Healthpeak Properties Inc (PEAK) 2009 Q4 法說會逐字稿

Good day , ladies and gentlemen, and welcome to the fourth quarter and year-end 2009 HCP earnings conference call. My name is Chanel, and I'll be your coordinator today. At this time all participants are in listen-only mode. We will be coordinating a Q&A session after the presentation. Now I would 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,

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, 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.

Thank you, Ed, and welcome everyone to HCP's 2009 year-end earnings call. Joining me today are HCP's Executive Vice President, Chief Financial Officer, Tom Herzog, and Executive Vice President, Chief Investment Officer, Paul Gallagher. I would like to turn the call over to Tom to lead us through our latest results. Tom?

Thank you, Jay. 2009 was an excellent year for HCP. During the year, we generated cash, same-property performance growth of 3.2%, raised $881 million in equity proceeds, strengthened our balance sheet and ended the year with our strongest credit metrics and liquidity in five years, accretively acquired a $720 million participation in HCR Manor Care's first mortgage debt, and terminated and transitioned 14 Sunrise-managed assets to new operators and sold one asset, bringing the total number of Sunrise properties transitioned to 26 during the last 14 months, representing approximately a quarter of our total Sunrise exposure.

There are several topics that I will discuss. First, our fourth quarter, and full-year 2009 results. Second, our 2009 investment and disposition transactions. Third, our balance sheet and financing activities. Fourth, our 2010 guidance, and finally, our 2010 dividend.

First, fourth quarter and full-year 2009 results. In Q4, we generated 2.3% year-over-year cash same-property performance. Full year SPP grew by 3.2%, which was above your guidance range of 2.5% to 3%. Reported FFO of $0.55 per share for the fourth quarter before $54 million or $0.19 per share of impairments.

As previously disclosed, during the quarter, we recognized $48 million of impairments in connection with the bankruptcy of Erickson Retirement Communities, and $4 million related to the anticipated restructuring of the Cirrus loan. The remaining $2 million was due to the early termination of a lease in our Life Science segment. For 2009 FFO was $2.14 per share before approximately $177 million or $0.64 per share of impairments and litigation provision, which was in line with the midpoint of our guidance of $2.13 per share. Full year FFO was impacted by several items not anticipated in our original guidance, including $0.03 of gains on sale of HCA bonds, a $0.02 purchase price adjustment recorded in Q2, and $0.01 of lease termination fees, partially offset by $0.03 of higher legal expenses and $0.02 of lower interest and DFL income related to the HCA bond sales and the bankruptcy of Erickson.

Second, 2009 investment and disposition activities. We acquired a $720 million participation in HCR Manor Cares first mortgage debt, at a discount of $130 million for an acquisition price of $590 million. We also funded $120 million in develop and other capital projects, primarily in our Life Science segment.

During the year, we disposed of 14 real estate assets for $72 million, with gains of $37 million; we also sold a portion of our HCA bonds for $157 million, realizing gains of $9 million. At year end we held $140 million face value of HCA bonds, which are currently trading at a 4% premium to par.

Third, balance sheet and financing activities. During 2009, we continued to strengthen our balance sheet. We completed two equity offerings, generating $881 million in gross proceeds, a portion of which was used to repay our bridge loan and revolver. We also prepaid $113 million of mortgage debt that was due in 2010. As a result, our financial leverage during 2009 was reduced from 48% to 43%.

We also improved our fixed charge coverage from 2.3 times to 2.6 times. Our 2010 debt maturities of $300 million are modest, and include $200 million of senior unsecured notes and $100 million of mortgage debt. We ended the year with $1.4 billion available on our revolver, and $290 million of unrestricted cash and marketable securities.

Fourth, 2010 guidance. FFO was projected to range from $2.11 to $2.17 per share, and at the midpoint is flat to 2009. Our 2010 guidance reflects an $0.08 reduction of FFO from 2009 deleveraging, net of investment activities. This amount is completely offset by organic NOI growth in our portfolio of $0.08.

