Healthpeak Properties Inc (PEAK) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2005 Health Care Property Investors earnings conference call. [OPERATOR INSTRUCTIONS] Now I would like to turn the presentation over to your host for today's conference call, Mr. Ed Henning, Senior Vice President and General Counsel. You may go ahead, sir.

Thank you. Good morning and good afternoon. 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 may not be updated until the next announcement of earnings and events prior to the next announcement could render the expectations stale.

Additionally, certain non-GAAP financial measures will be discussed during the course of this call. We have provided reconciliations of these measures to the most comparable GAAP measures as well as certain related disclosures in our second quarter supplemental information package or our earnings release each of which has been furnished to the SEC and is available on our website at www.hcpi.com. I will now turn the call over to Jay Flaherty, our Chairman and Chief Executive Officer.

Thanks, Ed, and welcome everyone to HCP's second quarter conference call. Joining me on today's call is our Senior Vice President, Chief Financial Officer, Mark Wallace. Let's start with the results and for that I turn the call over to Mark.

Thanks, Jay, and good morning. The second quarter was an active one for HCP. We accomplished a number of milestones towards the anticipated closing of our acquisition with CNL Retirement Properties, continued a healthy pace of investment in repositioning activity in our portfolio all the while operating performance continued to improve. We reported FFO per diluted share for the second quarter of $0.47 including $4.7 million of asset impairment charges. Excluding those charges, FFO this quarter was $0.50 per diluted share, an increase of 6% over the comparable quarter of 2005. The impairment charges were related to three senior housing properties, two of which we sold subsequent to quarter end. I'll talk more about that in a moment, but let me first turn to our recent investment activity.

During the second quarter we purchased interest in $138 million of properties at average initial yields of 8.2%. On June 1, we acquired two senior housing properties for 27 million through a sale/lease-back transaction with Summerville. The facilities have an initial lease term of 15 years with two 10-year renewal options. The initial lease rate is 9% with annual escalators based on CPI that have a floor of 2.75%. The properties are 95% occupied with cash flow coverage of 1.16. At the end of May we acquired nine senior housing properties for $99 million, including assumed debt valued at 61 million through a sale/lease-back transaction with Capital Senior Living. These facilities have an initial lease term of 10 years with two 10-year renewal options. The initial lease rate is 8% with annual CPI-based escalators. The properties are 94% occupied and the cash flow coverage of 1.09.

In July we acquired two institutional quality independent and assisted living facilities in exchange for three assisted living facilities valued at approximately $20 million, plus $37 million in cash. The facilities are superior in terms of asset quality, location, and value creation prospects. The two newly acquired properties have an initial lease term of ten years with two 10-year renewal options. The initial contractual lease rate of 7% with escalators based on the property's revenue growth. While the transaction results in a net gain, the appropriate accounting required an impairment charge of about $2 million on the two sold assets to be recorded in the second quarter. The anticipated $3 million gain on the third asset is expected to be recognized at the third quarter. We also sold a property located in Las Vegas on July 25, for $73 million and expect to recognize a gain in the third quarter of about 32 million on that transaction.

Consolidated GAAP basis same property NOI performance was 2% for the quarter while adjusted same property NOI performance was 2.9%. Including fee income our medical office building joint venture contributed $3 million to FFO for the second quarter of 2006 compared to $2.6 million for the same period in 2005. Adjusted same property NOI performance for the venture was 1%.

During the second quarter, our joint venture with GE sold 11 medical office buildings with 476,000 rentable square feet for 38 million with $19 million of mortgage debt repaid or assumed at closing. The sale resulted in a gain at the JV level of about $9 million. For the first half of this year, the venture had sold 33 properties with 1.3 million of rentable square feet for net proceeds of 99 million. Aggregate net gains at the JV level on these sales have been about 19 million. Additionally, approximately 65 million of the JV secured debt has been either repaid or assumed in connection with these transactions. Our balance sheet at quarter end includes consolidated debt of 2.2 billion, 14% of which is at floating rates.

During the six months ended June 30, we obtained $165 million of ten-year mortgage financings at a weighted average effective rate of 6.36%. The proceeds were used to repay outstanding debt. Under our dividend reinvestment plan we issued about 185,000 shares in the second quarter for approximately $5 million in proceeds. Borrowings under our bank line were 265 million at quarter end and 207 million at the close of business yesterday. I'll now turn the call over to Jay.

