Healthpeak Properties Inc (PEAK) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter and year end 2008 HCP earnings conference call. My name is Chanel and I will be your coordinator today. (Operator Instructions). Now I would like to turn the presentation over to your host for today's conference, Mr. Ed Henning, HCP's Executive Vice President and General Counsel. You may go ahead, sir.

Thank you, Chanel. 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, 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 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 supplemental information package and earnings release, each of which has been furnished to the SEC today and is available on our Web site at at www.hcpi.com. I will now turn the call to our Chairman and Chief Executive Officer, Jay Flaherty.

Thanks, Ed. I am join this morning by our Chief Investment Officer, Paul Gallagher, and Chief Financial Officer, Mark Wallace. Let's start with a review of our fourth quarter results and for that I turn the call over to Mark.

Thanks, Jay, and good morning. 2008 was a very successful year for HCP, as we restructured our tenant healthcare portfolio, completed the transfer to Emeritus of 11 senior housing properties, substantially deleveraged our balance sheet and delivered FFO growth of 5%. We were pleased to be added to the S&P 500 index and closed out 2008 with our credit metrics in very good shape.

Last year we generated net proceeds of over $2.4 billion. We raised $1 billion of equity capital, $656 million of proceeds from asset dispositions, $563 million from the placement of attractively priced Fannie Mae secured debt and $200 million from the senior unsecured term loan with just closed in the fourth quarter. Our overall leverage ratio stands at 48%. Our secured debt ratio stands at 15% and our unsecured leverage ratio at 51%. We are comfortably within all financial covenants our credit agreements.

For 2009, our debt maturities include our bridge loan with a balance of $320 million, that matures on July 30, 2009, and $155 million of mortgage debt. For 2010, our debt maturities and amortization total $505 million, and are comprised of $206 million of senior unsecured notes and $299 million related to do mortgage debt. Our institutional joint ventures have no debt maturing until 2013 and only $13 million to $14 million of mortgage debt amortization in 2009 and 2010.

While floating rate debt represents 14% of our total debt, our Manor Care investment more than offsets that amount. At close of business yesterday, we had $32 million of unrestricted cash and our $1.5 billion revolver, which matures on August 1, 2011, had only $121 million drawn.

Investment activity for the quarter was principally focused on our life science segment. We funded $31 million of construction and capital projects this quarter, bringing our total fundings to $158 million, the core and shell of Oyster Point II, buildings A and B, comprising 251,000 square feet, were completed in the fourth quarter of 2008. Rent commenced in the fourth quarter on building A and the first quarter of 2009 on building B. Rent recognition under GAAP will be deferred until related tenant improvements are complete. We also completed the core and shell in Oyster II, building C, comprising 78,000 square feet in the fourth quarter and continue to actively pursue tenants.

Turning now to our fourth quarter earnings, our results included several items I want to take a moment and walk you through. In December, we transferred 11 senior housing properties from Sunrise to Emeritus and recorded a related impairment charge of $12 million or $0.05 per share associated with intangible lease assets, as we discussed on our last call. We also recorded other real estate related impairment charges this quarter of $2 million or $0.01 per share, principally related to a separate lease termination and expected disposition.

Last, we recognize a loss of $5.6 million, or $0.02 per share, related to marketable securities and hedged ineffectiveness. These costs were partially offset by a gain of $2.4 million in the quarter, as we were able to negotiate the early repayment of $120 million of debt at a 2% discount. This gain is reflected in interest and other income.

For the fourth quarter of 2008, we reported FFO per diluted share of $0.48 compared to $0.54 for the same period in 2007. In the aggregate, the items I just outline amount to $18 million which includes impairment and merger related charges of $14 million. This compares to $4 million of merger related charges in the fourth quarter of 2007. Same property cash NOI growth through the fourth quarter was 1.6% led by life science 19%, skilled nursing at 2.7% and senior housing at 1.5%. Our life science same property cash NOI growth continues to be driven by the lease up of our Sorrento Summit Campus in San Diego.

Senior housing, same store cash NOI growth, also reflects additional rents of $7.5 million from property level expense credits related to our Sunrise properties. Same store cash NOI for the prior year included credits of $3.1 million. These credits however, were offset by a reduction of $2.9 million in Sunrise rents which fluctuate with LIBOR interest rates and $2.4 million of additional rents received and recognized in the comparable 2007 period that related to 2006 property performance.

Regarding guidance for 2009 we expect to -- we expect reported FFO to range between $2.15 and $2.21 per diluted share. Our guidance for the full year includes the following key assumptions. We expect to fund about $150 million in construction and capital projects this year, principally in our life science and medical office sectors, asset disposition for the full year are expected to be about $45 million with gains for GAAP earnings on these assets of about $35 million. Our investment management platform should generate $6 million in fee income. Same property cash NOI growth is expected to be 2.5% to 3%, G&A should be $72 million, or roughly 6.2% of total revenues, income tax expense is expected to be $5 million for the full year.

And last,our guidance for 2009 contemplates no additional acquisitions of real estate or debt investments, no contribution to the assets into joint ventures and excludes impairments or similar charges, if any. I'll now turn the call over to Paul.

Thank you, Mark. Before I go into details of our portfolio, I want to highlight where we stand on our portfolio lease expirations for all sectors in 2009 and our projected same store NOI growth for 2009. Revenue from leases scheduled to expire in 2009 total $70.1 million and represent 8.4% of total portfolio revenues. Of these, we have renewed or released space that will reduce our exposure to 6.2% of the portfolio revenue. 79% of the remaining exposure is in our MOB space, where we historically seen 75% to 85% retention rates. Cash NOI growth from our same property portfolio in 2009 is expected to range from 2.5% to 3%. X the effect of the Hoag rent relet, our hospital same property cash NOI performance is expected to be flat in 2009.

As I go through the portfolio in more detail, keep in mind senior housing data reflects on a pro forma basis the transfer of 11 properties from Sunrise to Emeritus for the full year, but closed effective December 1, 2008. Senior housing. Occupancy for senior housing portfolio is 89.3%, representing a 40 basis points decline quarter over quarter and as the fourth consecutive quarterly decline. Preliminary data from the fourth quarter indicate occupancies for our largest operators, Sunrise, Brookdale and Emeritus, which represents 73% of our units is 89.6%, 90.8% and 89.1% respectively, with cash flow coverages of 1.0, 1.1 and 1.2 times, respectively.

EBITDAR across our portfolio -- across our senior housing portfolio remains stable, as operators focus on generating more ancillary revenue and implementing expense controls. Cash flow coverage has increased year-over-year from 1.06 times to 1.17 times. Our senior housing year-over-year same store cash NOI increased 1.5%. Breaking it down, senior housing, excluding Sunrise, increased 6% driven by contractual rent escalator and the restructuring of our HRA portfolio.

