Healthpeak Properties Inc (PEAK) 2008 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2008 HCP earning conference call. My name is Erica and I will be your coordinator for today. (OPERATOR INSTRUCTIONS)

Now I would like to turn the presentation over to your host for today's conference call, Mr. Ed Henning, HCP's EVP and General Counsel. You may go ahead, sir.

Thank you. Good afternoon and good morning. Some of the statements made during this conference call contain forward-looking statements. These statements are made as of today's date and reflect the Company's good faith belief and best judgment based upon currently available information, and are subject to risks and uncertainties and assumptions that are described from time to time in the Company's press releases and SEC filings. Forward-looking statements are not guarantees of future performance. Some of these statements may include projections of financial measures that may not be updated until the next earnings announcement or at all. Events prior to the Company's next earnings announcement could render the forward-looking statements untrue and the Company expressly disclaims any obligation to update earlier statements as a result of new information.

Additionally certain nonGAAP financial measures will be discussed during 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 supplemental information package and earnings release, each of which has been furnished to the SEC today and is available on our website at www.hcpi.com. I will now turn our call over to our Chairman and CEO, Jay Flaherty.

Thanks Ed. Welcome to HCP's second quarter 2008 earnings call. I am joined by EVP, Chief Financial Officer, Mark Wallace; and EVP, Chief Investment Officer, Paul Gallagher. It has been a productive quarter for HCP with asset sales and financing raising over $1.3 billion of proceeds during the quarter. The restructuring of our seven Tenant Healthcare hospitals, and solid performance from our repositioned investment portfolio, notwithstanding the turned economic headwinds. It is nice to be in the healthcare business these days. In fact just two weeks ago, CNBC reported that for the first time ever, the market capitalization of healthcare companies exceeded that of financial institutions.

I will have more to say about Tenant, Sunrise and the evolution of the multiple growth drivers that now underpin HCP's business model. But first Mark and Paul will take you through the details of the most recently completed quarter. Mark?

Thanks, Jay and good morning. Despite the current dislocations in the credit markets, we continue to execute our commitment to maintain a conservative balance sheet and ample sources of capital. So far this year we raised $560 million of equity capital, $526 million from asset dispositions, and $254 million from the issuance of agency secured debt. These transactions have generated net proceeds of over $1.3 billion, all of which were applied to fully pay down our revolving credit facility and reduce the outstanding balance on our bridge loan.

In May, we placed $259 million of secured Fannie Mae debt on 21 of our Senior Housing assets. The assets are cross collateralized and the debt has a seven-year term with a fixed interest rate of 5.83%. We received net proceeds of $254 million, which we used to repay outstanding debt under our bank facilities. At quarter end, our bridge loan had a balance of $1.15 billion, accrues interest at 3.16% and has an extended funnel maturity of July 31, 2009. We exercised the first of two six-month extension options during the quarter and just last week we paid an additional $150 million on the bridge.

Debt maturities for the remainder of 2008 are limited to $300 million of floating rate senior unsecured notes in September, and about $74 million of mortgage debt amortization. For 2009, our debt maturities, other than the bridge, are limited to $276 million of mortgage debt. Our credit metrics continue to be in great shape. Pro forma for the recent bridge pay down, our overall leverage ratio stands at 51%, our secured debt ratio at 14%, our unsecured leverage ratio at 59% and our floating rate debt represents 22% of total debt or 7% adjusting for the natural hedge provided by our care adjustment.

During the quarter we also issued 111,000 shares under our dividend and reinvestment plan for total proceeds of about $4 million. We also converted 1.2 million nonmanaging member down rate units into common equities. Investment activity for the quarter was principally focused on our Life Science and Medical Office segments. We funded $43 million in construction and capital projects this quarter, bringing our YTD fundings to $92 million.

East Grand Building A, comprising 82,000 square feet, was placed into service and occupied by Genentech in June. We anticipate the remaining two east grand buildings, comprising 147,000 square feet, to be fully occupied by Genentech in the third quarter. These three developments should contribute over $5 million to FFO in the last half of 2008. In the fourth quarter, we anticipate the corn shell of Oyster Point Two, Buildings A and B, comprising 237,000 square feet to be complete. Rent should commence in the fourth quarter of 2008 on Building A and the first quarter of 2009 on Building B. Keep in mind that rental will not be recognized for GAAP until related tenant improvements are complete. The corn shell and Oyster Point Two Building C, comprising 78,000 square feet, should be complete in the fourth quarter 2008 and we are actively pursuing tenants.

Let me review our second quarter earnings. For the second quarter 2008, we reported FFO per diluted share of $0.51 compared to $0.58 for the same period 2007. Merger related charges were $1.1 million for the second quarter, and 2008 and $1.7 million in the second quarter 2007. This quarters results include the effect of three items that were not anticipated in our previous guidance, so I want to take a minute and walk through each one. First we recorded $9.7 million of impairment charges comprised of $5 million related to defaulting the current operator in hospital Louisiana for nonpayment of rent and $4.7 million related to do four underperforming Senior Housing properties that we are currently marking for sale as part of our disposition program. The sale of these properties will eliminate about $1 million of annual losses affecting our same property performance. Second, we recorded a write down of $3.5 million contributed to an investment in our marketable equity securities portfolio, as recent trading prices have been below our cost basis. This write down is included in FFO and reflected in interest and other income.

The last of the three items relates to FAS 133 hedge accounting. You may recall during the fourth quarter 2007, we executed $900 million in four starting slots to hedge future anticipated debt issuances given the relatively high level of short term debt we had at the time. During the month of June we settled these hedges at a net cost of $9.7 million. The ineffective portion of this cost totaling $2.4 million was a charge to FFO. The balance of $7.3 million resides on our balance sheet in accumulated other comprehensive income. This amount may be taken FFO over the term of future debt financing or sooner depending on the attributes and timing of future debt issuances. The three items I just highlighted adversely impacted reported FFO by $15.6 million or $0.06 per share. Excluding these items, reported FFO per diluted share would have been $0.57 for the second quarter.

