Healthpeak Properties Inc (PEAK) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the first quarter 2009 HCP earnings conference call. I'll be your coordinator for today. At this time, all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) Now I'd like to turn the presentation over to your host for today's Conference Call, Mr. Ed Henning, HCP's Executive Vice President 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, reflect the Company's good faith belief and best judgment based upon currently available information and are subject to risks, 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 website at www.hcpi.com. I'll now turn the call over to our Chairman and CEO, Jay Flaherty.

Thanks, Ed. Joining me on our call is Executive Vice President, Chief Investment Officer, Paul Gallagher. To begin though, I want to say that at last Thursdays HCP Board of Directors meeting, we directed Thomas M. Herzog, Executive Vice President, Chief Financial Officer. We are extremely fortunate to have someone with Tom's skill set, experience, and leadership qualities join the executive ranks at HCP. We welcome Tom and look forward to having you visit with him at NAREIT in June.

Overall, our first quarter was relatively uneventful. HCP's portfolio had a solid performance in the first quarter producing a positive 3.0% same property performance result which we will review in more detail. For the first quarter of 2009, we delivered FFO of $0.50 per diluted share. During the quarter, we funded $25 million of development and tenant and capital improvements primarily in our life science and medical office segments. Also during the quarter, we purchased a minority interest in a senior housing joint venture for cash consideration of $9 million. The estimated year one cap rate will be 10% on the investment. We also sold seven assets during the quarter primarily from our medical office segment for net proceeds of $6 million and recorded a net gain on sale of $1.4 million.

We closed out the first quarter with our credit metrics in good shape. Our overall leverage ratio stands at 48%. Our secured debt ratio at 15%, and our unsecured leverage ratio at 52%. We are comfortably within all financial covenants of our credit agreements. For the remainder of 2009, our scheduled debt maturities are $438 million, including the remaining $320 million outstanding on our bridge term loan. 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 mortgage debt. Floating rate debt represents 15% of our total debt and is essentially matched on our balance sheet, with our floating rate HCR Manor Care investment. At the close of business yesterday, we had $120 million drawn on our $1.5 billion revolver net of unrestricted cash. Our revolver matures on August 1, 2011.

Turning to guidance, we continue to expect FFO pre-impairments of between $2.15 and $2.21 per diluted share consistent with our previous guidance. The key assumptions used in developing our guidance are also consistent with those communicated in our year-end call, including expected full year same property adjusted NOI growth of between 2.5 and 3% and the second quarter 2009 sale of our Los Gatos Hospital. This $45 million sale closed on April 10, two weeks ago, and we expect to book a gain of $31 million in the second quarter. Our 2009 guidance contemplates no additional acquisitions of real estate or debt investments and no contributions of assets into joint ventures, and excludes future impairments or similar charges if any. Let me now turn the call over to Paul to review our portfolio.

Thank you, Jay. Before going into the details of each sector, I note that first quarter same property cash NOI, which now includes 98% of our operating lease portfolio increased by 3%. This is at the upper end of our 2009 guidance of 2.5 to 3%. Now let me turn to the individual sectors.

Senior housing. Occupancy for a same-store senior housing portfolio is 88.3% representing a 70 basis point decline quarter-over-quarter and a 200 basis point decline year-over-year. Despite the continued pressure on occupancies, our Operators continued to grow revenues through ancillary service programs as well as achieve positive results from cost reduction efforts. As a result, cash flow coverage continues to be stable year-over-year at 1.13 times. Our senior housing year-over-year, same-store cash NOI declined by 5.8%. Breaking it down, senior housing excluding Sunrise increased 2.3% by contractual rent escalators offset by initial rents associated with the Orias transaction.

Sunrise experienced a 21.6 decline due primarily to non-recurring insurance credits received in 2008 and a reduction in LIBOR based rents. Property performance has been holding steady as Sunrise has implemented expense controls resulting in a significant reduction in expense growth. We have no near term lease expiration exposure.

Hospitals. Year-over-year same property cash flow coverage excluding our well performing HCA Hospital at Medical City, Dallas was 2.64 times. Year-over-year same property cash NOI declined 10.9% primarily driven by short-term rent relief at our Irvine Hospital as well as repositioning two rehab hospitals where the new tenants are in place with rents commencing in the second quarter. The new lease for our Irvine hospital with Hoag is for a term of 15 years with escalators of 2 to 4%. The first year rent is 2% higher than tenants previous rent. The transaction was structured with rent abeyment equal to no rent for the first six months and 50% rent for the next nine months while Hoag invests up to $40 million to reposition the facility. Subsequent to quarter end, we sold our Los Gatos Hospital formerly operated by Tenant to El Camino hospital for $45 million realizing a gain of approximately $31 million in the second quarter 2009. Our hospital portfolio has no near term lease exposure.

Skilled nursing. Our skilled nursing portfolio continues to perform well. Year-over-year cash NOI in our same-store portfolio increased 3% driven by contractual rent increases with cash flow coverage remaining stable at 1.51 times. In addition, all 2009 lease expirations in our skilled nursing portfolio have been extended with the next lease expiration in 2013.

With regard to our HCR Manor Care investment the Company reported strong fourth quarter results lifting trailing 12 month debt service coverage to 2.12 times. In addition, the Company has indicated that first quarter operating cash flow is up 10% over the same period prior year driven by higher acuity and positive rate growth.

Medical office buildings. Where the first quarter same property adjusted NOI was up 5.7% over the first quarter 2008. This growth was driven by increased cost recoveries and contractual rent increases, and a one-time revenue adjustment of $1.9 million at certain properties covered by credit support agreements. In addition, our expense control initiatives resulted in a reduction of costs when compared to the prior year quarter which excludes utilities. As we previously reported, a 33% utility rate reduction at a portfolio of our Texas MOBs became effective late in the first quarter and the full effect of this will not be realized until the second quarter. MOB occupancy for the first quarter was 90.5% up from 90.3 at the end of the fourth quarter. The increase was primarily driven by 20,000 square feet of move-ins at our recently completed Colorado Springs property.

During the first quarter, 161 executed leases totaling 531,000 square feet took occupancy of which 369,000 square feet related to previously occupied space and resulted in a retention rate of 79%. This is up from 74% for 2008. These renewals occurred at 1.2% higher base rents and included a sizeable renewal on a lease that was above market rent. Absent this renewal our mark-to-market increase in rents was 3.3%. The remaining 162,000 square feet related to the lease-up of previously vacant space.