Sunrise experienced a 6.2% decline, due primarily to the timing of recognition of 2006 additional rents in 2007, as well as a reduction in LIBOR based rents. We anticipate same property cash NOI growth for the senior housing sector to range between 1% to 2%, impacted by the transfer of 11 properties from Sunrise to Emeritus. The transaction was structured with slightly lower rent in the first year, as Emeritus transitioned the assets. Rent will then, increase 11% on an annualized basis for the next four years. The transition from HCP Sunrise to Emeritus went smoothly with no impact on occupancy, revenue, employees or residents. The properties have been fully integrated into Emeritus and after 60 days, Emeritus remains extremely positive that the properties will meet their forecast. One significant change made by Emeritus, an increase in marketing the significant component as a short term rehab option. This has boosted Medicare occupancy and has converted the SNF component into a feeder for the remaining of the facilities.

Our near term leasing risk in senior housing consists of only one lease set to expire in 2009, with annual rent of $72,000. We are currently in negotiations to sell the facility to a local operator. We also have two loans to two operators that are due in 2009. We are discussing terms for extensions.

Hospitals. year-over-year cash flow coverage excluding our low performing HCA Hospital at Medical City, Dallas, was 2.58 times. year-over-year same property cash NOI declined 1.6% which includes a facility where we've terminated the lease and have negotiated terms to sell the asset. Excluding this facility, same property performance would have increased 1%.

Same property cash NOI for hospitals will decline between 10% and 11% as a result of providing short term rent relief at our Irvine Hospital to the new tenant Hoag, while they invest $40 million to reposition the facility. Excluding the rent relief, same property NOI for hospitals will be flat.

The sale of our Tarzana Hospital in the third quarter, the planned sale of our Los Gatos Hospital to the primere Bay area at not for profit, El Camino Hospital, and the transition of Irvine to Hoag, result in a reduction in tenants concentration of NOI and interest income from 6.5% in 2007 to just 2.9% projected in 2009. Our near term lease exposure consists of our Irvine Hospital which has been addressed with our new lease to Hoag, commencing February 20, 2009, and two rehab hospitals in Texas and Louisiana, where the current operator is on holdover as we transition to a new operator. Skilled nursing.

Our skilled nursing portfolio continues to perform well. year-over-year cash NOI increased 2.7%, driven by contractual rent increases and cash flow coverage remains stable at 1.51 times. We are forecasting continued stability in our skilled nursing portfolio in 2009 with same property cash NOI growth ranging from 3% to 3.5%. Three leases with the same operator are set to expire in 2009 with an annual rent of $1.3 million. However, we have reached an agreement to renew all three leases, when loan receivable will come due in 2009 which we expect to extend at current terms. For our HCR Manor Care investment, year-to-date debt service coverage was 1.99 times with occupancies remaining stable at 88%. Preliminary indications for the fourth quarter reflect stable occupancy and debt service coverage exceeding two times. In addition, the Company indicates census growth has been strong in the early part of the first quarter of '09 and is running significantly ahead of fourth quarter '08 levels.

Medical office buildings. Occupancy for the fourth quarter was 90.3% with 2008 annual same property cash NOI up 1.3% on the year-over-year basis. This was driven by increased cost recoveries and contractual rent increases but was offset by the expiration of four master leases. On the expense side, savings as a result of positive appeals on property taxes and reductions achieved in our insurance program were offset by increased utility costs, which were primarily the result of rate increases in Texas. We negotiated new utility contracts in Texas which will result in rate reductions of 33%, effective the first quarter of 2009. In 2009 we expect same property cash NOI growth to range from 2% to 3%.

Our MOB portfolio has begun to experience some positive trends in leasing where tenants who had previously informed us they were vacating in anticipation of occupying space they would have had an owner interest in, now are extending or renegotiating their leases with HCP. In fact, the combined square footage of executed leases where the tenant has not yet taken occupancy and deals in active negotiations has increased from 645,000 square feet at the end of the third quarter, to 880,000 square feet at the end of the fourth quarter. This is coupled with the fact that we have 500,000 square feet less, or 17% to lease in 2009 versus 2008. Thereby significantly reducing our releasing exposure. During the fourth quarter, 161 executed leases totaling 440,000 square feet took occupancy of which 101,000 square feet related to previously vacant space and the remaining 339,000 square feet related to renewal of previously occupied space. These renewals occurred at 3.5% higher rents.

Our leasing activity during the quarter resulted in a retention rate of 74%. This is down slightly from previous quarters due to an 85,000 square foot tenant vacating in the quarter. For 2009 we have 2.1 million square feet of expirations, which includes 350,000 square feet of month-to-month leases and as previously ,mentioned it's 500,000 square feet less space to lease in 2009 than 2008. Our current pipeline of leasing activity includes 320,000 square feet of executed leases and 560,000 square feet of active negotiations.

Medical office redevelopments include an 84,000 square foot property in San Diego, California and a 92,000 square foot property in Sacramento, California. The buildings will be converted from single tenant use to multi-tenant MOB use. Both redevelopments are scheduled to be completed in the third quarter of 2010.

We have executed agreements to develop two properties in Colorado and Texas totaling 156,000 square feet with a projected cost of $33 million. Commencement of the construction is contingent upon certain preleasing thresholds which we anticipate achieving in the second quarter. During the quarter, we completed the sale of two medical office buildings previously classified in discontinued operations totaling 100,000 square feet for a gross sale price of $7.5 million, and recognized a gain own sale of $600,000.

Life Science. Occupancy for life science portfolio was 91.1% at the end of the year, up 2% sequentially from 89.1% at the end of the third quarter. The increase in occupancy was driven by activities in the Bay area consisting of new recommencements of 46,000 square feet and placing three buildings in south San Francisco and to redevelopment. Life science same property portfolio included 13 assets and cash NOI was up 19% year-over-year, primarily driven by the repositioning at our Sorrento Summit buildings. Beginning in 2009, life science same property portfolio will include 93 assets, including all the legacy SEUSA assets we -- and we expect same property cash NOI growth to range from 12% to 12.5% in 2009.

During the fourth quarter, we completed approximately 392,000 square feet of leasing of which 278,000 square feet related to long-term 15-year lease renewals with ARUP, an affiliate of the University of Utah in Salt Lake City. The remaining 114,000 square feet related to five new and renewal deals across several of our northern California submarkets. Approximately 97% or 382,000 square feet of fourth quarter leasing activity related to previously occupied space resulting in mark-to-market increases of rents in excess of 20%.