Thanks, Mark. I'd like to make a handful of comments regarding HCP's portfolio and then provide you with an update of our previously announced acquisition of CNL Retirement Properties or CRP.

During our February call of this year, we commented that we were seeing an up tick in consolidation activity at the operator level within our portfolio. In terms of HCP's portfolio, American Retirement Corp., Tandem, Formation Capital, and HCA have all announced and/or closed change of control transactions or, in the case of HCA, the going private transaction, since we spoke with you in May. In addition, Tenet Healthcare announced they had resolved their ongoing settlement discussions with the Federal Government. Each of these events are positive developments for our operators and for HCP's shareholders and represent a continuation of the positive operating environment that we have discussed with you, especially in the senior housing sector.

In addition to our preimpairment FFO result of $0.50 per share in the most recent quarter, our sixth consecutive quarter of exceeding Street estimates, a further indication of strong performance of HCP's real-estate portfolio can be seen in the same property performance results for the first half of 2006. Overall, on a cash NOI basis, HCP's portfolio delivered a plus 2.9% same property performance. Significantly, each of HCP's five sectors turned in positive same-store results, ranging from 0.5% in the hospital sector to 5.9% in the MOV sector. These metrics are significantly ahead of HCPs portfolio performance of recent years and reflect the portfolio growth repositioning that we have achieved via property dispositions and portfolio acquisitions during the last three years. A significant amount of this past quarter has involved moving forward on a variety of tasks involved with our May 2, announcement to acquire CRP.

The commitment and dedication on the part of our colleagues in Long Beach and Nashville and that of our about to be colleagues in Orlando is significant and greatly appreciated. Among the milestones achieved were, one, on June 30, we filed Form S-4 with the Securities and Exchange Commission, which contained, among other information, pro forma financials for the combined companies and a discussion of the background of the merger. During the week of July 10, we were notified by the SEC that the registration statement would receive a limited review. We anticipate the S-4 being declared effective this month, a vote of the CRP shareholders occurring in September, and a closing of the transaction in early October.

Two, on June 30, HCP received commitments from four banks totaling $4.4 billion in financing, including a $1.7 billion one-year bridge loan, a $1.7 billion two-year term loan, and a $1 billion revolving credit facility. Last week, HCP's management completed Banks and Syndication meeting in New York City as well as detailed sessions with Fitch, Moody's, and Standard & Poor's. As of this morning, between execute commitments and commitments expected during the next several days the financing necessary to close the acquisition is oversubscribed. The timing of the closing of the CRP acquisition dovetails nice with the release of HCP's third quarter results. At that time, we anticipate providing you with details on the Company's third quarter earnings, the competitive market position of the combined companies' real estate portfolio, a discussion of our development pipeline, specifics on our delevering plan, and our first look at 2007 FFO guidance. I understand a lot of you will have additional questions on the CRP transaction, but at the present time with CRP not having reported their June 30, results, and our registration statement not yet having been declared effective by the SEC, we will necessarily be unable to provide additional details until our call in late October.

That concludes our formal remarks for today. We would be delighted to take your questions at this time. Operator.

[OPERATOR INSTRUCTIONS] And your first question comes from the line of Greg Andrews from Green Street Advisors. You may proceed, Greg.

Good morning.

Good morning.

You mentioned that you sold a building in Las Vegas for 73 million, which is a big number. Could you tell us a little bit about that disposition?

Sure. That was a 204,000-square-foot building in Las Vegas that was acquired by the Company at a cap rate of 10.15%, and the cap rate in the sale was 6.67%, Greg. It was a headquarters building for a significant healthcare company that had been acquired by HCP in the late 1990s.

So it was just an office building, in effect.

Yes.

Okay. Great. And could you comment a little bit about what you're seeing in the medical office building space in terms of deal flow and pricing of assets?