As of the end of the quarter, we had 1.7 million square feet of scheduled explorations remaining for the balance of 2009 including 275,000 square feet of month to month leases. Our pipeline has increased from the fourth quarter with 325,000 square feet of executed leases that have yet to commence and 575,000 square feet in active negotiations. During the quarter we completed the sale of a 40,000 square foot medical office building for a net sales price of $4.3 million and recognized the gain on sale of $1.3 million. We also completed the sale of four Shell buildings for approximately 400,000 square feet. The buildings are located in Louisiana and had been destroyed by Hurricane Katrina during the third quarter of 2005. HCP had already realized $19.5 million in insurance proceeds from these buildings.

Life science. The life science first quarter same-store cash NOI was up 22.5%, principally driven by increased occupancy and mark-to-market rent increases along with favorable one-time items. Occupancy for the entire life science portfolio was 91.4 at the end of the first quarter, up slightly from 91.1 at year-end. We were able to address 100% of the first quarter space rollover of 193,000 square feet without any down time by retaining 80% of the tenants and converting the remaining 66,000 square feet for a new life science user which increased in place rents by 65%.

During the first quarter we completed over 125,000 square feet of leasing of which 104,000 square feet related to previously occupied space which exhibited an average rent decline of 6.8%; however, if you exclude a short-term 90 day extension on 20,000 square feet of space for a tenant who significantly downsized and will vacate at the end of its term, renewal rents increased 6% over expiring rents. The remaining leasing activity for the quarter totaled 21,000 square feet and related to previously vacant space in our (inaudible) sub market.

Our life science portfolio has limited lease expirations over the next two years. Lease expirations for the remainder of 2009 total 316,000 square feet and represent only 0.8 of HCP's annual revenue. We have already addressed 151,000 square feet or approximately 48% of the 2009 remaining expirations at mark-to-market decrease in rents of 12%. Looking further into 2010, we have 567,000 square feet of explorations which represent only 1.4% of HCP's annualized revenue. We have already addressed 136,000 square feet or 24% of 2010 expirations at mark-to-market increase in rents of 7%.

While tenant demand has slowed with the broader economy, HCP continues to pursue a pipeline of leasing prospects of 500,000 square feet for existing space. We continue to see deals where terms are shorter and have experienced protracted negotiations as decision makers remain reluctant to enter into new longer term commitments.

Switching to our redevelopment, and development activity, our current development efforts aggregate approximately 515,000 square feet in the Bay Area, in three projects that are 49% pre-leased. These projects represent new construction at our Oyster Point campus where Amgen has pre-leased two buildings and the redevelopment of two smaller projects where we are converting office buildings into life science use. 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 approximately 87% of our rents coming from public companies or well established private entities. From a liquidity standpoint, life science tenants with less than 12 months of cash represent only 2% of HCP's total base rent. Despite the current credit crisis we continue to see positive credit events within the portfolio. These deals have ranged from the $47 billion acquisition by Roche of Genentech to smaller transactions where early stage companies and HCP's portfolio have raised over $125 million in capital from current capital partners or through recently announced alliances with larger pharmaceutical companies. With that review of HCP's portfolio, I'd like to turn it back to Jay.

Thanks, Paul. As I review the current state of our investment portfolio, we continue to benefit from our unique five sector diversification strategy as well as the strong credit profiles of our Operator tenant partners. Paul just highlighted examples in our life science sector. In our hospital sector, we've experienced recent good news in the reduction of bad debt expense. Our top hospital relationship, industry leader HCA, reported that first quarter EBITDA was 23% higher than a year ago. HCA also successfully raised $1.8 billion in debt financing so far this year.

Tenant Healthcare recently pre-announced better than expected results. As I mentioned, we closed on the sale of our last remaining California Tenant Hospital, Los Gatos Hospital which was sold for $45 million earlier this month. For you HCP nostalgia buffs, Los Gatos Hospital was one of our original hospitals in our IPO of 24 years ago. The other hospital, North Shore outside of New Orleans has a lease which expires in May 2010. Tenant has a 12 month advanced notification of their intention due to us next month.

Our skilled portfolio continues to perform extremely well. In particular, HCR Manor Care's key operating figures of occupancy and quality mix are at or near historic highs. Benefiting from these trends and low LIBOR levels has produced an estimated debt service coverage ratio for the first quarter of 2009 of 2.4 times. It is good to be in healthcare, especially with limited near term lease expirations. Our overall portfolio same property performance result for the first quarter was a positive 3%, representing the top end of our forecasted 2.5 to 3% range for the year. I find it especially gratifying seven quarters into the worst economic period since the Great Depression to have our portfolio performing at this level.

Thank you for your time today and thank you for your interest in HCP. We would be delighted to take your questions at this time.

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

Good morning, everyone. A question for you, Jay, in terms of capital. You mentioned obviously balance sheet in a very good position. You've been in that position for a couple quarters or several quarters, but just curious any thoughts on the unsecured market or just plans to raise capital in the future?

Well, again, we always like to have multiple avenues of execution, so the unsecured market has not been terribly attractive for I think over 12 months at this point. We have seen a fairly dramatic improvement in that market for all REITs including HCP, although it's not at the point today that we would be an issuer of unsecured debt. We're spending a fair amount of time with the possibility of doing some additional secured financings as they appear from a debt standpoint, probably to be the most attractive bucket of execution if you will from a debt financing standpoint, and I think we're benefited with the fact that we did all of the delevering activity, we were early to that game over the last 18 months with the two separate equity issuances in 2008 and the significant amount of asset sales so that the last remaining piece of our asset sale program which we announced in the fourth quarter of '07 just closed at Los Gatos, so we're in pretty good shape. The credit metrics continue to tick up, slow and steady. The coverage ratio now is trailing 12 months coverage ratio, I think it's up to 2.4 times, and so that's all fine. We're more kind of focused on seeing if we can't create some attractive opportunities to deploy some shareholders capital at this point.

And you mentioned obviously a 10% cap rate on a transaction. It was a smaller one but can you give us insights in terms of what you're seeing whether it's portfolio sales or other transactions where perhaps funds might be looking to sell? And which segment specifically?

Yes, you continue to have a real dearth of transactions as an overall comment. There's really not a whole lot to point to, Jay. We got our oar in the water on a number of fronts and while the bid ask spread has certainly narrowed, you're not seeing the -- I think the good news and bad news with healthcare. You take a look at our portfolio first quarter this year we're up to 3% and that had some one-time stuff in it that dragged it down even to that point. That's the good news, the bad news is is that generally, healthcare is continuing to perform well, notwithstanding the length of this recession, and as a result, you see potential sellers of a mind generally to sit tight and see if they can wait it out so that's a little bit of the conundrum that we're in.

You mentioned obviously the stable performance and with the exception maybe of senior housing can you give us some insights there in terms of did you expect that cash flow coverage to dip below the 1.1 times because it is sort of precariously close?