Our life science portfolio has limited lease explorations over the next two years. Lease expirations in 2009 total 464,000 square feet and represent only 1.2% of HCP's annualized revenue. We have already addressed 165,000 square feet or 36% of the expirations through 2009 at mark-to-market increase in rents of 32%.

Looking further in 2010, we have 560,000 square feet of expirations which represent only 1.5% of HCP's annualized revenue. We have already addressed 132,000 square feet or 24% of 2010 expirations at mark-to-market increase in rents of 7%. HCP continues to pursue a pipeline of leasing prospects in excess of 400,000 square feet for existing space. Despite the size of the pipeline, the deals we've seen recently have been shorter in term with protracted negotiations, as decision makers remain reluctant to enter into new long-term commitments.

Switching to our redevelopment and development activities, work began in September on 500 and 600 Saginaw, at Seaport Centre in Redwood City, California, representing two properties totaling 98,000 square feet. Redevelopment plans including $6 million connector between the two properties as well as other improvements to convert these buildings for life science market. The redevelopment continues to be scheduled for completion in the fourth quarter of 2009.

During the fourth quarter, we began the redevelopment of three buildings and in a project known as Modular Labs Four in the Bay area. Upon completion, the project represents 97,000 square feet of space that will be converted from office industrial to first generation life science space. These buildings will provide HCP with additional space, targeting small to medium life science users in the south San Francisco market and is scheduled to be completed in the third quarter 2010.

HCP has eight buildings totaling 500,000 square feet in our committed development -- redevelopment pipeline. Two of these buildings representing nearly 50% of the developable space are 100% leased to Amgen, where cash rent has recently commenced, but tenant improvements remain to be completed.

We continue to monitor the underlying credit and liquidity profile of our tenant base. As previously discussed, the composition of our tenant base is strong with almost 90% of our rents coming from public companies or well-established private entities. With that review of HCP's portfolio, I'd like to turn it back to Jay.

Thanks, Paul. As this was our quietest quarter in several years, I will make a couple of comments and open it up for questions. Before doing so however, I did want to offer congratulations to George Chapman and his team on the occasion of Health Care REIT's addition to the S&P 500. This is a significant accomplishment and hopefully, one more step towards healthcare real estate being designated as one of the major food groups instead of being burdened with the label of specialty slash other.

I begin with a perspective on our five property sectors. One, skilled nursing now represents 10% of our portfolio, with 2% in the form of owned real estate and 8% representing our HCR Manor Care investment. The operating lease portfolio covers at 1.47 times after management fees. For 2009, we anticipate same property cash NOI of between 3% and 3.5%. As the government's current fiscal year runs through September 30, we have had very good visibility on the near term reimbursement outlook and it remains favorable. I will have more to say on HCR Manor Care in a minute.

Two. Hospitals account for 9% of our portfolio with our HCA toggle note investment representing 2% of that amount. This sector was significantly reshaped during 2008, as the completed restructuring of our tenant hospital portfolio resulted in transitioning our three California properties, with the transfer of our Irvine campus to Hoag Hospital, the sale of Tarzana Hospital and the pending sale of Los Gatos Hospital. Our guidance for 2009 assumes a negative same property cash NOI result of between 10% and 11%. This is misleading, as this incorporates the impact of rent concessions at Irvine Hospital in exchange for a $40 million investment by Hoag in our property and the execution of a 15-year lease agreement. X the effect of the Hoag rent relet, our hospital same property cash NOI performance is expected to be flat in 2009.

HCA is our largest exposure in the hospital space via one, their tenancy in our MOB portfolio. Two, our Medical City, Dallas campus which they operate. And, three, our mezzanine investment in HCA's toggle notes. Last week HCA reported a good fourth quarter with positive volume growth and growing EBITDA, the result of strong cost controls and healthy pricing. At year end HCA had $465 million in cash and $1.8 billion of availability under its line of credit. Sufficient liquidity to address maturities through 2011. HCA elected to begin ticking their toggle notes effective January 1 of this year, resulting in an additional 75 basis points of consideration to the holder of these notes. The market price of these bonds has rallied nicely since year end.

Three. Life science represents 25% of HCP's portfolio. This portfolio was 91.1% occupied at year end. For 2009, we anticipate same property cash NOIs of between 12% and 12.5%, reflecting the strong leasing success achieved since it was acquired in August of 2007. Our two lean exposures in this space, Amgen and Genentech, are not only performing exceptionally well, but also recently the subject of great interest on the part of Big Pharma.

Four. MOBs represent 19% of the Company and are performing nicely despite the current economic climate. Occupancy remains steady at 90.3% and we anticipate same property cash NOIs growing between 2% and 3% in 2009. Aside from HCA, our MOB tenancy includes high quality nonprofit hospital systems such as Swedish Medical in Seattle, Norton in Louisville, Ascension in Florida and Memorial Hermann in Houston.

Five. Senior housing constitutes the remaining 37% of HCP's portfolio. Paul has detailed the current headwinds for the sector, which have resulted in 150 basis points of occupancy decline year-over-year. However, with industry occupancies between 88% and 90%, a lack of significant new supply and the steady growth in demand from the aging baby boomer, the intermediate to longer term outlook for this sector is very attractive. There's an inordinate amount of misinformation in the marketplace regarding the performance of HCR Manor Care. If one were naive and made the assumption that there existed no investors with nefarious motives, one might conclude that a lack of transparency has created this misinformation and that this lack of transparency is understandable given the privately-held nature of HCR Manor Care with no outstanding publicly traded debt. Like, for example, HCA. The misinformation has helped to create investing opportunities such as trading in HCP's credit. I will now provide you with accurate information.

One. HCR Manor Care's overall performance in 2008 continued to be exceptional, the best in the industry. In 2008, the Company enjoyed a double-digit increase in EBITDA. Cash flow from operations was $200 million better than original projections. During 2008, $150 million in debt was repurchased or repaid. And the Company ended 2008 with over $300 million of cash on its balance sheet.

Two. For 2009 the Company's operating metrics are continuing at or near record levels and significant growth in earnings for 2009 is expected, assuming moderate reimbursement increases. Capital expenditures have continued at the same level as when the Company was public with 20 upgrades or expansion projects under way.

Three. Our debt investment has a five-year maturity. As HCR Manor Care continues to rapidly deleverage and grow its earnings, the Company's net leverage at maturity will be very manageable, providing it with multiple refinancing alternatives. These would include various debt sources, HUD financing refinancing or selling new equity. In the interim, HCP takes great comfort in knowing that Carlyle and the management team have $1.3 billion of invested equity below us.

