are you seeing additional compression there, or is that pretty much looking like percent would be a good number there?

Again, you've got to go sector by sector. In MOBs, we're seeing low 8's, high 7s. Every now and then you'll get an outlier. We were aware of two outliers in the fourth quarter that were actually in the low 7's. One outlier, believe it or not, was at 6.8. Independent living we're seeing that sector in the low 7s. Assisted living kind of center of the universe there, 9. In SNFs, we're seeing cap rates kind of in the 12.5 to 13 which would imply a 10 percent lease rate. So that's kind of where we would cuff the market sector by sector at the present time.

My last question this is going to be specific to the potential 1.5 billion of RUGS cut, sort of a worst case look at, have you analyzed the -- your nursing home portfolio to, you know, just stress test to the see how many of the operators may be put under if this 1.5 billion is indeed taken out?

We have pressure tested that, Robert, again, I think we're pretty comfortable in part because we've seen that coverage ratio drift up consistently for the last, I guess, six or seven quarters now. To -- that overall SNF coverage ratio after management fee, after management fee, if you include our own real estate and our secured loan portfolio, is now at 1.4 times, and I think that gives us, you know, a fair amount of cushion. The pressure testing we've done while it obviously would -- the 1.4 would take a hit, we still feel quite comfortable after the hit that we've been, you know, pressure testing on that it we're very good shape there.

Is it fair to say you would not expect any major damage from a 1.5 billion hit, Jay?

No major damage, no.

Great. That's all my questions. Thanks.

Thank you.

Your next question comes from the line of Rich Anderson from Maxcor Financial.

Just so I got it right, the $1.74 is sort of your unofficial official guidance for 2005 and is sort of strip-cleaned, no assumed acquisitions or dispositions? Is that the right way to look at it for now?

I think the $1.74, I think Mark's words were starting -- or jumping off point for '05, but very importantly it assumes no acquisition or disposition activity which is obviously not the intention of this management team with respect to 2005.

Okay. So then you're really not giving guidance right now.

Again, I expect on the next call to be in a position to update this audience on the activity that we've closed year to date and provide volume guidance, more visibility at that point in time.

Now, in terms of the purchase options, the 6 million in rental revenue for '05 that are subject to purchase options, if you throw a 10 cap on that just hypothetically, that's 60 million. Is that considered, just the purchase option part, considered in the $1.74 or is that also excluded?

No, the $1.74, again, it's just a run rate based on fourth quarter results with the adjustments that I previously described.

Okay. And then my last question is, we talked about Medicare, Medicaid as a percentage of the total coming down, where, Jay, would you be comfortable -- assuming, you know, we get through this, we get resolution, you know, which presumably we will, within a reasonable period of time, where could you see that percentage being as a percentage of your total portfolio or maybe better question is where has it been before all this noise started happening with the federal budget?

Well, I mean, in the history of the company, when the company went public, which, by the way, is 20 years ago this year, it was 100% Medicare Medicaid. You had --.

Where would your comfort level be is what I'm looking for.

Well, again, I think these are interesting metrics, and it's things we watch, but we don't manage the company based on that metric. If we felt there was an opportunity to make a significant investment of our shareholders' capital into that space, and that was an investment that on a risk-adjusted basis was going to do good things for the company, we'd do it and we wouldn't be wringing our hands that 23 percent was going to some level higher. We would look to moderate that over time. We don't -- we just don't manage the company or a quarter by quarter basis. So if we get out of whack because of a very good investment, like we did in our mezzanine debt portfolio with American Retirement Corp, that's fine, we're comfortable with that, we've got the balance sheet to absorb that and over time we can work that by down by growing the other sectors of our portfolio or maybe looking to lay off a piece of that to another entity.

As an opportunistic player you guys have been, it's reasonable to think after we get through this budget talk that that number, Medicare, Medicaid, percentage will go up over time.

You know, our thought process is that we would like, you know, -- interference on the phone -- the thing that we would want -- we're not going to go just blindly in there. We would want to see the opportunity, maybe inflection point, because valuations get adjusted, as you recall for the last two years we've really kind of steered away with you know exception from the skilled nursing space just because we thought the valuations were quite rich. We're it apt to change because of some of the noise surrounding at the President's proposed budget and other things that's going to get our attention.

Fair enough. Thanks.

Yep.

Your next question is a follow-up from Jerry Doctrow of Legg Mason. Please go ahead.

I'll be very quick. I just had one thing. Was the GE expansion the expansion of the joint venture actually done? My notes say you were going to expand it.

Yeah, it was executed and closed, approved by both GE's board and our board in I believe we closed that in -- early in the fourth quarter, Jerry.

So we're up to like 1.2 billion?

I think the doll ar amount is 1.1.

Thanks.

Your next question comes from the line of Jerry Whitehorn from Gilman Asset Management.

Good morning. Two questions. Is there a range of interest rates? Because I believe a portion of your debt floats where, if the goes to that range, you and many other companies are going to feel the pain. And the second question, what two or three things that you currently foresee could actually, although you're not giving guidance, but if they actually happen it's going to be open up the champagne bottle time? I only ask these questions because I think if no one else does, if no one else has said it it, and I don't want to put words in anybody's mouth, the fact that you are -- this is the second time you've said it -- are aligning the management with shareholders in terms of stock options, I believe that's a vote of confidence that you are giving the company, letting people know that, well, we're sort voting for our wallets but we're also voting for the stock price. And as the conversation progresses today the stock keeps on getting weaker in a market that's up 40 points so it could be that maybe I'm just loony tune, which you won't be the first ones to thank that, but I say thank you for trying to align yourself with shareholders. So what range is there where if long bond goes to percent you're [censored] out of luck, pardon my french, and so are so are a lot of other companies, and secondly what two, three, four things could actually happen where, hey, this is really better than we thought?