Well, let me answer that a couple different ways. First off, you saw the same property performance for all of senior housing, as Paul detailed, you got kind of a tale of two cities there. You got the Sunrise piece and then you got the non-Sunrise piece. The non-Sunrise piece for the quarter was up 2.6%, 2.3 sorry. And so that's in the coverage ratios, our Operators have done a very nice job in terms of making tough business decisions in light of the environment we're in so we're pleased with that and I'd point out at sector wide occupancies in the 86, 87 zone on average, with no supply coming in, we continue to like the, forget about the long term, we continue to like the intermediate value play there so if we could put some additional dough out in that space we would jump at the opportunity.

Now, in Sunrise you got a couple one-time things there that you really need to isolate out. Paul indicated that the Sunrise same par performance was down 21% and that's obviously quite a headline but when you dive into it, you've got the impact of, recall that some of those portfolios, rents are based off LIBOR for one thing and then we had a significant amount of all the insurance credits that we had negotiated from Sunrise drop in Q1 of '08. So when you adjust just those two facts right there which I think probably ought to try to get you at a little bit better underlying lead on the portfolio, the same property performance at Sunrise was negative 10% and I'd further add that we are seeing very specific, very real and very broad based expense controls now starting to function from the new team at Sunrise and in particular our February results were from that standpoint were the best we've ever had since we've owned the portfolio, so I think that there's a good story there.

I think the other thing I would add with Sunrise and the rest of the portfolio, our Operators are starting to see the benefit of lower labor costs as well.

Good. That's good color and just last question on the debt maturity this year is the plan just to use the line at this point?

Well, as you heard, we've got not a whole lot drawn on a line. In fact the net draw during the quarter was $120 million. I think we started off the quarter with nothing drawn and now we have $120 million. Recall that we had prepaid a piece of debt, actually we did that right at the end of last year, we prepaid a piece of debt that was on one of our Sunrise portfolios at a discount so actually the net draw on the line for the quarter was zero because I think we jumped into the first part of the year having just closed that the last week or two of December, so we're very mindful of the debt maturities but we're in very very good shape. You certainly have the fallback of using the line. I don't think that's our first prize. I think we've got the opportunity with some attractive financing terms that would look like some secured debt to maybe kind of chip away at a good chunk of that and when they drop and all that other kind of stuff, that's the nice thing about having the bank line that we've got with the maturity that's out, still a couple years plus and the attractive pricing we have on it.

Great. Thanks, guys.

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

Good morning to you guys.

Hi, Rich.

A quick one on the life science, the mark-to-market, the 2009 leasing was down 12% and that sort of stands in contrast obviously to the good numbers of growth that you typically get from that portfolio. Can you just reconcile that for me and was that an anomaly or was that -- what was the basis to that decline this quarter?

We actually had a fairly large credit tenant that had been on holdover at quite high market rents based on the holdover. What we did was we were able to negotiate a long term five year extension with that tenant at what we consider to be market rents at this point in time. It just so happens that the amount of holdover rent that we had was even higher so there was just a roll down to what we believe market is today.

Rich, I think you're a very good observer of the mark-to-market we've been having. I can recall some of your questions at conferences and conference calls in the last, well, since we bought this (inaudible) portfolio. I don't think you should expect, as we head into the second half of the year, I think the days of plus 25, plus 30, plus 35, plus 40% marks are -- we're probably looking in the rear view mirror on those sorts of things you're going to see them start to normalize a little bit in the second half of this year.

I'd expect that, but not to negative 12%, I wanted to make sure I understood that.

Yes.

Now, just another sort of modeling question. Do we have the full quarter's worth of the lower rental revenue that you were getting with the transition of the pool of properties to Emeritus and Sunrise, that's fully reflected in the numbers at this point?

That deal closed December 1, so you've got a full quarter but remember, that steps up quickly in the year one to year two transition.

How long does it get back up to sort of breakeven, a couple of years?

Oh, no. You're above breakeven year two. It ramps very quickly.

Okay. With the addition of Tom Herzog, should we be expecting any sort of changes to your balance sheet management plan or is there anything that he might bring to the table that you think might alter how you go about managing things?

Well, Tom brings a tremendous amount to the table across a whole bunch of disciplines, so, but I think if you go back and think about our investment triangle the three cornerstones of that have always been opportunistic investing, the diversified strategy, diversified portfolio, and a conservative balance sheet to allow the opportunistic investing to be able to execute on that. So I don't think -- that's been around since the big guy created the Company 24 years ago and we're certainly not going to change that. We've always looked at things on a 50/50 basis and to the extent we've gotten above that or below that by more of the standard deviation, we've always had a plan in place to bring that back and I think our relationship with our banking partners and relationship with the rating agencies certainly speak to that. I think it's a fair question in light of what's going on in the world.

And also what's going on at AIMCO, a very different structure there.

Yes, I'm not really familiar with that so I can't speak to that but I think that it's a fair question something that we've kind of kicked around at the Board level just a little bit whether or not going forward is the target balance sheet ratio 50/50, is that the right one or obviously below that now or we're probably a little bit lower below that if we just continue to see what the performance of the portfolio, but we're looking at a lot of things right now and I would expect, knowing Tom I would expect him that he would take a leadership role in that regard and develop a view and that's going to count for a (expletive) of a lot.

Okay. Switching to some more property specific stuff, any discussion yet, may or may not be able to say much but with Roche and Genentech, you have some space in South San Francisco. Seems like an opportunity. What's going on there, if you can comment at all?

There's really not much new to report. The one thing that did happen since we talked about this last is that the deal closed, I think on our last call it was toing and froing with the Roche and Genentech shareholders so the deal closed and they are into integration mode and with respect to the specific question you've asked we have nothing new to report as of this morning.

Are you going to rename DNA Drive or is it going to stay that way?

I don't think that would go over too well.

Just real quick, dividend, how do you feel about it? I have a 97% pay out. How do you feel about the dividend going forward sort of is it going to be an annual look at it or how is that going to work?

Oh, absolutely. We'll change that. The overlying performance of the portfolio is good and might be a little bit better than 3% if you isolate out one or two of these one-time things like the Hoag free rent, things like that, the balance sheet metrics are in good shape so we're a strong Company. We can afford to pay a cash dividend. We can afford to grow that cash dividend, albeit modestly and we intend to do just that.

Lastly, the wave of equity offerings, just curious where you stand on that? I mean, you did mention looking at deploying some capital. Would it be something where you would time it with an opportunity to invest? You obviously don't have balance sheet issues to speak of where you would need to raise equity but is it something that's at least on the table and in conversation with the Board?

I think that's a very good question and I think you've answered, you've given a very good answer to a very good question. I think at this point with the delevering activities that we executed right at the end of '07 on some of the sales that we did and then '08 with the two equity deals and a big chunk of sales, I kind of think we're very mindful of dilution and I think our shareholders would like to see more of a trigger event where we could potentially combine something with what they felt was a very attractive use of shareholders capital so I think that would be our preference at this stage.