Let's leave reality for a moment, travel to a land far, far a way and assume that the equity of HCR Manor Care is worth zero. What would that mean for the HCP's name shareholders? HCP's position in the capital stack provides that the OpCo debt and equity are structurally subordinate to the payment of the master lease. Giving effect to our purchase at 90% of par, HCP's investment yield would represent a 14.5% unlevered current cash return for the premiere portfolio operated by the premiere management team in the industry. However, returning to reality now, the probability of this scenario occurring is comparable to the possibility that Stanford will be hosting Notre Dame in next January's next BCS Championship game.

The 2008 success we had in delevering our balance sheet and minimal near term debt maturities positions us nicely to be opportunistic with our capital. An example of this was the early pay off of a January, 2009, $120 million debt maturity in December at a discount of $2.4 million. Such as recent positive outlook of HCP's credit metrics is further evidence of our success in this regard.

We move into 2009 with nearly 100% of our repositioned portfolio classified in same property cash NOI calculations for the first time. In a sense, 2009 is the coming out party of the multitude of investment decisions HCP made over the past several years. We have reset the portfolio with less than 25% of the Company's 2005 portfolio remaining today. We have reset the balance sheet to our best leverage metrics in three years by accepting $0.14 per share of dilution in 2009 versus 2008, from the impact of our 2008 asset dispositions and equity issuances. And we have reset a baseline earnings platform comprised of a stable diversified portfolio of high quality operator tenant relationships with limited lease expirations and minimal government reimbursement exposure. Our active Asset Management program represents additional earnings upside with negligible capital outlays.

Adjusting for the impact of the 2009 rent concessions at our Irvine Hospital, HCP shareholders are the fortunate beneficiaries of just under $1 billion of net operating income with same property cash NOI expected to grow between 3.5% and 4% in 2009. I am hard pressed to identify another real estate portfolio of scale with as positive a 2009 outlook, aside from the real estate currently dedicated to serving Big Macs. With that, we would be delighted to do take your questions. Chanel?

(Caller Instructions). Your first question comes from the line of Jay Habermann from Goldman Sachs.

Hey, Jay, how are you?

Great, Jay, and yourself?

Good. Could you start, I guess, with the -- you indicated $0.14 of dilution for '09 from the deleveraging and the equity issuance and I guess as you stand today you talked last year, maybe asset sales could have reached $750 and you hit $650. But perhaps, some thoughts on additional asset sales and even further deleveraging, do you see that as a possibility as you move into the year, or is it really more about the increasing NOI and actually looking at opportunities as the year progresses?

With respect to anticipated asset dispositions in 2009, the key assumptions that Mark took you through had $45 million in total for 2009. That's our pending sale of our Los Gatos Hospital, the last piece of the triumphert of California properties that we moved away from tenant. That has a related gain by the way, of $35 million. That's all we've got in the plan. We moved -- stepping back, if you go back to '07, we obviously moved very aggressively in the first three quarters of that year and added significant strategic portfolios to our Company. These included the Slough investment and the Manor Care investment. And Medical City, Dallas. As we've talked in the past, right about the third quarter of '07, kind of the bell went off as far as we were concerned and we moved aggressively into a very active disposition mode. We are fortunate that we have that completed. The one transaction that hasn't closed which we anticipate it closing in April of this year is Los Gatos. Away from that we wouldn't anticipate much, if any, in the way of dispositions. We really -- we've done exactly what we wanted to achieve with our portfolio across the five sectors and more importantly, within the five sectors. We love the partnerships we have with the operator tenants and we are quite content now to grow those operator tenant partnerships within the five sectors separately and this isn't the reason, but just anecdotally, we don't perceive this to be a very attractive market to be doing any more dispositions in -- given the choppiness in the capital markets. So I think the baseline that everybody ought to take from this is that with respect -- with the exception of the Los Gatos Hospital we are really not anticipating any other dispositions. That said, we are between the equity issuances, the two equity deals we did in '08 and the dilution from those asset dispositions netted again the interest savings. That's about a $0.14 Delta in '09 versus '08 and then furthermore, if you go back and look at '08 and add up just the gain that we reflected on the successful tenant settlement, as well as the early lease termination we had up in the East Bay in the third quarter, and the gain we just had on the piece of debt we retired early, that's about $0.19 of what we would characterize as more one time items that were all in the '08 FFO. So you take those two together and that drives on top of the 3.5% to 4% same property cash NOI growth assumption for '09. That drives our guidance that we went out with this morning.

Maybe just turning to senior living,you mentioned obviously, the pressure on occupancy? Can you just give us -- you mentioned obviously, longer term you continue to be positive. Any sort of concerns here shorter term? And I guess, with the transition, the 11 facilities to Emeritu,s could you see more of those types of transactions?

The first question, do we have concerns? You bet. We are watching this space like a hawk, kind of weekly if not daily depending on the operator. Mr. Gallagher is chuckling. Discussions in terms of where they stand relative to their business plan, their operating model, in some cases their capital structure. So, sure, we continue to be concerned. We are watching it very carefully.

Not withstanding that, I think if you go back and look at the first part of this decade, which was the last time the space had gotten itself into some hot water, you had industry-wide occupancies in the low 70s, an avalanche of new supply that had to be absorbed, which really took the first half of the entire decade that we are in to absorb all that. If you compare just those, occupancy and supply demand situation, to where we are now at the end of the decade, we are certainly bucking up against some strong headwinds here. But we are still kind of high 80s, in terms of occupancy. There is very, very little supply coming on and I would suggest that there would be next to nothing in terms of new supply that's able to be financed in the next couple of years. I think when we come out of this whenever it is, two, three years out, this is going to be just a wonderful business and we are very excited about the intermediate, forget about long-term, the intermediate prospects of this space. I'm sorry, your second question, Jay, was what?

You know, in terms of just obviously on the near term and then we are focusing on longer term prospects, but I was going to switch actually in terms of pricing, because you mentioned four sellers? And I'm just curious what sort of opportunities you are seeing, not willing to sell today but maybe looking at opportunities with four sellers?

Yes, you know, the -- you haven't seen a lot yet and I really think that goes directly to the strength of the healthcare sector. And yesterday's journal, the front page of section C they talked about the profit picture remaining ugly and they went through every sector. And the only sector that was showing '09 estimates up from '08 was healthcare. And the -- I kind of poke my head up now and then and look at a lot of different businesses and things like that. I tell you in terms of a portfolio of scale plus or minus $1 billion of cash flow, I'm sure I'm missing something, but the only one I know out there that's got a fundamentally better '09 outlook would be McDonald's. So we are feeling very fortunate. I think I started the last call with a quote from the S&P chief economist talking about the likely demand for healthcare generally, as a necessity. I think that's driving -- that's driving absolutely the formulation of our '09 business plan as well as the continued aging of the baby boomer. So we wouldn't -- particularly if you take a look at the other spaces, the key drivers that are really walloping what almost across the board are projected NOI decreases in '09 versus '08, we would not trade our space for any other space in the world. Period. Full stop.