Our guidance which assumes no significant acquisitions or dispositions of real estate or debt investments includes the following: cash SPP growth of 2.5% to 3.5%, G&A expense of $70 million, inclusive of stock-based compensation of $15 million, net floating rate asset exposure remains around $300 million, and average LIBOR of 60 basis points, development, redevelopment, and first generation capital funding of approximately $100 million, including capitalized interest of $20 million, second-generation lease commissions and tenant and capital improvements of $55 million.

Guidance includes non-cash NOI of $59 million, consisting of; straight-line rents of $45 million, amortization of above and below market lease intangibles of $7 million, and DFL accretion of $7 million. We're also assuming amortization of debt premiums, discounts, and issuance costs of $7 million. Amortization of previously deferred rent of $4 million, with no deferred rent from space pending completion of PI build-out, and cash flow adjustments related to unconsolidated joint ventures, of minus $10 million on a net basis.

Finally, our dividend. In the first quarter, we increased our quarterly dividend from $0.46 to $0.465 per share, which represents an annual increase of $0.02 per share. I will now turn the call over to Paul. Paul?

Thank you, Tom. Let me go straight to the details of the performance of the portfolio. Senior housing, occupancy for the current quarter in our same store senior housing platform is 85.5%, representing a 30 basis point sequential decline over the prior quarter, and a 260 basis decline over the prior year. Occupancy stabilization in our non-Sunrise portfolio appeared to be gaining traction. With this quarter's reporting our non-Sunrise portfolio had occupancy declines of less than 10 basis points sequentially; however, our Sunrise portfolio continues to underperform, with this quarter's occupancy dropping 78 basis points from the last quarter. Occupancy stabilization, along with continued expense management and modest rate increases, are holding coverages steady. As a result, we saw sequential same property cash flow coverage decline by only two basis points from 1.15 times to 1.13 times.

Current quarter same property cash NOI for the entire senior housing platform declined 6.1%, with our Sunrise portfolio continuing to drag results. Our non-Sunrise portfolio had an improvement of 2%, driven by normal rent steps. Our Sunrise portfolio declined by 19.6%, driven by 2008 insurance credits and reduced LIBOR-based rents. As a most recent example of our active asset management capabilities, we terminated nearly a quarter of our Sunrise assets and transitioned them to four new operators over the last 14 months. These operators assigned new long-term leases, significantly increasing the cash flow to HCP. The repositioning of these assets to new operators will drive strong 2010 same-property annual cash NOI growth for the entire senior housing sector; we expect to range between 4.5% and 6.5%.

Our near-term leasing risk in senior housing consists of four leases set to expire in 2010, with annual rent of $664,000. Three are with the same operator, where we are currently in negotiations to renew, and we are exploring the options with the fourth. We also have one small loan to an operator that is expected to pay off.

Hospitals. Same-property cash flow coverage was down two basis points to 4.44 times. Same-property cash NOI for the fourth quarter remained down 10.4%, driven by short-term rent relief at our Hogue Irvine hospital. As we noted in our last call, Hogue began paying partial rent in August and is scheduled to pay full rent beginning in June 2010. As a result, we forecast a strong pickup in 2010 for hospital same property annual cash NOI growth of 10.5% to 11%.

Our near-term lease exposure consists of North Shore Regional Medical Center in Slidell, Louisiana, currently leased to tenant, expiring May 31. We have executed a definitive agreement to sell the hospital to the Private, Not-For-Profit Ochsner Health System with a projected close date of April 1st. Simultaneously, Ochsner will acquire the operations of the hospital from tenant. With this acquisition, Ochsner will operate eight hospitals in Southeast Louisiana.

As Tom previously discussed, HCP recognized a $4 million impairment related to our Cirrus loan in the fourth quarter. Cirrus is pro rata share of facility level EBITDA covers HCP's interest well, at 1.5 times. However, due to the state of the credit markets, our borrower and its physician partners have made the decision not to distribute the cash flow, but rather delever the subsidiary partnerships and invest in operations. In evaluating the underlying collateral, we believe facility level EBITDA will grow more than 10% in 2010, and that we are well collateralized. We are currently renegotiating the loan terms to allow for an orderly sale of the collateral.