Excellent. That's all I have. Thank you.

Thank you.

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

Yes, good morning out there. Jay, just want to make sure I get the number right, the amounts on your revolver did you say $120 million as of yesterday?

$120 million, net of the -- we have unrestricted cash so we net those two numbers together, but the net, our net draw at today is $120 million which is kind of right where it was at the beginning of the quarter.

Okay, fair enough and Paul, you gave the breakdown that was helpful on the senior housing portfolio same-stores between what Sunrise and non-Sunrise year-over-year. Do you have the same thing for quarter-over-quarter?

It's in the supplemental, I can get that to you after the fact, but we do that quarter-over-quarter.

Right, but do you have the breakdown of Sunrise versus non-Sunrise for that? The numbers are in the supplemental.

We can get that to you, Rob.

Okay, just wanted to make sure when you're talking about the senior housing portfolio, I know it's a couple of your big Operators had exactly what you described, a kind of a noticeable decline in occupancy but they were able to keep their coverages up and I'm assuming there's nothing going on with their rent. Is that a reflection more of pricing or expenses or is it a combination?

I think it's more a combination of good expense control . I would quickly add that at some point I don't think you can continue to do that, if we get into an 80% occupancy mode, I think there's going to be like anything else, you kind of go for the low hanging fruit initially so I think so far, they've been able to manage the softness quite well. But the business model isn't linear. If you lose another 5 points you can't take whatever the associated revenues are out of your cost structure. At some point you're going to see pressure on those coverage ratios again. That's why we like what we've got. We've got triple net leases that are master leased and we have got very high quality Operators there

Great. And so you haven't done anything with your rents there, right? You're still getting your annual escalators, those that get more CPIs that are available?

Absolutely not.

Okay. I think I'm forgetting something. Senior housing rental income was down sequentially from the fourth quarter. Was there something in the fourth quarter that contributed to that?

Yes, if you remember a year ago, I laid out both year-over-year and quarter-over-quarter and said that we weren't going to be specifically addressing the quarter-over-quarter. Just based on timing of various different things we have a lot of trueups and additional rent that gets booked in the fourth quarter that doesn't happen in the first quarter and it just creates a lot of noise.

Okay, so kind of the one, two, three, one quarter would probably be a better pattern of where we should look for it?

Probably.

Okay, fair enough. Thanks a lot.

If you're saying -- is it fair Paul, is it fair to say that the first quarter is going to understate the year and then the fourth quarter is going to overstate it?

You're always going to have significantly more noise the fourth quarter to first quarter.

Okay, that's helpful. Thanks, guys.

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

Thanks. Just to follow-up on that point, so what was the specific hit to the fourth quarter I guess from Emeritus? It should be relatively small because you started December 1, and so the rest of the hit is primarily just on senior housing, the rest of the hit is just basically the one-time items. Is that the right way to think about it?

Well, I don't know the one month, I don't know if we disclosed just the one month but we can, it's easy for us to get our hands-on that, Jerry.

Okay, let me just come back to a couple other things. There's the PIC interest on the HCA. I just wanted to clarify how that's being accounted for in FFO and obviously some non-cash items, just can we get that clarified?

Sure. Well the PIC amount is in both the FFO and FAD. When they made the decision they had a one-time decision for a discrete window to PIC that and it increases by 75 basis points over the cash coupon so our position is that that amount creeps up on our balance sheet, increases the amount of the investment, it's convertible in cash at any time, and it's a very liquid security and in fact, with the good performance of HCA, those bonds, the price of those bonds have moved up materially since year-end. At year-end at 12/31/08 the price of those bonds were at 78 and they traded 89 yesterday and reflecting that the very good operating result that HCA has had and the significant amount of liquidity. They've raised $1.8 billion so far this year in two separate high yield offerings that were both very well received, oversubscribed and executed quite well, so that's a real good story for us.

Okay, and when you say they are convertible to cash could you just clarify?

We could sell them. They are liquid, a liquid listed security and we mark that security by the way through the equity account in our balance sheet, so you see a mark on those.

So that one is mark-to-market on the balance sheet?

Absolutely. It's through the equity account. It doesn't run through FFO.

Right. Okay There's also, a lot of this has been covered so I won't go through it but there's a little item that we thought was new in the Q which just had some reference that there's certain mortgages that have cross defaulted if somebody files bankruptcy, I was curious as to whether those are related to Sunrise or whether it's something that's significant, we should be concerned about? And then also, maybe on Sunrise, you had talked about the possibility of doing some kind of transaction with them I was just wondering if there was any update on that status or are you still in discussions or where we stand?

Well, we don't -- as it relates to your first question, I mean, that wasn't Sunrise related, the bankruptcy. I think that was, if I recall correctly that was in our 10-K I believe.

Okay.

I think the risk factor section of our 10-K, I think for the first time ever it exceeded 20 pages. I think you've got commentary out there about the challenging economic environment that the country is going through right now. You've got every potential risk factor known to mankind in there so that's really more just--.

It's not something new, it's not something--.

There's nothing at all specific to Sunrise. With respect to your second question which was specific to Sunrise, there's all sorts of rumors out there and we don't comment on rumors. So I can't shed any light on that.

Okay. The deadline is two days away so we're waiting for news. Okay, and then just to maybe come back on the life sciences, you had talked about mark-to-markets not being 25, not being minus 12, in terms of your assumptions obviously you're ramping up, you're at a $0.50 -- $2 run rate right now, you're talking and giving guidance of $2.15 to $2.20. We've got Hoag, we've got some normal just sort of increases as we roll through the year. Is there anything else sort of material or what you're assuming in terms of life science rent roll ups or--?

I think the forecast for the year was 2.5 to 3% and I think we've given you in the previous call by sector and for life science, we were kind of a plus 12, 12.5% metric so we feel -- we continue to feel quite good about the whole 2.5 to 3% range, witness the 3% in the first quarter and we continue to feel good about the 12.5 metric for life science. I will also tell you if you do and again, I'm not, it is what it is and it's 3%, we're glad we got it in terms of how far we are into this length of this recession, but if you were to adjust out that six-month free rental period that we're in right now for Hoag taking over Irvine Hospital and you were to adjust out the impact of the LIBOR, just the LIBOR component on those Sunrise portfolios that have LIBOR, and finally, three adjustments here, if you were to adjust out the -- when we negotiated the insurance cuts from Sunrise most of those dropped in Q1 of '08, you adjust that out which I think probably gets you to more representative same property performance result for the first quarter, that 3% Jerry goes to 5.3, okay? Now look, there's some stuff going the other way too, so you got to be careful when you do that but those three are driving a lot of the drag on same property performance notwithstanding the fact overall which is now a very representative perspective on HCP's portfolio because we've got I think what 96 or 97% of all of the properties that we own--.