Same property cash NOI growth for the second quarter was 1.9%, led by a Life Science at 11%, Skilled Nursing at 3.1% and Senior Housing at 2.2%. In the Life Science sector, we are beginning to see impact of leasing all of the space at our campus in San Diego. Our overall Life Science portfolio economic occupancy was 88% at quarter ends. Senior Housing and Skilled Nursing sectors continue to benefit from contractual escalators and rent resets. Senior Housing cash NOI growth also reflect YTD additional rents of $2.8 million from property level expense credits related to our Sunrise properties. These property level expense credits, however were offset by a reduction of $1.3 million in YTD Sunrise rents, which fluctuate with LIBOR interest rates and $2.7 million of additional rents received and recognized in the first half of 2007 that relate to 2006 property performance.

Medial Office cash NOI grow of 1.5% reflects cash increases of nearly 3% partially offset by the expiration of five master leases that decreased the effective rents at those properties. Overall MOB occupancy was 90% at quarter. Our Hospital sector same property cash NOI growth continues to be affected by the Louisiana hospital I discussed earlier and additional rent at our Tenant hospitals that are relatively stable with prior year levels.

We raising our reported FFO guidance to range between $2.27 and $2.35 per diluted share for the full year 2008. That guidance includes charges of $0.06 cents from the three 2nd quarter items described earlier as well as the following key assumptions. Consistent with the previous quarter, our guidance contemplates no additional acquisitions of real estate or net investments and no contribution of assets in the joint ventures. We expect to funds about $191 million in construction of capital projects this year principally in our Life Science sectors. We expect to recognize in FFO between $23 million and $28 million of income related to our Tenant Healthcare restructuring and settlement agreement.

On July 30, we received and recognized lease termination fees of $18 million from a tenant in connection with three early lease termination representing 149,000 square feet at five of our Life Science properties in the Bay Area. We also recognized an impairment of $4 million related to intangible assets associated with these leases. The net 2008 FFO impact from this transaction is approximately $12 million including a $2 million reduction in NOI from the tenant vacating the space. This vacancy will reduce our overall Life Science economic occupancy by 2.4%. Asset dispositions for the full year are expected to be about $750 million with gains for GAAP earnings on these sales of about $285 million. Our investment management platform should generate fee income of about $6 million, same property cash NOI growth is expected to be about 2%. The decline from our previous guidance is primarily attributable to lower additional rents anticipated at our Sunrise facilities and slightly lower occupancy at our MOBs. G&A should be about $75 million or roughly 6.5% of total revenues. Income tax expense is expected to be $5 million for the full year. Merger related costs for 2008 should be about $4.5 million or $0.02 per diluted share, again representing the amortization of remaining bridge loan fees.

And I'll now turn the call over to Paul.

Thank you, Mark. I'd like to point out a change in the methodology, by which occupancy metrics are reported this quarter and will be reported on an ongoing basis. Moving from physical occupancy to economic occupancy. This better represents the cash rents collected and will primarily affect Life Science portfolio as tenant improvement work is completed. It will also be seen in our MOB portfolio, but to a lesser extent.

With this in mind let me walk you through our five segments. First is Senior Housing. As Mark mentioned, our Senior Housing year over year same store performance increased by 2.2%. Breaking it down, Senior Housing excluding Sunrise increased by 5.8% driven by contractual rent escalators and a restructuring of our HRA portfolio. Sunrise experienced add 2.5% decline due to the one time items Mark described. Occupancy for our same property portfolio is 90% representing a 20 basis points decline quarter over quarter and a 60 basis points decline year over year. Same property cash flow coverage year over year has increased from 1.05 times to 1.19 times due to resident rate increases at a higher level of extended care fees, as well as the reduction in LIBOR based Sunrise rents.

Next is Hospitals. In the second quarter ACP sold a portfolio of 18 hospitals and wellness centers, representing gross proceeds of approximately $325.8 million. A final $30.3 million traunch of this portfolio subsequently closed in July. In the aggregate, this portfolio sale resulted in $356.1 million of gross proceeds at an exit cap rate of 9.1% and a gain of $133.7 million. We reached agreement with Tenet Healthcare to a restructure the overall portfolio of seven assets we own. Three hospitals, Hickory, North Carolina, Palm Beach, Florida, and Roswell, Georgia will exercise an early contractual renewal of this lease through 2014. Our Tarzana Hospital will be sold to Tenet who will turn will sell the hospital to Provident Health and Services. In addition, we will by out Tenet's position in a joint venture that dates back to HCP's original IPO. Tenent will not renew leases on Irvine and Los Gatos facilities, which expire in February and May of '09 respectively. We have signed a lease with premiere Orange County not-for-profit [Hoague] Memorial Presbyterian for our Irvine facility.

Now for Skilled Nursing. In the second quarter, HCP sold nine Skilled Nursing facilities representing gross proceeds of $70.4 million. Two of these were sold at an 8.6% cap rate and seven were sold to the existing operator at a 7.8% cap rate. Combined with first quarter dispositions, HCP has realized $97.2 million in gross proceeds from Skilled Nursing sales YTD and recognized an aggregate gain of $50.8 million. For the remaining portfolio, year over year adjusted NOI is u,p driven by contractual rent increases, occupancy is stable and same property cash flow coverage declined slightly as a result of fair market rent increases in one of our stabilized portfolios. We have added first quarter 2008 debt service coverage ratio for Manner Care to our most recent supplemental. The ratio of 1.52 times was calculated assuming the 5.25% interest rate cap Manner Care purchased for the entire CNBS and mezzanine position. The actual coverage for the quarter was 1.18 times. Going forward, we will be reporting coverage on a GAAP basis, calculated at the cap. In addition, as is the case with our owned Skilled Nursing portfolio, coverage will be reported on a one quarter lag. Based on recent discussions with Manner Care's management, we believe second quarter performance will remain strong, despite a slight seasonal decline in occupancy. Year over year, Medicare and manage care rates were up and quality mix remain at historic highs.

Next is Medical Office. During the second quarter, we sold 689,000 square foot off-campus Medical Office portfolio for a gross sales price of $90.1 million. This sales price equals a 6.9% cap rate, and we recognized a gain on sale of $26.5 million. Same property NOI for the quarter was up 1.5% on a year over year basis, this was driven by higher base rents that was offset by the expiration of five master leases. Overall occupancy for MOBs ended the quarter down ten basis points at 90.3%. Through the end of the quarter, we have experienced strong leasing 61% of the 2.6 million square feet of space, initially set to expire in 2008 having already been renewed or released. We executed 150 leases totaling 515,000 square feet of second quarter expiration. For the executed leases, approximately 123,000 square feet related to previously vacant space and the remaining 392,000 square feet related to the renewal of previously occupied space. One large lease was renewed on a short-term basis at a premium rate to market. Absent this lease renewals occurred at 4.8% higher rents. Our leasing activity during the quarter resulted in a retention rate of 81%. Of the remaining 1.3 million square feet of space scheduled to expire in 2008 approximately 263,000 square feet has already been leased and we have a pipeline of nearly 755,000 square feet of active negotiations. We have expanded our predevelopment pipeline which now includes seven properties aggregating 610,000 square feet with a projected cost of $168 million. We anticipate construction to commence in the fourth quarter for at least one of these projects.