Skilled Nursing. Our Skilled Nursing portfolio continues to perform nicely. Cash NOI for the fourth quarter increased 4.7%, driven by contractual rent increases, with solid cash flow coverage of 1.56 times.

HCR Manor Care reported improved third quarter trailing 12-month debt service coverage for the entire debt stack of 3.68 times, an increase of 65 basis points over the prior quarter. Their performance continues to benefit from stable occupancy, increased revenues from higher acuity residents, and a favorable interest rate environment. We are forecasting continued stability in our Skilled Nursing portfolio in 2010, with same-property annual cash NOI growth ranging from 1% to 2%.

No lease rollovers occurring in 2010. However, two loans with the same operate are set to mature in 2010, with annual interest income of $1.4 million.

Medical Office Buildings. For the current quarter, same property cash NOI was up 5.8%. This growth was driven by continued success in our expense control initiatives and ongoing impact of the previously discussed operating support revenues.

Our expense reduction initiatives resulted in a decrease in quarterly controllable operating expenses of $1.2 million, and an annual decrease of $3.6 million when compared to the prior year. We are targeting 2.25% to 2.75% same store cash NOI growth in 2010, driven by modest increase in occupancy and contractual rent growth. MOB occupancy for the fourth quarter was up 20 basis points to 90.9%, as a result of new tenants taking occupancy in Nashville, Minneapolis, and Las Vegas. This was offset slightly due to the expiration of two master leases in Utah, where in place sub-tenants became direct tenants.

During the fourth quarter, tenants representing 473,000 square feet took occupancy of which 303,000 square feet related to previously occupied space. Renewals for the quarter resulted in 1.6% higher mark to market rents, and our retention rate for the year finished at 77.4%. Looking forward to 2010, we have 2.325 million square feet of scheduled expirations, including 323,000 square feet of month-to month leases. Our pipeline remains strong, with 428,000 square feet of executed leases that have yet to commence, and 552,000 square feet in active negotiations.

Life Science. The fourth quarter same-store cash NOI was up 19.5%. These gains were principally driven by leasing activity that produced mark to market rent increases in previous quarters, the accelerated payback of deferred rent by a single tennent, recognition of revenue due completion of tennent improvements and contractual rent increases. Looking forward to 2010, we expect our same store annual cash NOI to decline by 2%, primarily due to the previously mentioned accelerated payment of deferred rent in 2009. Excluding the accelerated repayment of annual cash NOI would increase 1%.

Occupancy for the entire Life Science portfolio fell 1.3% during the quarter to end the year at 89.8%. The decrease in occupancy was driven by a 58,000 square foot tenant that ceased operations in the Bay Area in November. For the quarter, we completed 94,000 square feet of leasing of which 61,500 square feet related to previously occupied space that was renewed at an average renting increase of approximately 50%.

Including leases from new tenants, we were able to address 100% of the expirations that occurred during the quarter, with favorable tenant retention totaling 89% for all of 2009. Our focus on retaining tenants has allowed us to maximize cash flow with no downtime and minimal TI investment, as our average tenant improvement costs on renewals totaled just $1.58 per square foot for the year. Our Life Science portfolio has limited lease expiration profile over the next two years.

Lease expirations for 2010 total 306,000 square feet and represent only 0 .8% of HCP's 2009 annualized revenue. Looking to 2011, we have 417,000 square feet of expirations, which represent only 1.5% of HCP's annual revenue. HCP continues to pursue a pipeline of leasing prospects in excess of 550,000 square feet for existing space. We continue to monitor larger institutional clients, who have begun to seek space to accommodate expansion needs, or locate functions.