98.

98%, around that, so I think that's another thing that we look at that when we're doing our drill downs on a monthly basis with our operating colleagues, we feel even better than maybe the advertised 3% number.

And on the LIBOR in your guidance were you making assumption that it was higher so you pick up some of that or?

Well, we did but again it cancels it out because we got the Manor Care investment right, so it is -- I forget, I don't remember off hand what our LIBOR forecast was for the year, but it is certainly higher than the level we're at right now, but we're kind of if I were to show you the inside numbers in terms of the impact, the downdraft on the Manor Care and the LIBOR, the LIBOR based Manor Care and Sunrise but then show you the equal down draft on the expense, it's within a pretty small number being match funded.

Okay and how much is the swing on Hoag, you're zero now. When you switch in the second half of the year, what's that run rate quarter-over-quarter how much have you picked up?

I think it goes six months free rent and then the next nine are 50%. I think but you made a comment about comparing to the old Tenant rent.

Yes, if you took the previous years tenant rent and compared it to first year rent with Hoag, it's a 2% increase over where Tenant was.

And those escalators will be higher and the quality mix that you're going to see, I think you've seen the campus, Jerry. The quality mix you'll have in there is going to be materially different than what Tenant had in there.

And one thing to bear in mind, when you looked at the previous operations at that hospital, Tenant was not covering operating expenses let alone rent, so being able to get in and get a rent at 2% higher than where Tenant was we think that's a very good transaction.

And remember the much different quality mix, payer margin procedures and stuff like that, that goes hat in hand with the $40 million of investment that Hoag is putting into our property, so it all kind of comes together.

Okay. All right, fair enough. That's all for me, thanks.

Thank you.

Your next question comes from the line of Steve Swett of KBW.

Thanks very much. Most of the questions have been answered but a couple things. Paul, I think you mentioned on the expense reimbursements there was some one-time items in the MOB portfolio and the expense reimbursements were certainly up in the quarter. Is that something that kind of normalizes back down going forward?

Yes, it probably does and it was just a function of the collections in that particular quarter is what I think was happening there.

Okay, and then Jay, just one word of press your thoughts on the refinancings for this year and your other capital options. In the past you've talked about the HCR Manor Care investment and being a LIBOR based and then you had it match funded with some LIBOR based debt, and as you pay down the bridge, that's I guess, less a fact today. Does that affect how you think about recapitalizing going forward? Is that a connection that you want to maintain or do you look more at the low cost secured debt more as an option?

I think that we would gravitate more to the latter. I mean the pricing, just so we're clear, the pricing on the bridge is one in the same to the pricing on our bank line, so it would be seamless, right? Because they're both at LIBOR plus 70 so we've always got that. I don't think shareholders pay us to speculate, but at some point here, if and when some of these stimulus dollars start to stimulate you're going to have to see a reversal of some of these interest rates, so at some point here starting to fix out some of that, that will, I guess be a pretty smart idea when we do that and how we do that will be a function of how good the opportunities on some of these secured debt financing alternatives and maybe one or two other things that we're working on will pencil out but I think we would, now it's easy because it's kind of effectively essentially match funded and it's a no-brainer but at some point we're going to want to make sure that we lock in some long term attractive capital.

And is terming out, I know you haven't included any incremental acquisitions or investments in your guidance but is terming out that debt something you guys have considered in your outlook?

No. We have not. We do have a secured financing rolled into our guidance but beyond that, I mean, we're pretty careful about how we think about our long term capital structure.

Okay, thanks.

Yes.

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

Hi, guys, good morning, Jay, how are you?

Tayo, very well, yourself.

Very good thank you. Just a couple of quick questions. In regards to the change in rents in the life science portfolio, when you take out the one large tenant that had the roll down, what would that percentage change in rents have been?

I don't know if I have that calculation off the top of my head.

You're asking for what it went to?

The change in rents of negative 7.2 but a big portion of that was the one large credit tenant that had the roll down. I was just wondering if you excluded that one tenant what that number was?

Yes, I don't have that calculation right now.

Give us a shout or send us an e-mail afterwards. That's pretty easy for us to just back that out. That's pretty straightforward.

I'll do that and then second thing, could you just give us a brief overview of operations at Manor Care at this point, kind of what you're seeing in regards to the overall patient makes and how they are managing operating expenses, et cetera?

I think at the current pace, we're going to have our debt investment repaid out of cash flow from operations. I mean, they are killing it, knocking the cover off the ball. Regardless of which metric you look at, occupancy, quality mix, expense control.

Can you give us some of those metrics like what occupancy is right now, patient mix?

I know them but all I can tell you is that all of their key operating metrics are at or near all-time highs. By the way, I think and you know this better than I do but I think you're seeing a similar story, maybe not to the magnitude you're seeing at had Manor Care but a similar story in the metrics for the publicly traded skilled companies so it's been a benign reimbursement environment, good heavens what's going to happen next year if and when healthcare reform comes but for the past several years you've had a very benign reimbursement environment.

Correct me if I'm wrong but I believe you mentioned earlier there was one life science tenant who was going to be going away?

Genentech went away. Now Roche.

Oh, okay.

We exchanged a AA credit for a AA credit.

Okay and-- ?

I'm teasing. Hang on.

That had to do with the first quarter leasing. We had a tenant that we knew was going to vacate and they significantly downsized and what that did even though it was a renewal but it was only a 90 day renewal it impacted the mark-to-market on all those renewals. I look at it as we were able to collect a little bit of rent for 90 days and it had an impact on how it was reported. If you take that guy out you actually flip from minus 6.8 to positive 6% so we think it's a good story, we collected some cash for 90 days and as opposed to losing it for that 90 day period.

Can you give us some general characteristics of that tenant? Was it a small Company that was underlying with money or the product to get the approval?

I don't know the specifics off hand. We just knew they were going to be downsizing and moving out.

Okay, great. Thank you.

Yes.

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

Hi, good morning, guys, it's Jim Sullivan here with Rosemary. Jay, you talked about balance sheet management, you talked about operating at sort of a 50/50 debt equity level and it strikes me that in the old world 50% leverage was probably considered conservative for a REIT and it also strikes me that in the new world, 50% is probably going to be considered at the aggressive end of a reasonable range and I think that's probably going to be the case. It's Green Street's view that's going to be the case for a period measured in years, not just the next couple of quarters, so I'm curious if you agree with that?