Now, Life Science. Occupancy for Life Science portfolio was 88.1% at the end of the quarter, up slightly from 87.7% on a sequential basis. The portfolio will remain approximately into 92% leased during the quarter as HCP completed approximately 47,000 square feet of leasing activity. In addition, an existing tenant expanded into approximately 20,000 square feet relate to go adjoining space that resulted in a mark-to-market increase of rents of 85%. The majority of the leasing volume related to activity at our Mountain View campus, which is now fully leased. Subsequent to quarter end the company received a termination fee of $18 million from a tenant in connection with the termination of three leases representing 149,000 square feet to the Bay area. This amount represents 85% of all future lease obligations under the lease and that had a remaining lease term of 4.5 years. The termination will drop occupancy from 88% to 86% but has the potential to produce superior financial results as space is released.

General economic conditions have moderated throughout the year and venture capital fundings, a leading indicator of Life Science demand has slowed. Despite the current environment HCP has renewed or released 52% of the 263,000 square feet scheduled to expire over the balance of the year leaving remaining expirations totaling just 126,000 square feet or 2% of the portfolio. HCP continues to pursue a pipeline of prospects in excess of 200,000 square feet for existing space. The future development and redevelopment pipeline remains unchanged at 3.3 million square feet of expansion opportunity. During the second quarter we successfully concluded a three-year entirely process for 540,000 square feet at our Sierra Point location, which represents a campus of five waterfront Life Science buildings in the south San Francisco sub market. Our San Diego county market, while improving, continue to experience a slower tenant demand and no immediate starts are expected. In comparison, HCP continues to have active dialogue with tenants in the Bay area. It is difficult to predict when these discussions will lead to new transactions, but we are encouraged by the level of interest in our development holdings.

With that review of HCP's portfolio, I'd like to turn it back to Jay.

Thanks, Paul. Let me now speak to a handful of separate topics.

The Tenet restructuring. In many respects, this was the most complicated deal we've ever executed. While that may surprise some of you, it is actually six separate transactions rolled into one. Let me provide one bit of context before I elaborate. If I were to take you back to page 19 of our March 31, 2008, supplemental and point you to the leases expiring in 2009, you would note $38 million of expiring annual revenues related to six hospitals. These six hospitals were all leased to Tenet and scheduled to expire next year. Excluding the normal annual role of leases in our MOB sector included in that schedule, the Tenet hospitals represented 79% of our anticipated 2009 expirations. Our agreement with Tenet eliminates that exposure, generates substantial proceeds from the sale of our Tarzana Hospital and allows us to insert best in market operators at our Irvine and Los Gatos locations. We have already executed a 15-year lease with [Hoague] Memorial Presbyterian Hospital, the premiere Orange County nonprofit for our Irvine hospital and have indications of interest for our Los Gatos property. As part of our agreement, we will also by our Tenet's 23% minority state in Healthcare Property Partners, a joint venture created at the time HCP went public in 1985. The HCP/Tenet win-win out come allows Tenet to exit its three California hospitals and monetize in a liquid investment.

Our Sunrise portfolio came to us as part of our CNL acquisition. As an aside, we have invested limited funds in the Senior Housing space since closing that transaction in the fourth quarter of 2006. But have recycled $1.5 billion of Senior Housing real estate at attractive valuations during those 21 months. We priced the Sunrise deal off of in place cash flows from actual 2005 financials and 2006 projections. We are fortunate to have had the wind at our back for the past two and a half years and it has been advantageous to have been an owner and recycler of Senior Housing real estate during this period of time. Now, let me quantify how strong that winds at our back has been blowing since we made the decision to acquire the Sunrise portfolio as part of CNL in the first quarter of 2006. At December 31, 2005, our Sunrise portfolio had an occupancy of 86.0%. This occupancy hit a 2007 high of 91.2% in October of 2007. The flash report for the week ended July 30, 2008, was 91.8%. For the year ended December 31, 2005, the cash flow from our Sunrise portfolio was $110 million. Budgeted cash flow for 2008 is $149 million, and 11% compounded annual growth rate. HCP shareholders have done well on the Sunrise investment. But we can and will do better.

I have stated several times that HCP's Sunrise portfolio is both strategic and unique for the following four reasons. One, it is the only Sunrise portfolio of scale in total that represents approximately 25% of all the real estate managed by HCP that is 100% owned by one party. Unlike the traditional 80%/20% capital partner Sunrise joint venture structure where Sunrise serves as the managing partner for those ventures. Two, HCP Sunrise properties have modest apartments of secured debt on them. Three, HCP's portfolio cuts cross several of the property brands that Sunrise operates including Mansions, Brighton Gardens, Eden Care and Maple Ridge. For the latter three brands, HCP owns 100% of all the properties operated by Sunrise in those brand categories. And four, HCP owns valuable exclusive noncompete development rings for 41 of its 101 locations. Sunrise does a good job with its Mansion product. Of the remaining brands it is our view that Sunrise can be can become a more efficient operator of some of our portfolios, while alternative operators may be more efficient for other portfolios.

This is the essence of the discussions that we have had with Sunrise for the past two years. One of the expense line items that we are particularly focused on was insurance. Toward that end in October 2006 we formally provided Sunrise notice of our concern on this expense category. We were pleased to see the company provide us with meaningful insurance credits earlier this year relating to the period we have owned the portfolio. Of our 13 separate pools of Sunrise properties, two have performance termination clauses currently running in our favor. We anticipate moving one of these pools to an existing HCP operator at economics to HCP that are in excess of the existing lease. We aspire to be more than one of the multiple capital partners that Sunrise has, rather a good strategic partner for the Company. Fortunately the tax legislation for healthcare real estate, signed into law by the President last week, nicely expands the flexibility we have to work with Sunrise going forward. In recent months, we have been engaged in frequent conversation with the new management team at Sunrise. We were pleased to here of the company's renewed focus on reducing its cost structure and on its core brands during their conference call of last Friday. We look forward to creating multiple win-win out comes for the two organizations. In this regard the recently completed restructuring of our Tenet portfolio may prove to be a good template.