There's been a very steady flow of MOV transactions through the seven months of this year, several of them, Greg, involve portfolios north of $100 million. It's a space that continues to have strong interest both on the part of traditional investors and medical office building, and a space that is weekly seeing interested parties that have not historically invested in medical office, albeit very successful track records investing in other commercial real-estate. I would suspect, given what I know about the flows of funds being allocated to this space, that you'll continue to see that sort of demand. We have seen a moderation of the cap rate compression. We have not seen any backing up whatsoever of cap rates, and, again, given the available capital out there, I would suspect that at least certainly for the next 6 to 12 months those trends would continue.

Is that a space where you're more content to be, say, a developer than a buyer at this stage?

I would say we intend to be active in both. We have obviously, once we close the CRP transaction, we'll have the ability with not one but two platforms, one being Desk, one being Cirrus, to have meaningful and significant development opportunities there Greg, but I think we remain opportunistic, so, for example, there's one or two larger transactions out there that may give rise to some additional medical office building real estate that's coming available, so we're focused on that as well. I think you'll probably see us remain active in both.

I understood your comments about the CRP deal and your inability to comment in detail, but obviously a really big part of that transaction in the long term financing plan is arranging some joint venture capital. Can you give us at least some indication of how you feel about how that's progressing, and whether you're -- whether your thoughts have changed there at all in terms of the availability of that type of capital for the long-term financing as part of that deal?

No, Greg, our thoughts, not only have they not changed, we're probably -- we're encouraged by the receptivity we have gotten to date. So we are optimistic that this is going to be an opportunity, as I indicated on the May call to couple our -- not only track record as a public company, having been public for 21 years, but more recently our track record as a successful partner to institutional investors in healthcare real estate, and couple that up with some of this rotation into the healthcare real estate space. So we're pretty focused on, among a number of things, we're pretty focused on that initiative right now.

And you will have some more news for us on that front in the third quarter?

I expect to be in that position, yes.

Great. Thank you very much.

You're welcome.

And your next question comes from the line of Rob Mains from Ryan Beck. You may proceed Rob.

Hi, guys. Am I correct that all the trends or early acquisitions this quarter were of assisted and independent living facilities?

Yes, that's correct, Rob.

And they were all triple net?

That is correct.

Okay. In the past, Jay, you've spoken about concern about in nursing home area, concerns about risk/reward characteristics. Does the GE transaction change your thinking at all about that? I guess not a transaction, but anything else in the market change your thinking?

Specifically, relating to skilled nursing assets?

Yes.

Not really. I think if you take a look at what we've done with our shareholders capital in the last three years, you have seen us make one reasonably significant acquisition in skilled nursing. That was the Tandem transaction, which has just been the subject of a takeover by Formation Capital. I think we're kind of sticking to our core belief of what we're looking for in real estate. In that particular transaction, recall that it was more newly constructed real estate, I think it was kind of only about old real estate. It had been developed, recently developed. It had had nice payer mix, a lot of private pay, a lot of Medicare. It was in a CON state in Virginia and the coverage ratios going in were like 1.55 after management fee. So we'll do deals like that all day long.

I think it is true that since we've made that transaction, which was April of '04, as we've looked at all the other transactions that were opportunities for us to invest in additional skilled nursing, I don't think, in our judgment, we have seen the risk/reward equation that we have seen in some of our other spaces, be it lab, pharma, senior housing, medical office in particular, and to a lesser extent hospitals. So I don't think we've changed our stripes there at all, I think we'll stay consistent to that. Were we to see additional opportunities that looked like the Tandem transaction, we would certainly want to take advantage of those.

Okay. Fair enough. Speaking of industry consolidation, do the HCA or the Brookdale American Retirement transactions, will they change your life any? Obviously they're going to change the outlook, but in terms of your properties, nothing changes?

Well, in the case of -- let's take this one at a time. In the case of American Retirement Corp., I think the facts there are that we obviously had a meaningful position in American Retirement Corp. at HCP they were just a tick behind Tenet as our second largest customer. We had consent rights on that acquisition. In addition, CRP had -- they were CRP's third largest customers, and they had consent rights as well. With that transaction now being closed, both those portfolios will have the full faith and credit guarantee of Brookdale, which is good. I'd be remiss if I didn't acknowledge the incredible performance of the American Retirement Corp. management team since we made our initial investment in October of '02. Please recall that at the time we did that, that stock was $2 a share, and the buyout price that closed last week was, I think, $33.50. So that's been a grand slam for the American Retirement Corp. shareholders and a grand slam for the HCP shareholders as well.