I think I do. I mean, that's what I was saying. Historically we've been at 50/50, we're below that today at 48. We're likely to continue to tick down a little bit lower here with the cash flow coverage continuing to tick up, so I agree with you. I think what we talked with the Board about is that we don't want to be making 5 and 10 year decisions based on six or nine months of activity but this one is different than, this downdraft is a little different so I think conceptually I completely agree with you 100%.

I also think conceptually and this might be a comment made relative more towards healthcare REITs than just general REITs, I think going forward, the model is going to be different. The days of just creating value because you could just buy right or sell right, I think that's, you kind of got to reinvent yourself a little bit and towards that end, and if you look at really what we've done for the last 18 months whether it's terminating the Orias portfolio and swinging that over to Emeritus or restructuring Tenant and selling Los Gatos and Terizan and moving Hoag and Irvine in the West campus down in San Diego, some of the stuff that we did with Horizon Bay and then most recently the big lease up ramp we had, I think creating value going forward is going to be more about making what you've got assuming you've got good stuff. We got great stuff, more valuable as opposed to just being dependent on the treadmill of acquisitions, so we spend a lot of time focused on that, so that would be a little bit of a pushback to the right debt structure, Jim? Probably allows you to maybe be a little bit higher but conceptually I'm with you. We're lower than our long term target and I think at the margin we'll probably go a little lower still.

I hear you with respect to actively managing the existing portfolio but it also seems at the same time that the acquisition opportunities may become quite interesting?

Yes, that's a good discussion to have. You know a lot more about these other sectors than I do, but I think I get it in hotels where you've got, where that's setting up to be a real buying opportunity. And healthcare as I mentioned earlier, our conundrum is that while our portfolio is performing at the top end of our forecasted range, you're not seeing, it's not like there's ten opportunities that are sitting out there, that are just screamers of opportunity. We're looking at a couple of interesting things but you can count them on one hand as opposed to needing two or three hands like I think is the case in some of these other sectors.

Wouldn't you agree that even within healthcare debt maturities are going to ultimately be the catalyst with some of these properties changing hands?

They should. As you know, we've been very measured at any dollars going out the door now since the fourth quarter of '07, so we've been patient but we've been frustrated that more opportunities haven't presented themselves.

Going back to my original question and your agreement with I think the position that leverage ratios in the industry are going to be a lot lower than what they've been historically, where does common equity and an issuance of common equity fit on your menu of alternatives?

Well, it's certainly on the menu. Again, I think when we look at dilution a lot, we obviously want to do the right thing on a long term basis, but we did not one but two $0.5 billion equity deals in '08 which when combined with the big asset sales delevered the Company from the (inaudible) and Manor Care acquisitions that we made in the second half of '07. o I think at this point, with no net draws at all in the first quarter, to date we probably want to match that up with triggering event in terms of a specific use as opposed to, the other thing is let's go off and go raise a boatload of money and no use of proceeds and we'll just be opportunistic. I guess what I'm saying is as we sit here right now, there is not a wealth of opportunistic sorts of opportunities that if we had another however many hundred millions of dollars we would be comfortable putting that to work today. We're working on a couple of things but again, it's, you measure them on one hand the opportunities as opposed to needing two or three hands.

That's very helpful and on a totally unrelated question, can you comment on your relationship with Cirrus, they had a fairly sizeable loan come due at the end of the year that you guys extended, looks like the rent in the first quarter on the two hospitals is down materially?

That's a good question. It's not down. Let me tell you about this . This is a secured loan that came to us as part of the C&L transaction. It pays cash of 9.5%, accrues at 14, it's secured kind of double secured, it's secured by an underlyng portfolio of medical office buildings and specialty hospitals and medical office buildings. We just had an independent third party appraiser come back to us earlier this year and it got the appraisal and the balance of that loan with the current appraisal is a 75% loan to value. That's point one.

Point two is that in addition, we have $35 million of personal guarantees for some high net worth investors on top of that, and that represents just under 50% of the amount of the loan, so from a security standpoint, we feel very very good. They are current and have been current and have always been current. The loan matured on 12/31/08 and had an extension feature but one of the testing needed to make to allow the extension feature to kick in was not met so that put us in a situation where we began a discussion with them about extending that. Earlier this month, so Q2, not Q1, Jim, we've reached an agreement to extend the loan to 12/31/2010 and they have wired us additional extension fees.

The difference you're seeing in the Q1 versus Q4 is that some of those fees and stuff like that they get amortized over the new remaining period of time, so now that we've got two years left, it's the denominator, the period of time that the income is being amortized over that's caused the change, the cash rents have remained absolutely the same and the amount that we're accruing has remained the same as

Okay, thank you.

Yes.

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

Good morning. Jay, in the past you'd talked about acquisitions and the senior housing space being an attractive place. I'm wondering if that's changed. You'd also mentioned that some of the partners you're talking to are looking in the range of 20 to 30% type IRRs. How has that changed in their views in terms of what they would expect to get given that you're focused on higher quality assets and given that you have had so few to choose from currently?

I think in general, I would say it hasn't changed. We had one or two partners in recent weeks suggest that maybe it ought to change, i.e. maybe the return thresholds are a tad bit high, a tad bit, not a lot, but our fundamental view in this space remains and we're passionate about it. It's a great space, forget about the long term, intermediate term there's going to be some opportunities here because of a couple of things, eventually some triggers as Jim Sullivan was mentioning related to debt maturities and the fact that you've got no new supply underlying this demographic that's locked in, the aging baby boomer in the United States of America, so the fundamental pillars to our investment thesis here that this is attractive, that '09 could very well be a transition year where we swing back into putting some capital into the space unlike the last several years remains absolutely intact as we sit here one-third of the way into 2009.

Okay. And then I was wondering, you mentioned that you could potentially do some secured financing. I was wondering first which property types would you look to go out and in encumber with secured financing and what types of conversations are you having with lenders in terms of the underwriting of those assets?

Well, the three of our five sectors, I think three present opportunities for secured financing, one is senior housing, although that's reasonably limited to the GSCs and I think you know we've gone to that well quite a bit in the last two years. The other two sectors that's probably more a life Company, life Insurance Company driven dynamic for secured financing would be both life science and medical office.

Okay, and what type of rates are they quoting if you have gotten any quotes on anything?

You're kind of somewhere between 7 and 8 probably, would be to cuff it for both those sectors.

And that's 7, 10-year type financing?

Oh, yes, amortizing 10 year term, somewhere between 7 and 8. I didn't mention skill. You clearly have a bid in the market there from a HUD program. Those tend to be a little tougher execution because they tend not to like the pool of folks. I was with one of the GSCs just two weeks ago and they made an interesting comment to me. They said that they actually prefer getting the secured packages to bid on from the REITs as opposed to the Operators and I inquired as to why that was the case and they said you know, you guys not just HCP but ourselves and our peers, you're going to have your separate underwriting discipline that you go through so we like that, the third party discipline and typically when you present them to us they are all master leased so they draw great comfort in those sorts of portfolios so I thought that was interesting, again that's specific to GSCs and senior housing.