Our portfolio. I would be remiss if I did not acknowledge the fine performance of our leading operator tenant partners cross each of our sectors. One, Life Sciences. The recent birth of M&A deals and drug development news for biotechnology companies in general and for our two largest tenants, AmGen and Genentech in particular, underscore the value we under wrote as part of our [slough] acquisition as well as Life Science acyclical nature. While leasing velocity has softened in the first half of this year, sub market vacancies remain low and our remaining available inventory is a modest 496,000 square feet at June 30, 2008. The dialogue level around our inventory and through development and redevelopment opportunities is robust and the completion of the entitlement process for our Sierra Point side is exciting.

Two, hospitals. HCP continues to motor along, our mezzanine debt investment continues to trade at a premium and the Company announced our bad debt for the June quarter 2008. This morning Tenet reported its strongest volume growth in four years.

Three, Skilled Nursing. Manner Care is simply Manner Care. The company continues to maintain historically high operating metrics, generated a 1.81 times actual debt service coverage ratio, has substantial cash balances, is exceeding its business plan and is position to do benefit disproportionately from last weeks 3.4% Medicare rate increase in light of its high quality mix.

Four, MOBs. We reduced our aggregate owned and managed square footage to 16.6 million square feet following the closing of last months disposition of our Indianapolis off campus portfolio. We are now at an 80%, 20% mix of on campus to off campus Medical Office Buildings. We have initiated an RFP process that will reduce the number of third party property managers we contract with and expect to achieve modest cost savings as a result.

And, five, Senior Housing. Excluding Sunrise, our Senior Housing same store cash NOI was up 5.8% for the first half of 2008. We understand from our operators that second quarter occupancies have softened approximately 50 to 100 basis points off year over year metrics. We also understand that July occupancies have firmed.

Balance Sheet. I would like to review the fortunate liquidity position we find ourselves in today. A year ago we entered into a $1.5 billion four-year line of credit bearing interest at an all in cost of LIBOR plus 70 basis points. This revolver currently has no outstandingings on it. A year ago as part of the Slough acquisition we entered in a $3 billion bridge facility with a one-year initial maturity, bearing interest at an all in cost of LIBOR plus 70 basis points. This facility can be extended for two additional six-month periods at our option and currently has $1 billion remaining on it. As Mark mentioned, we recently exercised our first six-month extension for a one time fee of 12.5 basis points.

We currently have $94 million of cash balances and anticipate receiving $200 million in proceeds from our remaining two asset sales over the next 30 to 45 days. We expect our bridge facility to be drawn at $900 million, which is equal to our LIBOR based investment in the mezzanine debt of Manner Care. Our leverage ratio at June 30, net of $250 million in cash at quarter end, stood at 50.1%. This is below the 52% target we established at the closing of our Slough investment. I would remind everyone that the commitment to return our leverage ratio to our pre-Slough level of 52% within one year was made prior to our December 2007 $900 million Manner Care Manner Care investment. Notwithstanding this incremental borrowing, we still exceeded our reduced leverage ratio commitment one month ahead of schedule.

HCP's business model. On our last call, I highlighted the successful execution of our multi-year portfolio repositioning strategy. A more subtle benefit is the ability to create shareholder value, evolving from solely buying right, selling right and financing right to a model of creating shareholder value as an active asset manager, without putting incremental shareholder capital at risk. As examples, I give, one, HCP's $215 million secured mezzanine investment in American Retirement Corp. This was subsequently converted into 15-year sale lease backs on their Crown Jewel properties, now master leased under a Brookdale Credit with current coverages of approximately 1.3 times. Two, HCP's Lusk Campus in San Diego, acquired for $38 million at $168 per square foot, is now completely repositioned, realizing rent increases of 76%. And with ongoing discussions for a third built-to-suite property for this campus.

Three, HCP's Horizon Bay Investment, where we exchanged a requirement to replenish a $15 million security deposit for a master lease on three separate primarily independent leaving portfolios. These are currently 93.5% occupied, with 41% operating margins. Following this restructuring, we subsequently placed $687 million of attractive Fannie Mae secured debt on the assets and sold off 65% of the equity to an institutional investor. And, four, HCP's Irvine campus where a community leader Hoague Hospital will investment a significant some of capital improvement in our building. We anticipate meaningful incremental value creation from this 15-year lease.

In 2008, HCP's $750 million of asset disposition will generate approximately $285 million of gains. None of which will run through FFO and approximately $14 million of impairments, all of which will run through FFO, for a net gain of $271 million. At the present time we have an unusually large pipeline of initiatives that will be actively asset managed to the benefit of HCP's shareholders. These include the Los Gatos campus, our Sunrise portfolio, entitled land and redevelopment opportunities in our Life Science sector, warrant positions in public and private companies and lease termination possibilities.

What is the bottom line? At the midpoint of our increased guidance, which assumes no acquisition binds, but incorporates the dilutive effect of $750 million of asset dispositions and over $1 billion of repayment or turning out of attractive short term debt, HCP expects to produce year over year increases of FFO of 8% for 2008. To close, we own a fine portfolio of healthcare real estate and the finest portfolio of best in class operator tenant partners. We are getting increasingly liquid with each passing week. Our five by five business model has been further enhanced by recently enacted tax legislation. We now said in the position in what is unquestionably, unquestionably, the most interesting deal environment for the past five years.

With that we thank you for your attention today and would be delighted to take your questions at this time. Operator?

(OPERATOR INSTRUCTIONS) Our first question coming from the line of Rich Anderson with BMO Capital Markets.

Good morning over there. Can you -- it doesn't sound like you are going to provide who the tenant was in the Life Science lease termination? Or can you provide that? Was it AmGen.

It was not AmGen.

It was not AmGen.

It certainly was not.

Could you comment on who it was?

For confidentiality reasons we cannot but it was not AmGen.

You mentioned that you are --

Someone has a blackberry near the phone.

Sorry about that. You mentioned that you plan to replace Sunrise, I think you got that right, you plan to replace Sunrise with an operator that you current dollar business with in a pool of assets. Is that correct?

For one of 13. Our 101 Sunrise properties are owned in 13 separate discrete pools. We are moving one of those pools, we anticipate moving one of those pools to another operator that's already existing.