With respect to HCA -- with respect to our existing portfolio, absent the change in the credit profile, which I think at this point has been well documented in the credit markets, there's really no change. If anything, I think that might be an opportunity that could generate some additional business development opportunities, if, in fact, that transaction ends up going forward.

Okay. But no lease terms are changed with either transaction?

No.

Okay. Could you go into a little bit of detail about this swap-type transaction that you did where you traded the -- you got rid of three and you got.

Yes. That was with one of the operators who we are quite fond of. We had had three properties, and they were challenged assets, in particular two of them were quite challenged, and it was an opportunity quite frankly that was initiated by the operator to swap us into some newer properties so that they could take those properties back, and I think in two of the three cases actually dispose of the properties. So I think from our standpoint, it's a nice opportunity to upgrade our portfolio. They all go into a master lease. Newer real estate got higher growth prospects. The accounting is a little upside down from the economics of the deal, given that we viewed it as an overall swap with a gain, the way the accounting works, it kind of breaks into two transactions, then further breaks it into one transaction occurred in the second quarter and one occurred in the third quarter. So Mark has already taken you through that, but we're very excited with the transaction, and we're hopeful to do additional business with that particular operator.

Okay. And then just one last question for Mark. Do you have the breakdown between Triple Net property revenues, managed property revenues, and interest and other income?

Yes, just give me one second here. I'll get it.

Sure.

For the quarter, Triple Net revenues were 78 million. Medical office building revenues 32 million. For a total of 110. Interest and other income from Triple Net properties, 3.6 million, and then other, so those are not Triple, not medical office buildings, 2.3 million, for a total of 6 million.

Okay. Thanks a lot.

Yes. And your next question comes from the line of Jonathan Litt from Citigroup.

Hi, it's Craig Melcher here with Jon.

Good morning.

Good morning. Could you talk about your same-store NOI expectations for the second half? I think in the past you said it was around 2 or 3% is what you're expecting for the full year. Seems to be coming in towards the high end of that range.

That's exactly right. Let me step back here. Let's take a look at this portfolio. It's nice to talk about six consecutive quarters of exceeding the Street estimates, but I think you kind of lose something there. Let's take two data points, three years ago and today. Three years ago HCP had a payout ratio of 101%. Today, pre impairment, through June 30, the payout ratio is 82.5%. At the same time, the same property performance in '03 was actually negative. You've seen that ramp up. It was a push in '04, we were plus 1.9% '05, we indicated in February of this year we were expecting between 2 and 3, and you're right, we are at the upper end of that, and we expect that trend to continue.

So I think it's important to look at within the space of three years how the payout ratio has gone upside down positively, and the same property performance for the portfolio has gone upside down positively, and both of those are a function of some very serious changes in the real estate portfolio that a number of people at HCP have spent a lot of time over the last three years in terms of disposing of assets and acquiring new portfolios. At this point we're feeling very, very good about the HCP portfolio. Quite frankly, as good as we've ever felt.

Aside from the planned JV, what assets do you think or what segments do you think you could see some outright asset sales to further improve the quality of the portfolio?

We don't think about that it way. We think about going through the portfolio and looking at assets that are either not strategic to us, that maybe have moderating growth. A good example of that, Craig, was the office building over in Las Vegas where we had just an incredible amount of interest and ended up selling it to a tick buyer. You saw the differential there in cap rates in terms of what we acquired it for versus what we sold it for. That was a good quality building with a good quality tenant, 100% single tenant, but there just wasn't a lot of growth there. That's one example of how we're retooling the portfolio get -- to drive more growth into our portfolio.

The other end of the continuum we're always looking at assets that are challenged, either from an obsolescence standpoint or from the market moving away from them. I think a good example of that are some of the properties that were in this swap that we just executed. So we're working both ends of that portfolio constantly. You shouldn't necessarily assume that just because we've got something at the bottom end that we have to sell it. As was the case in the transaction we just did, we were able to swap that and have our, effectively an FFO neutral result, but a major pick-up in terms of the quality of the portfolio and we will continue to do those sorts of things.

In terms of the financing that you have been working on, the 4.4 billion what type of interest rates have you been afforded on that?