And actually, just back to the senior living, the second part of it was really more on the Emeritus. The further transitioning, if anything were to happen shorter term. Are those opportunities still available with other operators either private or public?

Yes, well, you got, -- there's two sides to the equation, right? You've got to have the supply of properties that might have some upside embedded in them because it's quite possible, as we've seen in the Orius transfer to Emeritus that there are efficiencies to gain by transitioning some of those portfolios. So you need that side of the equation and then you need the other side of the equation. You need to have a collection, small, greater than one, less than five, of key operating partners that you could quickly transition these things, these communities to. And have the confidence that they are going to hit the ground running, there is not going to be any blips in terms of the transition because we are talking about seniors here and they are near and dear to everyone's heart including ours, so I take both sides of that equation.

The first side of that equation, the potential supply, as we've talked on previous calls, the non-mansion component of our Sunrise portfolio might very well set itself up as a portfolio of some communities that would be good candidates to transition. And then if you take a look at our existing operator partnerships, where we've got very, very significant critical mass with folks like Emeritus and Horizon Bay and Atria and Aegis and Brookdale. We believe we could effect those additional transitions if that opportunity presents itself very, very quickly and we feel quite frankly, emboldened with respect to the opportunity, given the enormous success that we've had with the one portfolio that we've transitioned to Emeritus.

Great. Thanks.

Your next question comes from the line of Michael Bilerman of Citi.

Good morning, it's David Toti on the line. Jay, just a question, can you remind us how much is ahead of the Manor Care investment in terms of the capital structure?

We've got an OpCo PropCo set up, so we are -- we own the first loss piece in PropCo. The total -- the total capital stack at face value for PropCo was $4.6 billion at the time of the buy out. As I mentioned we acquired our position at a discount of 10%, so we bought our first loss position at $0.90 on the dollar. And then you've got OpCo, which has been the beneficiary to date of the early debt retirements. given the strong cash flow of the platform.

I know it's a little bit early, but have you had any discussions about refinancing scenarios or extensions?

I think I've just spoken directly to the that. it's a five-year piece of maturity. We are coming up on one and a half years into it, which means we have about three and a half years, a little bit over three and a half years remaining. at the rapid rate in which the company is delevering, they will have a variety of refinancing alternatives available to them.

Just moving over to the recent transition of assets to Emeritus, are there any near term plans for additional transfers?

Not beyond the answer I just gave you to the previous question.

Okay. And then lastly, relative to life sciences, can you give us an approximate yield expectation for some of that redevelopment spending?

Sure. Paul?

On incremental dollars we are probably going to be in the neighborhood of about 12% or so.

Great. Thank you.

Your next question comes from the line of Jerry Doctrow of Stifel Nicolaus.

Good morning out in California. Just a couple of things and maybe Jay to start. One of the things I didn't hear when Mark went through the assumptions on the guidance was just what you were assuming about your debt structure and I want to do get a little clarity on that. But also, just get your thoughts of how you see yourself recapitalizing over the intermediate term. Does the stuff get rolled on to the line, how do you kind of repay or reset some of this maturing debt over the next couple of years?

I think the quick way is we recapitalized the Company, as I said. I think in my comments as I said we reset the balance sheet to --

Right, but you've got like $600 million roughly next year -- this year, $500 million next year, so --

Actually that included the piece of $120 million of debt that we prepaid in December, so we are down to just $480 million of debt maturities in '09 and about $520 million in 2010. Those are the numbers that I think Mark shared.

Okay.

So I think, ace case if we turn out the lights and go to Mexico, the line is very substantial and that's certainly there. That would not be our intent. If you go back and look at the $8.5 billion of proceeds we've raised in the last 24 months, you will see that much like the composition of our real estate portfolio, which is diversified not just cross five property types but across five investment products, we've got multiple sources of capital. In the last two years to generate that $8.5 billion, we've gone to the equity markets, we've used down REITs, we've used unsecured debt, we've used secured debt, we've used joint venture transfers and we've used asset dispositions. So one of the things that we are cognizant of and one of the things the rating agencies are comforted by is we always have multiple buckets. We never want to be in a situation where we have just one avenue to pursue in terms of an execution.

If I look at where we sit today ,several of those buckets remain open. They would include equity issuance, down REITs, secure debt and the joint venture transfers. I've already commented in answer to an earlier question, I would not be expecting asset dispositions to be a primary driver next to nothing in terms of driver there. and quite frankly, I think the unsecured debt markets for REITs are badly broken at this point. So we certainly have in terms of how we are looking at our buckets we certainly have nothing, nothing in that bucket.

So we are going to continue to look at attractive secured debt opportunities. I think near term. We've in the last two years now, we've raised $1.5 billion via Fanny. Those would relate to senior housing assets. The preponderance of our Sunrise portfolio is now largely unencumbered. In fact, the early prepayment in December of the $120 million was secured debt on a Sunrise portfolio. So that allows the possibility for a tremendous amount of additional secured debt there were we to go that route. If you just take a look at where the capital markets in terms of unsecured debt new issuance in the very young 2009 at this point, one month in, you will see it completely dominated, Jerry, with issuance by Big Pharma and Big Biotech. Novartis did a $5 billion at the end of last week, Amgens has come to market with $1 billion. Obviously everything isdwarfed by the Pfizer-Wyatt deal. So there's tremendous demand on the part of fixed income investors for Big Pharma and Big-Cap Biotech.

Fortunately, with life science now representing 25% of the overall Company with the majority of that with names like Gentech, Amgen, Pfizer, Takeda Pharmaceutical and all of that real estate totally unencumbered, that becomes a very interesting opportunity for us as well. So near term I think, secured debt is interesting. The joint venture transfers are something I personally spend an inordinate amount of time in the last couple of months on. We probably will use that more to play offense. There's a fair amount of availability out there, with obviously much higher return expectations than the profile of the existing joint ventures partners that we have. That's okay because we have much higher return expectations in the current market as well. And then that will be more inter-short term if you think out intermediate term kind of 2012, 2013. We will be the beneficiaries of our two mezzanine loan investments maturing which will also free up a significant in excess of $1 billion of capital to match fund maturing and secured debt maturities out in 2013, 2014. So, again, the composition of the buckets is different but we're in the very fortunate position of having multiple buckets to pursue.