And call it a good thing and I imagine maybe the quality of the tenant or the operator but can you just sort of run through why you need to do that?

It's not a question of quality operator. Sunrise is a very high quality operator much it's all about economics. As I mentioned we've done very, very well on our Sunrise investment. And they do a terrific job in their Mansion product. Some of the other brands from a margin standpoint, those margins are in line with what we see with some of our operators. This particular portfolio that we anticipate moving is a portfolio of 12 purpose built facilities all done, all developed in the last nine years, 90% occupied at year end '07 with a 19.5% operating margin. Our view and other metrics of comparable portfolios in those areas would suggest that that operating margin should be quite a bit higher.

In terms of gains when we go through the guidance, it looks excluding the lease termination fee and the impact from ten net restructuring that you actually tweeked down guidance by five pennies. I assume I have that right and if you could give some color on what are the factors behind that? Was it interest related to the terming out of debt or was it disposition being higher than you expected. Can you go through that math?

This is Mark. I think you said it correctly is that the core guidance is down about $0.02, let me sort of take you through how you reconcile the numbers. If you look at the midpoint of our guidance on the last call it was $2.25. The items that you sort of need to factor out of that are to reconcile our current midpoint of $2.41, you take out impairment charge of $0.06, that would include $0.04 in the second quarter and $0.02 from the third quarter in lease termination. Then were we had the right down of marketable security of $0.01, we had hedge ineffectiveness of $0.01. Going the other way for additional income, we have the lease termination that we talked about preimpairment of $0.06 and the tenant gains of $0.10. If you do all that you get to $2.33 reconciliation, which gives a difference of $0.02 and that's primarily what I talked to in my guidance and the $0.02 decrease is primarily attributable to the lower additional rents at the Sunrise facilities and then slightly lower occupancy that we forecast in the Medical Office building sector.

To be clear, Richard, $0.02, not $0.05.

Yes.

Last question, Jay, on [Ridea]., what are some of the elements that really stand out to you as the biggest opportunity for HCP?

Well, I mean first off everybody ought to understand that we are not looking to become an operator of Senior Housing. That's the last thing any of us want to do. I think this is a very situation specific opportunity for us and the other healthcare REIT potentially it could be a bigger opportunity for some of the operators that are structured as C. Corps. quite frankly, but with respect to us two things that jump out at us. One, if we've got portfolios of say Senior Housing assets whereby repositioning them either by putting some refresh dollars in the portfolio or maybe changing out an operator if there's an opportunity to have a significantly large bump in the economics accruing to the benefit of us as a landlord, we would probably be more interested in going at that directly. As opposed to using a lease, where you might normally be limited to annual escalators along the lines of the greater of CPI or 3%. So if there's an opportunity to have an order of magnitude increase in the profitability portfolio, this tax legislation will give us an opportunity to directly and more meaningfully participate in that value creation along with the operator that's helping to create the value. So that's one opportunity that jumps out at us.

The other opportunity is in the past I can't tell you how many conversations we've had particularly with our pals on the private equity side, many of which are represented in our portfolio. We get all excited, we look at something, we are going to partner up and we kind of get down to the magic moment, everything sounds great and because we are a healthcare REIT, we have to have our economics cut via a lease at the top line and the prospective joint partner like every other kind of rational investor is looking at bottom line cash flow generation. We'll now actually will be able to have realignment in those situation going forward. Again to repeat, I think it's very situation specific. I don't think this is going to be some panacea that totally changes our business model but at the margin, I believe it will be another arrow in our quiver to increase economics to HCP shareholders as we either cut or recut some deals. So that's kind of our take on it.

And the international stuff didn't jump out at you as an opportunity?

Did it specifically lead to the tax legislation?

Yes.

No.

Thank you.

Next question, Jay Habermann with Goldman Sachs.

Hey, good morning. Jay, just some question there in terms of pricing that you're seeing in the market. I know you've been out selling assets but I'm curious if you're starting to see lease valuations or pricing become a little bit more attractive or do you still think that's more of a back half of the year 2009 type of time frame.

I think I shared with you at your conference, Jay, I keep quoting my pal Spencer Hayber, who is one of our fixed income partners at H2 Capital. He went back and looked at the history would have real estate markets correct and in so doing concluded that real estate markets correct from most liquid to least liquid in that sequence. And so if you boil it down to our little corner of the world, if you take a look after the credit crunch started in August sort of time frame if you look at where the fiscal dislocations were it was in CNBS for healthcare real estate. That would be the most liquid part of all the healthcare real estate and that obviously, kind of really got wild there there had in the fourth quarter. Fortunate that will presented an opportunity for us a week before Christmas when we surfaced with the $1 billion face value investment in Manner Care. If you look at the next liquid healthcare real estate market it probably would have been some of the bank syndication loans and if you go back and look in the February, March time frame that's when a lot of the banks were starting to try to get ahead of the liquidity issues and began marking down those. Those don't trade nearly as frequently assay the CNBS but you saw some rededuction of values there. In fact we looked at some of that stuff but concluded that notwithstanding the economics that was a little bit of a stretch from a standpoint of an underlying real estate opportunity. Obviously the least liquid part of healthcare real estate are the properties themselves and we really haven't seen any correction. In fact if you take a look at the asset dispositions that we either closed on or now have everything signed up, by the way we do have everything signed up to get to that 750 number, I forgot to mention that. We've really have seen no change in the valuation metrics whatsoever. Soy that's kind of our state of the world. I don't think our crystal ball is better than anybody else's. We've been rather fixated on what we think is the value creation opportunity for our shareholders and in the last 13 months the only opportunity we've seen that kind of cleared the bar for our shareholders benefit was the Manner Care investment. I think at some point that will start to turn around. As we sit here today on August 5, 2008 we have not seen that, Jay.

In terms of opportunities that may arise obviously perhaps debt maturity driven are you seeing perhaps some initial signs of where there might be sellers where they can't get the financing or refinancing?

Yes, we are, absolutely. Nothing is imminent. If you take a look at what we are reviewing there are a handful of those situations. But I think I said on our November call of last year which was for related to the third quarter of '07, I predicted with certainty that our fourth quarter volumes would be down versus the third quarter. On our fourth quarter call in February, I predicted with certainty that our first quarter volumes would be down sequentially to fourth quarter. On our April call related to the first quarter, I predicted our second quarter would also would be down and I'm here to tell you that that I think our third quarter volumes will be flat to down, probably down from second quarter. I do think based on the dialogue that we are having that there's, this thing is obviously going to turn at some point and it would appear as though the fourth quarter might be the time frame where you start to see that swing around the other way.