Well, again, there's three components. There's the one-year bridge, the two-year term loan, and the revolving credit. There's a grid. There's a rating grid, and, Mark will take you through that.

Yes. On the revolver -- it is based on a ratings grid. And our current rating on the revolver is 50 basis points over LIBOR with a 15% -- I'm sorry, with a 15 basis point facility fee. Then on the term loan at our current rating it's 65 basis points over LIBOR. And then the pricing on the bridge is the same as the term loan.

Thank you very much.

Ladies and gentlemen your next question comes from the line of Jerry Doctrow from Stifel Nicolaus.

Just to follow-up there, so all of it's -- basically the whole 4.4 is floating rate at this point and you're anticipating some sort of refi out?

Exactly. You'll see significant amount of debt paid down so that we deliver to our friends in the credit markets on our commitment to be leverage-neutral within 12 months of the close of the transaction. You'll see a lot of the debt go away, period, then you'll see us fix some of the remaining debt, so there will be a lot of things that will be happening within the first few months after we close the transaction. Again, we're looking forward to taking you through that in a fair amount of detail in October.

Mark, just one last thing, since we started on the interest rate, any other fees or whatever amortization in addition to those just flat rates?

There are fees on the existing facility, and then we will have probably when we -- on the current revolver that we have in place we will have probably about $1 million in amortized fees that we'll write off at closing.

Origination fees on the other stuff on the terms, whatever as well?

Yes.

Okay. Okay. I just wanted to actually come back to your swap, which, I think as Jay described, or you described it -- sounds like a good overall real estate transaction. I just wanted to touch on this and make sure that I was clear, basically, your thoughts as to the right way to think about the FFO for the quarter is $0.50 because the impairments on these two assets you're swapping out, one would be offset by a gain, but you won't take that into FFO. Could you just walk me through that again so that I make sure that I'm clear as to what's going on in the two pieces there? Again, your characterizations of the FFO really should be thought of as $0.50.

I think that's correct, that that would be our characterization of the FFO, $0.50. Just to go through it again, you have three assets involved.

Three that are exchange.

Right. You have three that we're exchanging. On two of the assets we recorded -- per the accounting rules you have to record an impairment charge in the current quarter because the fair value is below the book value, then you record that in the current quarter and then the gain recognition on the third asset where you actually have -- you actually have the value in excess of the book value, then you record that in the third quarter.

Okay. And the -- that was, again, just remind me the numbers. I know you mentioned them before, but the impairment for those two assets was not the full 4.7, was only a portion of that, right?

Of the 4.7 on those two assets -- that combined impairment on the two assets for about 2 million. The other portion of impairment, the balance of it, of the 4.7, is made up of a separate senior housing property for which we -- we looked at the underlying cash flows and determined that we needed to report impairments primarily because there has been increased competition in the area on that facility and that has driven a slightly lower occupancy. I'm sorry, let me correct that. It's at the skilled nursing facility.

Okay.

Sorry.

Okay. And the -- and then the gain on this last piece was lake 3 million or 3.2 or something? I think Jay mentioned it.

$3 million on the third assets, correct.

Okay. And that, again, obviously because it's a gain on sale, would not be taken into FFO, but you do count the impairment, the way the basic rules work?

That is correct.

Even though it was all one day of action that closed -- it was a package deal.

I'm with you on the basics I just want to make sure I got the fifth detail straight. Yes, I think that's all for me, Jay. And just to be clear, also, it sounded like you were saying by the end of October we might also see not only the CNL deal close but also an announcement on the refinancing with the JV. Did I understand you sort of correctly when you are saying that?

Well, certainly I think we'll be in position by then to be much more specific in terms of what's happening, when it's going to happen, than we are right now.

Thanks a lot.

Yes.

And your next question comes from the line of A.J. Rice from Merrill Lynch.

Thanks. Hello, everybody. Two questions maybe. One, just to follow-up on the earlier question related to the progress you've made on the internal growth rate. If this quarter you're looking at about a 2.9% same property NOI growth rate as you continue to reconfigure the portfolio, I know a lot of that is done, but certainly there are changes that are ongoing, do you see that number -- sort of that roughly 3% a steady number going forward? Or do you see opportunities to even enhance that from here?