Our development and redevelopment activities resulted in the completion of three Life Science buildings at the end of 2009. The three buildings in south San Francisco totaled 329,000 square feet and were placed into service beginning January 2010. Two of the buildings representing 251,000 square feet, or 76% of the space, are leased to Amgen under long-term leases. The remaining building is currently being marketed to perspective tenants, with no commitment to date. As a result of these completions, the remaining development pipeline now consists of only three redevelopment projects totaling only 239,000 square feet.

HCP's Life Science portfolio performance remains strong, despite deteriorating real estate fundamentals experienced in 2009. The performance was in large part due to the quality of our tenant base. The performance of our larger public Life Science tenants remains strong, with continued earnings growth being reported for tenants like Roche-Genentech, Amgen, Dakota, Marigenetics, and NuVasive. In addition, our private venture-backed tenants raised $915 million in financing in 2009, with additional milestone payments totaling $2.9 billion from multiple sources, including partnerships, public equity and venture capital.

Overall, the health of the financing environment supporting the Biotech industry rebounded strongly in 2009 as US Biotechs set new fund-raising record by completing nearly $56 billion of deals during the year. From a liquidity standpoint, our Life Science tenants with less than 12 months of cash represented only 1.3% of HCP's 2009 annualized revenue. With that review, I would like to turn it back to Jay.

Thank you, Paul. In addition to being Valentine's Day, this Sunday begins the Chinese New Year of the Tiger. In Chinese astrology, the tiger is a dynamic and powerful sign. It's nature is unpredictable, courageous, and volatile. Therefore, the Year of the Tiger is usually associated with big change and social turmoil, making 2010 likely to be a volatile year. While we are not yet 45 days into 2010, I think it's fair to say that Scott Brown's victory in Massachusetts and the resultant impact upon the prospects for health care reform, now being less likely to become law, qualify as big change and social turmoil.

From a 2009 perspective, HCP's Management and its Board of Directors are quite pleased with the overall performance of our investment portfolio, which finished the year with a same property performance result of plus 3.2%, nicely above the 2.5% to 3% guidance we had provided. In addition, it was especially gratifying and lucrative to have had $1.7 billion, or 15% of HCP's entire portfolio invested in high-yield debt investments, which was among the best-performing asset class for all of 2009. We begin 2010 with terrific credit metrics for HCP. In fact, the best financial position since the inception of the Company back in 1985. The absolute amount of liquidity we currently enjoy is without equal in the Health Care Real Estate sector, and we have a number of opportunities that we are currently pursuing.

On the last several earnings calls, you have consistently heard me highlight the Company's best-in-class and investment portfolio, and HCP's unique five-by-five diversified business model. From those of you that come from the trust but verified perspective of earnings call rhetoric, as we at HCP do, grab your pencil and listen up. Measuring the recession as beginning in the fourth quarter of 2007, and ending in the third quarter of 2009, and using HCP's investment portfolio's same-property performance as the best metric of a best-in-class health care investment portfolio, produces the following performance. Fourth quarter 2007, positive 0.7%; 2008, positive 1.6%; 2009, positive 3.2%; 2010 forecast, positive 2.5% to positive 3.5%. In other words, HCP's portfolio performance not only remained positive throughout the entire recession, but experienced accelerated improvement during the recession. Furthermore, these numbers exclude $277 million in realized gains on assets we disposed of during the same period. By any measure, these investment results, given the magnitude of the economic downdraft during which these results were achieved, are extraordinary.

Now let me take one more minute and peel the onion or your secret sauce, HCP's diversified five-by-five business model. Nothing goes up forever. Meaningful, and I emphasize the world meaningful, diversification across five sub sectors of Health Care Real Estate provides HCP shareholders with a stable recurring source of growing cash flows. We understand and expect that last year's outperformances are likely to be this year's more challenged sectors. This diversification insulates and sustains HCP's shareholders from concentrated downturns. This diversification also creates a superior universe of investment opportunities for the Company.