Switching gears back to the lease term that you recognized in July, was that consolidation driven and can you just discuss a bit more in terms the of the impact of consolidation on south San Francisco and San Diego?

Good question, the answer is, no, it was not consolidation driven. That was a company that had had a discrete drug program, built around the prospect of an FDA approval and had built out a significant infrastructure which included the lease on our properties. They did not get the thumbs up from the FDA that they had anticipated and made the decision to close everything down and they were particularly motivated to kind of close everything down and wrap it all up in the form of one charge that could occur in this quarter. So that's what drove that.

Now, the impact of consolidation is very interesting and there's been just a flood of M&A news. And we are, where we can come out I think you heard me talk about this before, I think if you want to look at Life Sciences you are probably limited to a handful of markets across the country. Obviously south San Francisco which is the birth place of biotechnology, it's where Genentech was created in 1978, where it went public in 1982, that's grounds zero. Next biggest is the Boston, Cambridge market and third biggest is San Diego. Typically within those markets -- when you see consolidation you have one of two phenomenon both which have occurred in spades with respect to our portfolio, which of course is the legacy Slough portfolio. You see companies coming in that are and they are acquiring other companies and you typically sigh those to be bigger higher credit companies and you get the economics all stay in place but you get a pop from a credit standpoint. If you take a look at the Genentech news from last month, Genentech has credit ratings that are currently A1AA. and if this transaction goes through where Roche acquires them Roche is completely a step up from a credit standpoint, they are a AA-AA. Not that we are particularly concerned with the credit of Genentech, but we will have a pop from a credit standpoint with respect to that.

The other phenomenon that occurs is there might be some consolidation and that's why it's so important to be in one of those core markets because a lot of times what that does is free up inventory to enter into new leases with other folks that are in different phases of the drug development pipeline. So we are actually thrilled with this investment. It's obviously gone, far exceeded our expectations. A bunch of us were there with the leasing team, particularly with the Sierra Point entitlement news behind us that could really provide some meaningful growth for an extended period of time going forward for HCP shareholders.

Last question, the success of your sales program YTD, do you think that gets expanded beyond the targeted 750?

I think that would be, Jay, that would be on an opportunistic basis. Right now we are kind of heading the other way here with liquidity. We've got significant liquidity cash balances, we are going to have more in light of the asset sales coming in. So, and with some of the Asset Management, the actively managed asset opportunities that are creating nice economics for HCP shareholders they don't really require any additional capital. So right now we have nothing on the front burner with respect to any other dispositions except for a closing of the two sales, the biggest which have is the Tarzana sale, which we anticipate those all closing down in the next there it to 45 business days.

Thanks.

Next question, Jerry Doctrow of Stifel Nicolaus.

Thanks. You've covered a lot of ground, just a couple of details. The marketable securities that were sold, I assume that's not Manner Care, what were they?

We would not, those are marketable securities that we would not identify the particular security. It was not Manor Care, though, by the way.

It was just, it was just stuff that you invested in that, it's not a major or it's not Manor Care, it's not something else we would have known about, it's just, I'm trying to understand the nature of, it was stock that you bought or any color you can just give me what it was?

We sold it for a gain. That's --

Okay. I just wanted to go back to the basics. We talked a lot about Sunrise already. The basics of the CNL leases, Jay. My recollection on those, it's been awhile that CNL closed, it was kind of a lease structure where there may have been a tenant between you and Sunrise and you were then getting a share of are of revenue gain. Can you give me a little bit of background on what the basics of that stuff is obviously about to maybe be changing as we go forward?

I think you've got it exactly right. For tax reasons, you've got a third party tenant between many, not all of those 13 pools and that's certainly something. The new team at Sunrise are very impressive group of people, we very much enjoy working with them. And to be fair, they've only been in there a couple of months so they have to sort out which direction they want to go. We have no particular black box of any particular way we have to go, and so we're kind of standing down waiting for the to figure out strategically what they'd like to do. And our objective here is to be a good partner for them and it may well be the possibility that quite frankly,some of those portfolios we may decide to kind of collapse that third party entity between ourselves and them given the flexibility we now have as part of the new tax law changes. So, there's just there's all sorts of things we can do. And its nice now to have the flexibility to do it. And, to have the individuals that are involved in that dialogue now focused on win-win opportunities for both Sunrise and HCP.

And, the third party tenant in the middle is not sort of an impediment or doesn't require a big buy out fee?

Absolutely not.

And the gist what have you're trying to accomplish there you identified it is for both of you to sit down, identify what pieces work out well, those might be rolled into sort of again a more simplified structure where Sunrise is the true manager and the stuff that they don't do well where it might make sense for both of to you move it somebody else, to get it sold or released to another party, that's the broad generalization of what may happen.

Those are just examples. I didn't say they don't do it well.

I know.

I didn't say they don't do it well. I think for some of the lower brands, lower margin brands, their forte is the development of that build-to-suit mansion product. They do a great job there. Some of these other things quite frankly they kind of inherited or whatever got as part of other deals that's probably not their highest and best use quite frankly it's probably a distraction to their main mission. I think there's a lot of alignment we see with the new management team. We are excited about where this could go and might even involve us investing some additional money. The range of outcomes here is very broad and again to be fair I think that the new team at Sunrise have earned and deserve the right to kind of sort that out and we are having chats with them and I don't think there's anything imminent there but we are very much interested in becoming a good partner for them going forward.

Thanks.

Next question, David [Toty] with Citigroup.

Hi, everybody, just a couple of quick questions, forgive me I hopped on the call a little bit late, did you say that you planned on extending the term loan the second time.

David, no, no, we certainly didn't say that. We said that we have, it's the bridge loan I think you're referring to not the term loan.

Yes.

And that was entered into just a year ago at a one-year initial term and has six two-month extension features that are run at our options and what we said is the $3 billion is now paid down to $1 billion, which by the way we anticipate being down to 900 in a couple months time which then is kind of creates a natural hedge with our LIBOR based Manor Care investment and in that regard what we said is that we had initiated and extended the first of those two six-month extension features and that was a cost of 12.5 basis points.