And I guess I wasn't even so much worried that you weren't going to get it done in one way or the other, but just in terms of your guidance, do you assume any change sort of in debt costs compared to what you've got right now.

I think the baseline on the '09 guidance would be that we've been very conservative and just assume that we take anything that's maturing this year net of the asset disposition we talked about down on our line of credit.

Okay. And then just one last thing I have, is just I would -- I was wondering if you could get some sort of Capex TI guidance going out, maybe '09 and even in 2010 if you've got it. It jumped about $15 million this quarter, it was running sort of$ 12 I think, in the third quarter, this may be a Mark question. And just trying to get a sense of, because it's an issue for us in terms of fad, where you think that Capex TI spending might be.

Our forecast for 2009 for that number is $38 million.

Okay. And it just various I guess somewhat with the delivery of new space and that stuff?

Yes, that's correct. I think in '09, I think you will see it, just in terms of the quarterly reg you will see it start in the first quarter in of about $10 million, probably go up, probably stay there and go up slightly in the second quarter and then come back down to about $5 million in the fourth quarter.

That $38 million, is that all life science or is some of that medical office?

It's some of both.

Okay. And then in just in terms of, I mean in the absence of anything else dramatic, is that sort of a run rate going forward in term of deliveries in 2010 or whatever might move it one way or the other, if you have any feel for that?

I would assume that that number in 2010 will ramp down further.

Okay. Okay.

In the absence of anything else.

Right. Okay. Thanks. That all for me.

Your next question comes from the line of Mark Biffert of Oppenheimer.

Good afternoon. Related to your life science portfolio, Jay, can you talk a little bit about what you are seeing -- I mean you've given guidance of roughly 12% to 12.5% NOI growth. Is that based on just what you currently have leased or how much incremental leasing do you have to do to achieve that?

Zero.

Okay. And what are you seeing in terms of additional appetite for more space in south San Francisco and San Diego?

Well, I think Paul kind of made some comments about the fact that the decision-making process is being elongated and there is interest in kind of shorter term maturities. So I think that's perfectly understandable and when we visit with our colleagues on the office side of REIT and we see similar sorts of thing. It will be interesting to see what plays out on Roche-Genentech. Roche has substantial research activities on the east coastal in Nutley, New Jersey, and they've talked about effecting a fair amount of synergies were that deal to go through. And one of the things being bantied about would be a consolidation of their research activities across the states up in south San Francisco. So we are watching that. We like our position very much and we think it's a great space, particularly the way we've elected to do play it with the bigger cap companies and the companies that have commercially viable drugs that are actually making money and we are waiting the situation very carefully.

Okay. And then jumping over to the senior housing portfolio, Paul, you mentioned that you had a negative impact from some LIBOR based rents with I think, it was Sunrise. If it should happen that Sunrise' assets gets transferred to another tenant, do you have any other tenants that use those type of leases or is that simply with Sunrise?

It's simply with Sunrise.

You should assume that were those among the communities transferred, you would no longer see LIBOR based rents with HCP going forward. Those are ones that we inherited from the C&L transaction.

And lastly, the impact of the concessions you gave on the Hoag Hospital. I'm just trying to quantify that in terms of assets for a good run rate as we look out beyond '09. Can you quantify that, Mark?

Say your question one more time?

The concessions that you gave to Hoag for the first year, you were expecting a 10% to 11% decline in NOI in the hospital area. Can you quantify that in terms of the impact on FFO for '09?

Great question, very appropriate question. Let us close the lease which closes in a week and I suspect we will be able to have the same data that we provided when we redid the lease on the portfolio that was transferred to Emeritus. You will have that at the next quarter call.

Okay. Thanks.

Your next question comes from the line of Michael Mueller of JP Morgan.

Yes, hi. Let me see, most questions have been answered but a couple, a couple housekeeping items here. Mark, you talked about Capex assumptions? Can you clarify FAS 141 straight line rent run rates, just tell that -- how that should shape up in '09?

Sure, our forecast includes straight line rent -- let me just rundown a few of the items. We've got straight line rent forecasted to be $50 -- $51 million, we have stock-based compensation to be $15 million, debt issuance cost amortization of $9 million, we've got interest accretion of $27 million, and then you've got revenues that we are deferring because of tenant improvements, okay, cash that we received but revenues being deferring because the tenant improvements aren't yet done, there are $16 million of that forecast. Okay. And then the SAB 104 I think, for the full year really won't have any impact. It varies a little bit from $2 million negative in the first quarter to $2 million positive in the second. But not much impact. But for the full year.

Okay. Just want to clarify, there are no one time items known either on the revenue side or the expense side of guidance, correct, that's more of a run rate?

Not in the guidance, no.

Not in the guidance, okay. With respect to Slough, the same store increase, does that include or exclude the development properties that have come online?

It excludes those.

It does exclude those. Okay. Okay, great. Thank you.

Your next question comes from the line of Bryan Sekino of Barclays Capital.

Good morning. I think, Paul, you gave some coverage ratios for the different operators, managers in senior living earlier and I just wanted to drill down on the Sunrise one. You said it was one time coverage.

That would be snapshot for fourth quarter for a trailing twelve-month.

I see. Is that for like the various operators or is that on a facility by facility basis?

That would be for each of those three operators that is I talked about.

Okay. Okay. And so I guess, is there like potential for some of them to be not covering, covering the rent expense there since it's an average?

Sure, there's potential for anything.

Right. Okay. Okay. And then you mentioned earlier that the occupancy for them was around 89.6?

Around 89.6.

Is that -- can you give a little bit of indication across the spectrum, like Sunrise Mansion, Brighton Gardens, Eden Gardens, Eden Care and Maple Ridge, what the occupancies are?

We don't break that out.

Okay. But do you have any idea, is it generally a little bit better in the higher Sunrise Mansions?

Actually, it's going to be more dependent on location than product type.

Okay. Thanks for taking my questions.

Sure.

Your next question come from the line of Richard Anderson of BMO Capital.

Thanks and good morning to you guys. Regarding the same store growth for the life science, my understanding is a lot of that is driven by converting conventional office to life science use, and you take a nice rent bump from that. When does that start to burn out? Is that a 2010 type of event?

I don't think any of that is a function of that, Rich.

Well, the 32% mark-to-market of rents that you did on the leasing so far, I think that was the number, that's all converting conventional office, isn't it?

None of that's converting, Rich.

No, okay. Is there any risk that a Roche-Genentech combination could do the reverse, that is, they could consolidate in Nutley, New Jersey?

Sure.

But your sense is it would not, it sound like you have a lot of confidence it's going to go in the other direction.