Well, I think you've got mix -- you've got a couple things going on there, but clearly with what's going on in the private pay senior housing space where we have allocated a significant amount of our shareholders' cap in the last couple years and we are about to allocate a significantly larger amount of our shareholders capital. From what we see right now, it is good, getting better, and we do not see anything remotely, from a supply standpoint that could disturb that over the next 12 to 24 months. So you say you've got two comments there. One, you'd have to have a continuation of that. We think the prospects for that supply/demand relationship continuing the way it is and rate increases beginning to accelerate is highly probable, number one. And two, pro forma for this transaction will have, of the combined real estate portfolio, almost 50% of that portfolio in the independent living -- in high barrier with the high quality operators of independent living and assisted living. So you take those two things together, A J, I think you could absolutely see, 2.9 marching up the grid there.

Okay. Actually, you answered that in a way that sort of went right into the other thing I was going to ask you about. You've seen occupancy rates in your senior housing. Over the last year you're up 300 basis points there. Doesn't sound like you're seeing much new development, but I wanted to ask you, are you getting any inquiries along those lines, and would you at this point, if you did would you guys consider being part of new development -- getting involved in the new development as that unfolds? Maybe, actually with your comment earlier, what kind of lead time is there, if you don't see that much over the next year, what kind of lead time do you have on being able to sort of see how the market is unfolding in that area?

I think you've got a two to three-year lead time, A J. In terms of will we be interested in doing some development, the answer is yes. We have seen very little of that opportunity in senior housing, we see as an order of magnitude a much larger amount of that, for example, in the medical office space, and that will kick up even higher here post-CRP.

Right.

But I think you got some of the same dynamics certainly at the higher or end of independent living, assisted living that you've got in, for example, the multifamily space. People -- a lot of these residents want to be around where their children are located, their children are still working. Chances are they're in major metropolitan areas, given what's happened in the real estate markets. Real estate is expensive and it's not necessarily always that available. So those are -- if you get the right real estate and you've got a high barrier market with a good operator, you've got the opportunity over the next couple of years from our standpoint as a landlord to have a very nice continuation of this trend that we have seen in the last couple of years.

Okay. Great. Thanks.

[OPERATOR INSTRUCTIONS] And your next question comes from Mark Buffet from Goldman Sachs. You may proceed, sir.

Hello?

Mark, your line is open.

Hi, guys. Quick question. Related to senior living acquisitions for the rest of the year, do you guys have an estimate of people approached you or you approaching other people considering the -- kind of the froth in the marketplace. Is Brookdale still acquiring?

The answer is yes, people are approaching us and yes, we are approaching people. I think year to date our acquisition volume is about, just under $400 million, and of that, of the 400, over half of that, just over half of that, is senior housing, and our pipeline is -- I'm talking away from the CRP deal and I'm talking away from the pipeline embedded in CRP, which is most notably Cirrus and DASCO. Away from those two things our HCP stand-alone pipeline is very significant and has a healthy representation from senior housing, from medical office and from hospitals. And with some of the transactions that I alluded to or mentioned earlier in the call, I don't see anything that's going to not result in those pipeline numbers going north from here.

So you're not seeing a compression in the cap rates as a result of this froth or excitement?

Just the opposite. We're seeing, in senior housing, I think if you take a look, at, there was a transaction by Sunrise a couple weeks ago, I thick they broke 6 on a cap rate. We are aware of other senior housing transactions, multiple other senior housing transactions that are in escrow pending closing in the low 6s on '07 NOI. So just the opposite.

Okay. And I don't know if you can answer this, or if you know, where do you see the payout ratio going after the CRP transaction? Do you have an estimate for that?

We haven't put that out. I don't know how long you've followed us, but three years ago we had 101% kind of burned into our brain cells. So what we've said publicly about that was that that was not something we wanted to experience then and certainly not a place we're going to revisit it. I would be surprised to see that payout ratio get north of 90% from here. I can't imagine -- I won't say never, but I can't imagine what this management team and what this Board has been through in terms of how we had to dampen, albeit continue the growth in the dividend. We don't want to go back there, we want to ramp up the dividend growth from here. And certainly, that was something we looked at in terms of the CRP transaction. So if anything that will accelerate our ability to -- certainly to grow, grow the cash flows and grow the dividend with their payout ratio now where it is, it fits together quite nicely.