Great. Then just some sort of big picture views. What's your sense of Medicaid in states such as Florida and Texas and the direction that that's going in?

We've been pretty outspoken for several years and don't watch what we say, watch what we do. We've been concerned about Medicaid real estate that has a disproportionate amount of Medicaid exposure with it and again if you go back and look, Medicare is the federal program, Medicaid is the state program. If you look at the source of state based revenues you have two big buckets, one are income tax revenues and the other are capital gain revenues. And because the property taxes are typically down at the county and municipality level. So things were going great there for several years and inevitably, there was going to be a situation in the economy and when you have a economy slow down you have job loss not job gain which makes your revenue from income tax slow down. And in light it's of what's going on with the stock market and real estate mark the prospects of capital gains transactions have deteriorated probably even further. So, I think there was a front page Wall Street Journal picture of two weeks ago where it looked at every single state in the United States and coded red those states with deficits. If you go back and look at the previous recessions that is when you can anticipate the possibility of pressure on the state based Medicaid because they've got to somehow figure out a way to balance the budget. We've been concerned about that for some period of time. We continue to be concerned about it. We are at the point now where we've got next to nothing in terms of exposure of that revenue stream in our portfolio. And that's our take on it.

Great. Thank you very much.

Next question, Chris Hayley with Wachovia.

Thank you, good morning. Jay, I appreciate your views on some of the portfolios in the Medical Office building segment that have been or rumored to be on the market, maybe thrown out into the market and none of them seem to have closed, the once we are trying to keep an eye on and I don't know if they are still on there or not, I'd appreciate your views on portfolio pricing versus single asset pricing, hurdle rates that you might have, update on MOB activity.

Let's see. We just closed on a portfolio of off campus Medical Office Buildings in Indianapolis. The cap rate on that was 6.9%. So that, in terms of transactions we've been involved in this year I think that's the only MOB transaction from a buy standpoint or sell standpoint. I'm looking at the team here. Is that right? So we have kind of a limited data point, Chris, and that's it and it just closed so it's reasonably current. Paul, you might talk a little bit about kind of return -- you might want to speak to kind of your return expectations and maybe why that's led us toward the development side of MOB as opposed to the acquisition side.

As I mentioned we actually expanded our predevelopment pipeline. We are now up to seven buildings. We are looking at doing development returns in the 8.5 to 9.25 type range and what we are trying to do is target anywhere from 200 to 250 basis points kind of where we think stabilized returns are. So we haven't been able to see portfolios trade that had the opportunities on kind of an existing portfolio basis, which has kind of led us towards move of the development side of the business.

Thank you. For the smaller package, is a closure, are there portfolio that is you're aware of or there's still some that you are looking at in your target markets?

We look at things all the time, Chris. We look at things to buy, sell and develop and are constantly viewing anything and everything that's out there and what gets us through the funnel in terms of clearing the hurdle is a very small subset of that.

And in the 8.5 to 9.25 rate of return, that is second year, third year from start, just trying to parallel your initial rate of return as about 7% on Indi., might go up from there in the SEC or third year, are you looking at 200, 250 basis points higher.

The number is it's a pro forma based on the market today of net operating income divided by cost. So if you looked at an unleveraged IRR in that type of investment you are going to be in the high nines to mid tens in the unleveraged IRR basis so that gives you a look.

On the development side?

Yeah.

Last question. Specifically on the Senior Housing and assisted living I would be appreciative of your views of where some fundamental pressures may be more evident both in terms of concessions or supply risks in the markets that you're in?

I actually think, the space is holding up remarkably well and I have personally talked with the CEO of every major housing concentration of the Senior Housing concentration in the last 30 days. And they all experienced some Q2 softness but July has gone well and move ins -- move ins are actually tracking at all time highs. In the second quarter had you move outs blip the but that wasn't because there was a lack of move ins. That's very important fact number one. Fact number two, there really has been zero in the way of any meaningful increase in supply. You have industry occupancy for our portfolio which I think is fairly representative of what's out there, of slightly over 90%. If this is a downturn, life is pretty good. I think we are increasingly hearing from our operators that they are having to get a little more creative maybe be a little more sensitive on rate in order to drive occupancy but that's kind of straight forward kind of Business 101 I would think.

From a standpoint -- the thing, that's why I'm kind of so excited about where we sit today. We've obviously, the industry has gotten stronger, the healthcare industry has obviously gotten stronger in the last several years and we got through strategic moves benefited enormously from that. The thing that gets very excited because lack time I checked people had gotten stronger as well, two of the main groups of folks that a year ago would have been bumping up against for opportunities are critically challenged right now. One obviously is the private equity side of the business where their inability to secure debt is a real challenge for their economic model and then the Senior Housing operators themselves perhaps unfairly with all the concern over residential real estate spill-over they had their stock prices clipped as well which has increased the cost of capital. On an absolute sense we are sitting here today, without a doubt in the strongest position of our Company's history. That's nice but what's really interesting is that on a relative basis, and we've kind of gaped out in terms of our competitive advantage and that's why this is so interesting to us right now. I think there certainly is some evidence that for operators that have exposure to first generation CCRCs where you've got the big down payment, which is typically sourced from the sale of primary residence I think that is clearly a sub segment that has been challenged, but that's a reasonably small slice of the overall Senior Housing industry and it's an even smaller slice quite frankly of our portfolio. And again in our portfolio we have a lot of mature communities that came through us through the American Retirement transaction. That's a quick take on what's going on out there.

Would you expect your coverage ratios at your assisted living facilities to improve over the next 12 months taking into account was commented on in terms of revenue generation and expense expectations at the operator level?

Yeah, forget about the next 12 months. Let's talk about the last three. I think Paul took you through a meaningful increase in our coverage ratios. What did they go up from.

105 to 1.19 just in the quarter. So you're absolutely seeing that.

Thank you.

Our next question connection from the line of Peter Costa from FTN Midwest Securities.

Hi Jay. You mentioned a more interesting deal environment and sounds like you thought there might be some opportunities to use the new legislation to get some windfall sort of things where you can get some increasing occupancy or whatever. Is there anything in particular that you're focused on in terms of a specific sector where you think some kind of transaction like that would be or is there anything more you want to give us about what type of transactions you're working on?

No.

In terms of size?

No.

Okay.

Nothing else I would like to give you any additional perspective on is the answer to your question.