My sense is they have a majority control of Genentech. Now they are for a whole bunch of reasons, some owing to their own product pipeline, some owing to the Genentech product pipeline, some owing to the currency issue, some looking to effect very meaningful synergies which they cannot do as a 54% owner but they could do as a 100% owner, they will move forward and close the transaction at some point here in the first half of 2009. Once that happens they will be hard at work on effecting the synergies. The company that they have majority control over today that has made them an extraordinary return on their investment is head quartered in south San Francisco and more importantly, the leading scientists that are responsible for that unique product pipeline reside in south San Francisco. So.

Okay. Regarding skilled nursing. I guess the stable nature of that product type is winning some hearts these days and particularly when you consider the relatively positive view about reimbursement rates on a go forward basis. Is there any interest on your part to sort of revisit that as maybe a more substantial piece of your portfolio on a go forward basis?

Gee, it's 9% of our -- it's 10% of our Company. Performing great. The strategic repositioning we did in the last couple of years where we migrated out of the older 35 plus year old portfolios and migrated out of the real estate that was operating by just one or two operators where we had 40 or 50 different operators that were operating as one or two facilities, that's gone very well. We have talked in the past about the analogy from going from a supermarket in terms of SKU offerings to a Costco offering. So we are sitting here with Manor Care, Trilogy, Kindred and Covenant Care, all great people, great operators doing a great job with real estate we own. And if there was presented an opportunity to add someone of that ilk and high quality and integrity and it came with it quality real estate, we would be all over that. But that situation hasn't presented itself yet.

And lastly, are you getting into the fast food restaurant business as the sixth division?

I just can't find anything else that's up 3.5% or projecting to be up 3% -- more than 3.5% to 4% for '09 except McDonald's which is tracking along there at 5%, 5.5%.

It would be a good feeder maybe, to their medical office, people get sick and they go to the doctor.

I'm not going to go there, Rich.

Thank you.

Your next question comes fromt the line Rob Mains of Morgan Keegan.

Thanks. You can also open bankruptcy attorney offices, too. The question on the hospitals, you said that X the Irvine repositioning, you're stll going to be flat on cash NOI. Why is it flat as opposed to growth?

We have one hospital in Louisiana where we have taken action against the operator and are in the process of transitioning that property for sale and that's had an impact on the overall portfolio. And our tenant ad rents still remain relatively flat on the remainder of the assets that we have with the tenant.

Okay. And then could you remind me the remaining Sunrise that you've got is represented by how many master leases?

Well, it's pools. So you add 111-- excuse me, we had 101. 11 went to Emeritus so now we are down to 90. Property wise of the 90, 22 are mansions, the remaining 68 are a mix of Brighton Gardens, Eden Cares and Maple Ridges, and largely for financing purposes at the time, they are all constructed in a variety of different pools and the remaining 90 pools finds themselves into a total of I think, 11 separate pools -- 12 separate pools, rather.

Okay. And those pools are represented by how many operators? Not Sunrise, I mean the actual guy that writes the check.

You mean tenants?

Yes.

Three.

Three.

Three. Okay. A question on kind of big picture when you're talking about the NOI growth that you're describing for at 2009, and yet the guidance for FFO is down, is it fair to say you are going to get same store growth on a smaller number of stores, sell more shares out is that basically the explanation?

Well, again, I think it's the 30,000 feet, which is probably where these guys want me to stay, which is totally understandable. You look at, there's two big drivers. One, you had as I said, about $0.19 of one time stuff in '08, the big numbers there were the $0.11on the tenant settlement and the $0.07 on the lease termination with the $0.01 on the early debt retirement. So that's $0.19. One time stuff in '08. If you go to '09 ,you look at the dilution with the disposition of the properties and the two equity issuances offset against the interest savings and that's a $0.14 dilutive impact in '09 versus '08. So that, that's really, it's -- we can get as granular as you want but that's really what it is and in our view what it bought us was a balance sheet that's very strong right now which is we think, is the right thing to do. So.

Okay. Now, that's what I was looking for, thanks and appreciate the detailed answers to some of the previous questions.

Okay.

Your next question comes from the line of Tayo Okusanya of UBS.

Ah, yes. Rob actually asked the exact question that was on my mind, so thank you very much.

You're welcome.

Your next question comes from Chris Haley of Wachovia.

Good morning. Going through the capital expenditures. A $38 million of 2009 CapEx, is that comparable to the $60 million on the cash flow statement for calendar '08?

Well, directionally it's coming way down, Chris, because we had the Amgen -- we deliver the Amgen and Genentech campuses up in the Bay area and that was all finished off in '09. So it's dropping off very quickly. We can give you the actual Delta though, I think, in terms of '09.

The answer to the question was yes, it would be comparable to that line item.

So the, in terms of recurring or releasing expenditures on second-generation costs the $38 million that you're providing in 2009 does or does not include first generation or newly let space expenditures?

Does not.

Does not. Okay. Okay. Joe, maybe you take a minute or two to on the Hoag transaction, I recognize your earlier comment that the lease is not yet finalized but wanted to do get a perspective on the dollar amount of what you're carrying the asset, the incremental dollars going in, the short term impact as you outlined in your call, and then what the return, the aggregate return on investment looks like on that asset a year or two out within a range? Kind of give us the sense as to -- we recognize the short term impact in 2009 but what is the potential impact in '10 and '11?

Yes, again, I think we are going to get this, plans to have this executed in a short period of time and then we will be able to take you through the math just like we took you through the math on the transfer of Orius portfolio to Emeritus. Suffice it to say, we want to have as our operator tenant partnerships the premiere players wherever possible. And for those of you that haven't spent much time in Orange County, Hoag would be versus the Manhattan crowd would be akin to kind of a Sloan Kettering sort of name. So this is a huge get for us and the fact that they are going to invest $40 million in our property is I think, very significant and will help them reposition the quality mix and the services provided at this. It will be a very good opportunity for those of you to come out and visit us and take you down there. I think you will walk the campus and you see what they are going to do and you see strategically what this means for this hospital system, it will connect the dots for you. But we can get very granular for you Chris on the next call.

Thank you very much for that and I appreciate that in terms of a timing. However, this is a -- in addition to the shares that we are shooting later part of 2008, this is obviously a driver to a year-over-year decline in FFO per share of approximately 5% to 6%. So if you were to adjust for this transaction alone, what do you think your numbers would look like, your FFO expectations would look like in 2009?

I don't think this is much of a driver. I wouldn't say the rent concession on Hoag is a driver at all for '09. Again, I think the two big drivers are we had $0.19 worth of kind of one time events that occurred in '08 and I detailed those for you and then if you look at the dilutive aspect of the steps that we took to delever the balance sheet from the very active '07 activity we had which included property dispositions in '08 and two equity issuances, that was about $0.14. So that -- you take those two adjustments and then you kick in the same property cash NOI growth that we are talking about and you are right there.