Okay, and then lastly, you mentioned that -- or maybe it was Paul that mentioned it, you had about, a bunch of your life science temps had raised about $120 million in cash in the first quarter. I'm just wondering as you look at your tenant roster now in the life science portfolio, what percentage of that causes you concern that could potentially come back and what the potential downside risk to revenue is just to state what it is.

Yes, I think the best way to answer that question is Paul maybe you could just?

One of the things that we highlighted was that we looked at liquidity for tenants that have less than 12 months of cash and that represents just 2% of HCP's total base rent.

Okay, that's all I had. Thanks.

Your next question comes from the line of David Toti.

-- facilities a bit earlier, Jay, can you just talk more specifically about what your views are relative to post acute bundling and if that changes your outlook on the asset longer term?

Yes, I think I'm guessing I can, your first couple of words there got cut out. I could guess but I think I know where you're going. Could you just repeat the first part?

Oh, sure, you mentioned skilled nursing facilities earlier and I thought if you could just go into a little bit more detail relative to your outlook for the asset given proposals to the bundling system changes?

You mean for our modest skilled portfolio, David?

I think it was limited.

We'll talk. Okay, here is the deal. Healthcare reform is a wildcard. Who knows what's going to happen. I would say generally the skilled space, like almost all of these other spaces is going to give it the altar here a little bit so what's going to happen? There's going to be winners and losers and the winners are going to have three criteria. They are going to have quality outcomes. They are going to be efficient Operators and they are going to have critical mass. Now, you shouldn't read critical mass to be huge. You should read critical mass to be concentration, could be very much a regional dynamic by the way and the best metric to look at for critical mass is market share, all right? And then on efficiency, you should read that to mean margin, and then quality is actually what the government will be measuring and they will be using quality metrics to determine where the reimbursement dollars are flowing.

So the folks that critical mass are efficient and have quality outcomes are going to do great, and in general in the skilled space, you've got the added benefit but that is generally the low cost provider for that demand type. It's a lot, the government is going to pay a (expletive) of a lot less money if mom or dad who just had a knee replaced or a hip replaced at a hospital gets out of the hospital quickly into a long term care or rehab setting where the cost model is a lot lower. So on this bundling, and hospitals aren't going to obviously get into skilled space so the better hospitals are going to link up with the better, the higher quality, the more efficient and those skilled Operators that have critical mass.

If you look at, with one or two exceptions, if you look at every Operator or tenant we've brought into the Company's portfolio in the last couple of years and perhaps more important, every Operator or tenant that we've invited to leave the Company's portfolio in the last couple years, you will see quality outcomes, efficient Operators and critical mass as being representative of the folks that came in and not being present in the folks that went out, so in that setting, if the big hospital systems whether they are non-profit or for profit they are going to deal with this bundled thing, they are going to want to do what we do when we buy stuff. We like big concentrations where we can have master lease portfolios and we can have relationships that they are important to us and we're important to them. Well, the same thing is going to happen here so obviously that sets up wonderfully for a Company like HCR Manor Care and if we go into a particular part of the country like parts of the Midwest, that sets up wonderfully for a private Company called Trilogy that we have in our portfolio. If we go to the East Coast that sets up wonderfully for a private Company skilled portfolio called Tandem so we really like what we've got and we are really excited about what's going to happen here going forward.

Great and do you think there's any tertiary benefit to medical offices in that environment?

Yes, but the other piece there is the technology overlay, okay? So you can do procedures now that you used to have to check in and stay overnight. You can do those in an outpatient setting in the medical office building. Now, you take that one step further and you've had this phenomenon of a lot of this physician owned real estate that's diluted some of the occupancy off the campuses of the on campus medical office buildings and there's a reasonable expectation that you're going to see some limitations put into effect as part of this healthcare reform. That at the margin will do two things. One, it will stop any additional physician owned properties from being constructed and may in fact drive back to the on campus MOB portfolio for which HCP's 14.5 million square foot MOB portfolio is 81% on campus, number one, number two market share hospitals. That could be another driver for demand back to the MOBs. So again, we don't have any inside scoop as to what the metrics are going to be coming out of healthcare reform but we feel pretty confident that our portfolio is going to perform quite well in whatever they come up with.

Okay and then just shifting over to senior housing and forgive me if I missed this. Did you talk about your appetite for shifting additional master leases to other operators and I know you hinted at potentially some changes a few months ago and I might have missed an update on that.

I'm sorry, David, you said shifting the master leases?

Shifting some of the operator leases.

I think the only shifting that -- is it senior housing you're talking about?

Yes.

Yes, the only shifting that we would be doing at this point would be a la kind of what we did with the Orias portfolio when we transitioned that over to Emeritus in December. And that would be limited to that. Otherwise we really like the portfolio of senior housing operators we have in our Company.

Okay, and then Paul, maybe you can provide a little bit more detail. The weakness in senior housing this past quarter, would you say there's a component of seasonality to that and if so, what sort of percentage range?

There typically is seasonality. We haven't seen it really impact the portfolio this particular year. In previous years we've seen much more of an impact but the flu season was pretty light this year, David. Last year it was pretty bad. We got the cocktail right this year.

Okay, great. Thanks guys.

Yes.

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

Just a couple of follow-up questions here. As it relates to the secured debt that you mentioned before, can you give us an indication of how much availability you have there?

Well, I think the best way to look at that is to be our secured debt ratio is 15%, so that means -- the reverse of that is that the vast majority of our real estate portfolio is unencumbered, so now, from a practical standpoint our pals at Moody's and Fitch and S&P, they understand the attractive natures of secured debt but they don't want to see us taking the entire remaining real estate portfolio that's unencumbered and securing that so that really becomes the more, the guiding metric we look at there and they generally, I think in the current environment, their sweet spot is somewhere between 20 and 25% so that 15% could go to somewhere between 20 and 25% spent depending on the situational that kind of stuff, so if you run the math on that, that's a big number but I don't think we're looking to go that high.

Got you. And then just with regards to the -- your comments earlier with the 2% increase year-over-year for the Irvine facility at Hoag, is that by annualizing the back half of '09 rent and comparing it to the rents you received from Tenant last year?

Yes, that was a comparison taking what Tenant was paying versus what Hoag will be paying. Now, what the Hoag lease will actually increase between 2 and 4% whereas the Irvine -- where the Tenant lease actually was capped at 1%, so we've got significantly more growth out of the new lease going forward.

So just to repeat, you're starting out higher and then the ups are higher too.

Correct.