You don't feel like the opportunity to invest in becoming more of an operator is something you are going to see more of or in in terms of the first time you were able to do that is that what you were talking about when you said more interesting deal environment.

I'm sorry, in the previous call, interesting is really, the change of competitive dynamic which make it very interesting particularly the private equity and a lot of of the operators, particularly challenged right now. That's what makes this particular interesting from our standpoint. But we are active in each of our five sectors looking at a host of opportunities and as I said I expect for the fourth consecutive quarter volumes to be sequentially down from the prior quarter but we are starting to see some signs that they become some situations out there that could become quite interesting. I want to reiterate in case people -- make sure there was no miscommunication, we are not interested, not interested in becoming an operator of Senior Housing. This tax legislation which is great from our standpoint we think is situation specific. We think it's at the margin and we think it will allow us to create a better risk reward ratio for our shareholders. But we've got some terrific operators. We've got the best operators, quite frankly, in our portfolio and the last thing we want to do is compete with them.

I see, so it's more just interesting from a deal flow perspective. Thank you very much.

Our next question coming from the line of Michael Mueller with JP Morgan. Please proceed.

Hi, just a couple questions on the Tenet restructuring. I apologize if I missed this but can you comment on the three leases that were extended and the rent levels, did they remain the same during that, the new period?

It was based on the existing contractual rent for the extensions.

Okay. So directionally did that stay flat or go up?

Stays relatively flat.

Okay. And then the rent on the lease with Hoague versus what was paying before, is it a comparable number or is there a significant change there?

We will, once that closes we are standing down until the, everything is contingent on the sale of Tarzana, which is all buttoned up from a documentation standpoint. We are waiting for Providence to clear [Hart Scott Rodino] and once those transactions are all closed which I guess will be the next call since it's relatively soon we can take you through that.

Actually the last question was on Tarzana,the proceeds from that sale, is that imbedded in the 750 million disposition guidance or does that exclude that?

Well, no, that's part of the 750. As I said we anticipate, $200 million closing in the next 30 to 45 days of which the Tarzana in a proceeds are in there. So --

Okay.

Just to be clear with the Tarzana closing and the other closing we will be right on that 750 number that we had committed to in the first quarter of this year.

Okay. Great. Thanks.

Yup.

Our next question comes from the line of Adam Feinstein with Lehman Brothers.

Yeah, thank you. Good afternoon. Just it's late in the call here so I'll just ask a couple of quick ones here. But as you were talking about looking at different asset classes earlier, Jay, I was curious as you think about it are you willing to take up your exposure, Senior Housing 40% of your total assets under management do you have a target level that you would not take that over or are you guys open to doing whatever is going to get the highest return on capital?

Well, we're prepared to do whatever it takes to get the highest return on capital. But the reality is being active in five sectors it would be hard to imagine a scenario where Senior Housing would get meaningfully above 50%. We are already at about 37%, 37% to 50% of the size company we have that's a lot of Senior Housing assets. We are active in these other sectors as well so, I don't know, you probably have a better perspective than most anybody else on the call but I happen to think the Hospital space increasingly is looking attractive. You look at the micro perspective from the performance of the two large operators we have in our portfolio and we know a lint of what's going on with the nonprofit operators given our window on their finances and profitability from our Medical Office Building plan portfolio. But my sense is that regardless of who becomes our next President I think you are going to see some form of universal healthcare coverage and I think as a result of that you are liking to see some sort of wealth transfer from the Federal Government to the hospital industry for profit and nonprofit in the form of more coverage which ought to mean less bad debt expense. So I think that's, that gets the Hospital space potentially more interesting and that may affect have bottomed in the last year or two many that's one space that we like what we've gone. We are excited as all get out to get folk the quality of Hoague in our portfolio and are actively trying to get others of that ilk into our portfolio.

Great. Thank you very much.

Our next question comes from the line of Herb Tinger with Morgan Keegan.

Thanks, good afternoon. Two quick questions. First, with the CPI now at levels we haven't seen in awhile, do you have any CPI based rent escalators without a cap?

The answer is we do have CPI based escalators. We have quite a candy store of different lease structures. Some are fixed and some are CPI and some are greater CPI and some as you heard are LIBOR based. I don't know if, Paul, you can elaborate on that.

If you look across the Senior Housing portfolio some of those do have either fixed bumps or may have caps on CPI of 4% or things of that nature and our MOB portfolio, we try and write leases where it's the greater of CPI or 3%. And we typically in our life science portfolio typically have fixed bumps in around 4% especially in our San Francisco market, but it's a mixed bag across the portfolio.

And finally, Mark, based on some of your comments earlier in the call, do you think that interest and other income line will go back to the $34 million to $35 million level in the third quarter?

Well, I think the interest and other income line will go back to that level probably in the fourth quarter. Keep in mind that I think that the gain on Tenet will also run through the interest and other income line in the third quarter.

It actually might go up.

It actually might go up. So your question is, I think once we get, without any noise in the numbers like we had this quarter or had with Tenet in the third quarter on the effective date, I think 34, 35 is the kind of a normal.

It's kind of a normal right.

The two biggest drivers of that line are the Manner Care and HCA.

Right.

Thank you very much.

Our last question comes from the line of Jim Sullivan with Green Street Advisors.

Thanks, just a couple of quick follows on the MOB development, Paul. When you under right your development deals, what sort of time frame are you underwriting with respect to stabilization? That is, how long between completion of the building and the time you achieve your stabilized yield?

It's really a function of the preleasing that we have, Jim. A lot of times we like to be 50% preleased. So what we will typically do depending on the market and size of the project we'll go anywhere wherever 18 to 24 months after completion to get the building stabilized.

And your preleasing philosophy does that differ depending on whether it's on campus or off campus.

I think it's really a function -- the size of the building also factors into it, but the more we can get the best the transaction we think that we have but in certain situations especially if we have a track record we might go that number and have done so in the past.

In normal writing and leasing conditions would it ever take three years to stabilize an MOB development?

It's been very rare for us to take that long.

Okay. Great. Thank you.

There are no further questions. I would like to turn the call over to Jay Flaherty, Chairman and CEO for closing remarks.

Thanks, operator. Thanks everybody. Enjoy the rest of your summer and for those of you that will be in Chicago at Nick if five weeks we look forward to catching up with you then.

Thank you for your participation in the second quarter 2008 HCP earnings conference call. This concludes the presentation. You may now disconnect. Everyone have a great day.