Thanks, guys.

And your next question is a follow-up question from Jonathan Litt. You may proceed.

Hey, Jay.

Hey, Jon.

I missed the beginning of the call. What was the cap rate on the GE MOBs, GE joint venture MOBs that you sold?

Seven.

We announced that on the last -- the one that we took -- the assets that we sold them the joint venture?

Right.

Yes. It was a 7 -- I think we we announced on the last call it was 7 cap rate. What happened, there was two that closed in two chunks and we announced on the last call the chunk that had closed. It was the same overall cap rate. What happened, John, was there was some rights of first offer on some of those properties that the hospital ended up exercising. They didn't exercise at the same place but that was the delay in having the second tranche close in the second quarter.

What's your sense of the opportunities with the HCA transaction, they obviously, it sounds like they're going to get about $16 billion in financing. They probably need quite a bit more to get this thing closed in terms of acquisitions to do with them.

Well, I think if you look at that company's history, both long-term history and just in the last couple of years, they have been a pretty active manager of their real estate portfolio. They have not been a buy and hold. So typically make an acquisition and kind of sell off some of the stuff that they don't like. They have sold a number of hospital systems, north of $1 billion dollars John, just in the last 12 months and they've used those proceeds to retire shares. I see that continuing. Again, this is -- I'm not privy to any of the planning there but I would be surprised if that didn't continue. I think the only difference is instead of having those proceeds redirected into share repurchases, you'll now have those share of the proceeds redirected to pay down debt.

In addition, it's quite possible they've got -- the MedCap portfolio that we acquired at the end of '03 represented about half of the owned HCA medical office building real estate that they had, so it's possible that they might look at some of the remaining medical office building real estate and/or some of their other ancillary pieces of real estate and monetize those. So answer your question I would put the opportunities probably in those two buckets.

Fairly high probability I suspect that tey'll be unloading, whether you can meet the price is a different matter.

Yes, again, I can't speculate on what they're going to do. I would just think that those are probably two areas that you'll probably see some disposition activity.

And how are you doing on the -- raising the partner capital for the CNL acquisition?

We've had very good interest to date. Again, we are looking forward to our next call where we can kind of take you through what we have been able to accomplish there.

At what point does your balance sheet get stretched where even if these opportunities start coming up you might not be able to execute? Is that a concern for you?

Absolutely not. That was -- that couldn't be farther from the case. In fact, that was the reason why as part of this financing we went out, the 12 months early, we had a $0.5 billion bank line that was due to mature in September of '07 and as part of this overall financing, experience, we decided to move forward and bring that in and get that renewed now and double the size, John. So we will have, at closing here, we won't have a $0.5 billion bank line. We'll have $1 billion bank line if we're successful in some of the marketing efforts we're in the middle of right now with the joint venture partners, a significant amount of dry powder. A very, very significant amount of dry powder to allocate to additional investments.

Thank you.

Yes.

You have a follow-up question from Jerry Doctrow from Stifel Nicolaus. You may proceed.

Hello again. On the ACR stuff, I know you refinanced or extended terms on some of that portfolio, but I know on a lot of stuff that ACR had done, and I know your stuff better than the CNL. They had negotiated in basically buyout rates at some point in the process. So did you face any, essentially buyout risk over the next few years on your ACR stuff either in the CNL side or the HCP side?

Again, I think right now, Jerry, I can only speak -- and I probably should only speak, probably the latter more than the former -- our ARC portfolio, as you might imagine, given the way that we came into that investment, we -- and then subsequently restructured, we have no buyout risk there at all. It's all master leased, long-term leases with nice participations in the property performance. So again I think my comments to your question, which I totally understand, and are actually applicable to the CRP portfolio, necessarily should be limited to what happened at the HCP portfolio, and we had none of that exposure.

There may be some at CRP but I should go look elsewhere for that answer.

At this time, sir, you have no further questions.

Okay. Stay cool, everybody. Thank you for taking your time today, and have a good rest of the summer and we'll talk to you in a few months. Thanks, again. Thanks, operator.

You're welcome, sir. Thank you, everyone, for your participation in today's presentation. You may now disconnect, and have a wonderful day.