And then you put that on the top of the fact that this high quality operator is writing a check for $40 million to change the quality mix in the portfolio, you bring all that together, the likelihood is that we're going to be getting the upper end of that range.

Okay, but in terms of the facility itself, you mentioned it wasn't covering its expenses under the previous Tenant. Are there any metrics that have improved just initially that you can talk about at that facility?

Yes. You're a real estate guy, not a healthcare by. Here is the deal. California, Tenant had three California hospitals and they unfortunately were saddled with not the greatest managed care contracts and this was one of those hospitals. The other were were Terizan and Los Gatos, so they kind of were playing with at least one hand tied behind their back. You don't have that by the way those managed care contracts in the other four hospitals that Tenant operates for us on the East Coast, so what you've got here, it's apples and oranges. You're going to have the premier non-profit Orange County based operator that's got the mothership down in Newport Beach, they are going to move over some of their highest most in demand procedures, orthopedics in particular, once they finish the $40 million investment into this hospital, and then this hospital strategically will become a beachfront to Southern Orange County to use as a feeder for the main hospital on Newport Beach. The combination of that and what they're going to do in terms of the physical plant and what you're going to see in terms of patient mix and revenue source, it's just an entirely different ballgame. You can't compare the two.

Okay. All right, thank you very much.

Yes.

The next question comes from the line of [Steven Meik] of Inca Capital Advisors.

Yes, I just can't resist asking this question on the short position in the stock and the rise in it, and where is that coming about?

I have no idea. But if you find out give me a call and let me know, okay?

All right, no, but what about the fundamentals? What is the rub on HCP in terms of the shorts out there?

Again, I mean, we're focused on putting points on the board. I think the performance of the portfolio in the first quarter which is at the upper end of the range that we had forecasted we're pleased with. We're looking at some other things that may or may not pan out, if they pan out they are going to be equally rewarding. That's really what we're focused on.

And then as you exit 2009, what do you think the FAD coverage of the dividend should look like in terms of range of coverage?

Oh, I think for 2009 you'll probably be in kind of like the mid 90's. Again, we've got some one-time things here. I think you'll see that ramp down pretty quickly in 2010 because a lot of what we've been doing here is like the Hoag transition into Irvine Hospital, like the Orias transition to Emeritus and things like that, for a short period of time, they are going to increase that and that's going to ramp back down in 2010.

Well, what ratio are you talking about?

You're asking about the FAD ratio I thought.

As a coverage of dividend?

Right.

But then going forward and in terms of looking at 2010, where are the areas of sort of incremental on a same-store basis in terms of progress, where would you sort of highlight where you would see the best sort of progress in 2010?

Well, like in the portfolio -- I'm sorry, you just cut out the last bit there?

Just assuming a tough environment as you look at the different categories of your investments, I can see the trends this year but as you look into 2010, where would you look for incremental gains by property type?

Hospitals and medical office buildings certainly, senior housing I think that is going to be a function of -- when the economy bottoms out so I wouldn't look to have, unless we change something in that portfolio, I wouldn't look for a lot of incremental upside in 2010 versus 2009 in senior housing and the skilled portfolio, I think that's going to continue to do pretty well, particularly the skilled portfolio we have, so we're feeling pretty relaxed about that.

And just one other question. Going back to the secured lending in your guidance, was there a number that you had in terms of how much was going to be rolled into secured lending in your guidance on a specific basis?

Yes, $200 million and that was executed in the fourth quarter of '09.

Okay. And so going from the LIBOR plus to the 7 to 8 kind of range of interest expense on that stuff that gets rolled into secured?

Yes, based on where today's market is, I think that's right.

Okay, thanks.

You bet.

Your next question comes from the line of (inaudible) of Raymond Capital.

Hi, guys. For the Los Gatos California-based hospital, what cap rate did you sell that for?

Well, there again, that hospital, not unlike the Irvine Hospital was actually not covering the rents which is a function of these managed care contracts it was saddled with so kind of a meaningless number. It was about an 80-acre campus in Los Gatos, it was about a 30 year campus, single story.

Your phone just cut out. I don't know if you're on a head set but I think the battery might be low.

I'm not on a head set.

Okay.

But the cap rate really isn't relevant there. It was very high quality non-profit acquired from us and resulted in a very significant gain for the Company.

Got it. And at the beginning of the call you mentioned one of the assets being sold at a 10% cap rate?

No, that was a joint venture interest in the senior housing space that we acquired.

I understand so you acquired it at 10% cap rate?

Right.

Got it. And this question has been asked I guess in a lot of different ways on the call so far, but just kind of very straight forward, how do you guys think about 2011's liquidity needs?

I think we've got ample sources of liquidity. We've got a number of markets. We've always based our balance sheet management on never having all our eggs in one basket, so we've got joint venture transfers, we've got unsecured debt in the last several years, of very meaningful amounts, we've had secured debt offerings of very meaningful amounts, we've got equity issuance of very meaningful amounts, so now those markets are not all necessarily always open and they aren't all necessarily open at what we would deem to be attractive levels. For example, today the unsecured debt market, not just today by the way, it's been about 12 months we would not deem to be terribly attractive, but so we take all that into account and we take a look at what we've got in terms of maturities over the next, in your case, two years, and three-quarters of a year, we're in a very good situation with respect to joint venture opportunities, secured debt financing opportunities and one or two other things that we're working on as well.

Understood, so just to be clear, net liquidity for '09 and 2010 is no issue whatsoever but you have maturities of?

Well, we've got our bank line. Our bank line matures in August of 2011 so it has a one year extension and that's at our option but you need a 50% cut, a 50% consent from the banks so the reality is we're going to have to renegotiate a new bank agreement so that's out there but that's, we're not going to wait until August 2011 to get that done, but that was -- that will probably be the big piece of the 2011 focus.

Okay, and are you, is there a cap rate in which you see prevailing for your sectors as of late? You talked about how there's some transactions going on, there's some (inaudible) but is there an overall cap rate in which we can apply to the business to come to some sort of valuation?

No. I mean, it's really going to be situation-specific. I'd check in with Mr. Sullivan if you want an expert view but other than that we probably wouldn't have an awful lot to add to that for the answer of that question.

Got it. Thanks guys for the time.

Yes.

Your final question comes from the line of Sarah King of JPMorgan.

Hi, it's Sarah King here for Mike Muller. I just had a quick question for you guys about interest and other income. The sequential decrease, was it primarily just due to LIBOR or were there any other anomalies in that figure?

It's almost all LIBOR.

So it's pretty much all LIBOR? Okay, that's all. Thank you.

Okay, thank you. Okay, everybody. Sorry to drag on, but we appreciate your questions and for those of you that will be at NAREIT in New York City in June we look forward to seeing you then. Take care.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.