Let me -- I'll take those two questions. Let me make sure with respect to compensation I'll speak to my compensations, I think it's a perhaps even a little stronger situation than the one you suggested, not only are we taking, in my case, accept for my base salary I am taking 100% of any additional compensation in the form of long-term restricted stock that vests over time. Furthermore, as those restricted stock grants vest I am going out of pocket to personal funds to pay the related tax liabilities so that I retain 100% of shares that are vesting.

With respect to your two questions on interest rates the way we think about that is as follows. We have right now as I indicated approximately 21 percent of our overall debt is exposed to floating rate debts. Were there to be the sort of interest rate phenomena that you just alluded to which I think you said was the 10-year debt going from maybe 4 percent to 8 percent, obviously were we to go to capital markets, we would pay higher costs to term that debt out. I would add in that interest rate environment though, it's very likely that the yield that we would be getting on new investments we'd be making would be going up. Maybe not basis point for basis point, but certainly directionally, so I think we feel that to a certain extent we're kind of hedged in that regard.

So you don't really think would it hurt you that much if that were to happen? I mean, no one is looking for increase of that kind, but you don't think that given that you've got a higher level on your investments, that it could it hurt you that badly?

In '04, thanks to our Treasurer, we termed out and we took out some higher cost deferred and some higher cost debt and we've got a balance sheet that has significantly been termed out at this point with the exception of our floating rate bank line which you've just heard is at about $300 million and we're comfortable with that sort of exposure.

In terms of things that could actually go right, the two or three things, hey, let's open up the champagne bottle? Without detailing specific projects I'm not asking anything like that. But just sort of maybe in the best concise but vague way.

Well, I think one of the things I've talked about in the last couple of quarters is, you know, we are seeing new faces, if you will, new competitors as we take a look at making an investment, and a lot of that -- those investors, while they are very high quality, very well respected names with respect to real estate investing expertise, it the's really the first time they've rotated into healthcare sector, that in part has been a function of the reduction in the attractive opportunities in their historic spaces.

So were there to be, you know, some general seat change in terms of real estate valuations kind of across the board we would probably benefit disproportionately, given that we've experienced a disproportionately large amount of new investors rotating in the 12 to 15 months to our space so that would be one thing that we'd watch and gauge. Another thing would be some sort of dislocation coming out of some of the things that we'll be going down in Washington over the next several months.

So I think -- now, I don't think this is a business that, you know, is necessarily going to be an open the champagne bottle sort of business. What we've gone to great lengths and in the last 15 months is to make darn sure it's not a business where we're cracking any champagne bottles, and by doing some of the things with respect to our balance sheet and investment portfolio we feel we have now completed a lot of those initiatives at this point.

One thing I was looking for, I don't know if it's possible, but like [INDISCERNIBLE] ten projects in Canada where they're almost Greenfield because they're behind the times that you might be looking at something like that, if that were to happen, it would be totally Greenfield, you'd be the first one there, we'd get a majority share of an XYZ type of industry and all of a sudden we're talking about earnings per share being substantially higher. Is there something like that on a bulletin board?

I think there is. the one thing that I've spoken at some of the conferences in the last six months is, if you take a look at the real estate stock in the United States of America that's owned by publicly traded REITs in the four traditional REIT groups, which are retailing, industrial, office, and multifamily, the average ownership of those four sectors by publicly traded REITs is about 12 percent. If you do that same calculation for healthcare, the percentage ownership by the publicly traded healthcare REITs of the real estate, healthcare real estate, stock in the United States is 2 percent.

Now, I'm not for moment suggesting that 2 percent is going to go to 12 anytime soon but if 2 were to go to 4 that delta is about 15 billion dollars of transaction volume and last time I checked, if you add up the market cap of all the healthcare REITs that are current trading of course it's about 20 billion. So by going from two to four, and, again, the other sectors are on an average of 12, in some cases like shopping malls it's quite a bit higher than 12 percent, could have a significant order of magnitude increase in the volume, the acquisition volumes.

So those are sorts of things that we watch and we like to think that you know, we're preparing ourselves in -- for that event to occur. We're not betting the company on it by any means but with the balance sheet we have with the expertise we've brought into the company with the expertise we brought on the board we think we would do quite well in that sort of environment.

Thank you.

Your next question comes from the line of Robert Mains from Advest Incorporated. Please go ahead.

Thank you. Good morning, afternoon, whatever. Quick number questions. First of all, $800,000 you spoke about before the loan, the line that you retired where does that show up on the income statement? Is that G&A?

It's in the interest expense line.

It's in the interest expense. Okay. Sorry. The straight-line rent, am I interpreting this right that going forward it's kind of a delta in the high two million range annually that's going to be added?

Two and a half to three.

Okay. And then I may have missed this but I don't think so. The NOI growth is pretty sluggish, how much of that is related to the one-time items that crept onto the income statement that affected it this year? Is that a way of looking at or not?

I think it's really more, and Chuck may want to speak about this, but I think really more some of the properties, what's going on with some of the properties that Chuck had alluded to earlier.

Okay. So one could assume that if those issues are mostly addressed that the same-store number would be ticking up more in '05? Is that kind of one of the -- as you've put it, the jumping off point assumptions?

I think so.

Good enough. All right. Thanks a lot.

Once again ladies and gentlemen, if you have a question, please key star 1 at this time. You have no further questions at this time, gentlemen.

Okay. Operator, thanks for bearing with us and thank everybody for your interest in Health Care Property Investors.

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation. You may now disconnect. Good day.