Okay. I will be happy to follow up off-line. Thank you.

Your next question comes from the line of Rosemary Pugh of Green Street Advisors.

It's Rosemary Pugh here. Can you give us any insight as to you what see as an outcome for Sunrise in the coming quarters?

I don't know. Sends over your crystal ball and we will dial it in together.

Are you seeing any, at the property level are you seeing employee turnover or under spending at CapEx or other issues concern?

No, certainly not under spending Capex because those are decisions that we control and monitor, quite frankly. Look, I would say the following. You got a new team in there that's trying to dig themselves out of a hole and Mark and Rick are really great guys and they are dealing with a whole host of problems. They are taking slowly but steadily, they are taking a lot of those problems off the table. And we have a lot of time for those guys these days and if it's possible for us to be a part of their solution, that in a situation that works for them and works for us, that would be great. That's not news. I've communicated that on prior calls. I think we are, I think they and us are all anticipating the day that they can get themselves out of what I'd call fire drill deal mode and into a real good operating rhythm mode. I think they are much closer to being in that situation than they have at any time in the two and a half plus years that we have actually owned the portfolio. But they are not quite there yet. So that will be good.

Great. And then on the MOB portfolio it looks like the TI and leasing costs per square foot have increased materially over the quarters of the year. And I was wondering if this is a trend you expect to continue or is there a cost to maintain occupancy in this economic environment?

No, it's really a function as to whether it's vacant or shelf space that's being built out, or whether it's renewing second generation TI's, that's really the driver.

Okay. Thanks.

Your next question comes from the line of Karen Ford of KeyBanc Capital Markets.

Hi, just a couple of quick questions. You mentioned Fannie Mae as one of the options in your secured financing plan this year. Have you seen any change in agency appetite for senior housing lending?

Yes, I didn't mean to focus on -- I thought I said Fanny and Freddie for both, but that would be just senior housing to be clear to the rest of the folks on the group. What we've seen, Karen, is some modification of the underwriting criteria, which is totally understandable. So in other words, if the going in coverage ratio, they've got a number of criteria to look at, but they have definitely raised the coverage ratio in light of what's going on. I was on a panel at OSHA two weeks ago down in Orange County with the one of the most senior people from Fannie Mae on the panel. And he was asked that very question. And he didn't skip a beat and said that, he obviously wasn't speaking for Freddie but Freddie was in the audience but they confirmed the comment that Freddie and Fanny remained absolutely committed to the senior housing space in terms of spaces as ranked by where there have been losses or defaults or what have you, this is the poster child in terms of best performance, the senior housing space. So that gives them all great, great comfort. They get the business. They are in the business. They understand the aging baby boomer. I think, not unlike skilled nursing, I think they and their constituencies in Washington D.C. are very mindful of the political clout that seniors in general and AARP in particular have. So I think our sense is that that's a viable financing business for this sector going forward. I think like anything else, the costs are going up whether it's in terms of proceeds you could actually realize because of the change in the underwriting criteria or maybe widening out the spreads both which have we've seen in the last couple of months. But that's definitely I think in our view, going to remain a viable financing platform for senior housing.

Thank you. That's helpful. One more quick one. Just on your recent dividend increase, was that decision made as a result of you guys bumping up against your taxable net income level or if not ,just talk about what the board's, decision-making process was in electing to do that?

Sure, I can assure you that bumping up against our taxable ceiling had absolutely zero to do with the decision. I think the board looked at a handful of things. They included the fact that the leverage met interests of HCP, whether it's leverage ration, the standard once -- leverage ratio, secured ratio what have you. But increasingly important to us as well as the rating agencies are rapidly increasing fixed charge coverage ratio were their best in several years in terms of where we closed out '08 and the project for '09. I think they also looked at the limited near term debt maturities. They looked at a very large portfolio, $1 billion plus or minus of NOI with a projected same property cash NOI projection of between 3.5% and 4% adjusted for the one item. I think they looked at the quality and the stability of the operators and the tenants, life science. We've kind of gone through the pfizers, the amgens, the genentechs and tacadas. You've got hca and hospital land, Manor Care and some of the other names I just talked about in skilled. And they looked at our SFO and FAD payout ratios. So those would be the five or six items that the board zeroed in on in terms of determining to A, pay an all cash dividend and B, increase the cash dividend from the prior year's quarter.

Thanks very much.

Your next question comes from the line of Dustin [Piesel] of Bank of America.

Hi, thanks, I'll try and make this quick. Jay, just given how broken the unsecured debt markets are as you put it. Can you just talk about your potential appetite for buying back any of your unsecured debt that's coming due over the next couple of years?

Yes, good question. Right now we are circling a handful of situations, kind of greater than one, less than five. And as we look at those situations among the different things we kind of contrast and compare, the return opportunities on would in fact, be the potential purchases of some of our unsecured debt. At the present time, the couple of things that we are trying to advance would have a superior result than repurchasing some of that unsecured debt, notwithstanding the yields implied by some of that -- some of those trading levels. But depending on how successful we are in moving forward in one or two of these other things, that's definitely in the mix. So that's I think how I would respond to that question, Dustin.

Okay. And then I guess, just on the opportunities that you are looking at and as you're thinking about things today, are the yield and return hurdles that you guys are -- that you're working through there , are they kind of still in that low to mid teen range or have those moved at

Yes, they've moved up from there.

They've moved up. Are we talking 20's, are we talking mid teens here?

The situations we are looking at right now start with a two.

Okay. And then just lastly, I know on those two development assets that Amgen is on the hook for the leases on, have they had any luck in trying to sublease that space here?

Yes, we've got some news there. Mr. Gallagher?

Yes, we had back in the third quarter we talked about three of the Amgen assets outlooking for sublease. And at this point in time, they've taken one of those out of the sublease pool.

Right. so the other two are still in there.

Yes.

Okay. All right. Thanks, guys.

Your final question comes from the line of Michael Mueller of JP Morgan.

Yes, hi. Mark, I know a lot of the medicare loan is hedged but what's your assumption for LIBOR and I guess, how it translates into the interest and other income line for '09?

It's about the LIBOR assumptions we use in the plan or forecast here was about 2%.

Okay. Thank you.

That concludes the Q&A session. I would now like to turn the call over to Mr. Jay Flaherty, Chairman and CEO.

Chanel, thanks for your good work. Nice to talk to you everybody. We will see you soon. Thanks. Ladies and gentlemen, that concludes the presentation.

Thank you for your participation. You may now disconnect. Have a great day.