Let me update you on HCR Manor Care's fourth quarter 2009 performance. Paul has just taken you through their third quarter results, which are again summarized in our supplemental disclosure. For the healthcare analysts that are on today's call, you are no doubt aware of the fourth quarter weakness recently reported by one or more of the publicly traded skilled nursing operators. This was somewhat expected, as the fourth quarter of 2009 was the first period in which the 1.1% Medicare reimbursement reduction occurred.

Now, here's an interesting fact. For the fourth quarter, HCR Manor Care reported a double-digit increase in their year-over-year EBITDA, notwithstanding the reimbursement cut. Said differently, HCR Manor Care, was able to completely offset, and then some, the fourth quarter Medicare rate reduction through acuity shift.

Before closing, I want you to remind you that in Chinese astrology, the tiger is a dynamic and powerful sign. Two tigers will be celebrating significant milestones this year. In November of 2010, we will honor NAREIT, as we celebrate the 50th birthday of President Eisenhower's brain child, Real Estate Investment Trusts. And on May 18th, 2010, HCP will ring the closing bell on the New York Stock Exchange, in recognition of its 25th anniversary as a publicly traded company. Earlier that day, HCP will conduct its first-ever Investor Day in lower Manhattan, and we hope to see each of you there.

Happy Valentine's day to you all, and we will now take your questions.

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

Good morning, Jay, and everyone. Jay, just starting off with your comments obviously on the change and expectations for 2010, and obviously the delayed status or possible cancellation of health care reform altogether, can you talk about, you said a number of opportunities that you are currently looking at, and I guess segments that you are look at, and potential returns that you are looking for at this point?

Sure. I think on the last call, I indicated that the expected near term passage of health care reform, coupled with the reopening of the capital markets, had set in motion an unprecedented volume of strategic and capital market activity that will likely result in unprecedented health care deal volumes. I think it's fair to say, and it's still early days in the aftermath of the to-ings and fro-ings in Washington that obviously the health care reform catalyst is certainly if not removed, been delayed, and with the markets turning somewhat choppy for a variety of reasons, we're in a position, I think, that we're sensing that a lot of people are reevaluating how they want to do, and when they want to do the transactions that they have got lined up and in the queue.

So I think with that, I think we continue to see that this year will be, and expect, will be a very active year for the space and for HCP. I think as I've handicapped our deal activity by the subsectors previously, in terms of most active to least active, I would probably put the Skilled Nursing space at the top of the likely to be most active sub-sector. I would probably put Life Sciences, towards the bottom of that list, and then kind of aligning the other three spaces after Skilled Nursing in terms of most active, I would probably put Senior Housing, and then Medical Office, and then Hospital. So that's basically it, and that really hasn't changed in the last quarter or two in terms of the deals that we are reviewing and working, so I think there's really no change in terms of our perspective on that. Now in terms of - -

Is that based on the return profiles, or is it really the growth outlook for the next, say, couple of years?

Oh, I think it's largely impacted by the return profiles, Jay. So I think a lot of the underlying economic fundamentals, the most important of which is the aging baby boomer demographic, that hasn't changed at all. We continue to think that that will drive very attractive opportunities over the next couple of years in Skilled, Senior Housing, to a lesser extent MOBs; Life Science is really more unique to HCP.

Again, we tend to like the portfolios that are heavily populated with higher credit tenant sorts of opportunities, and we like to have them be in the top three or four major markets. When you put the one set of criteria on top of the other set of criteria, there's not a real long list of opportunities to be reviewing. And I think hospitals, again, consistent with what I said previously, that increasingly is a very complicated,a lot more, certainly the most operating-intensive business of our five sectors, certainly the least real estate-intensive sector of our five sectors. So absent more of a debt investment, I think it would be unlikely for you to see us growing our Hospital portfolio.

And just switching gears a moment and focusing on Sunrise, based on your guidance for the full year, are you assuming Sunrise basically stays in tact, assuming basically no more transition of remaining facilities?

For the purpose of our core guidance, that is the case, yes. We have transitioned, as Paul and Tom indicated, about a quarter of our portfolio, and there are no more transitions included in our guidance for 2010.

And how likely is that?

Stay tuned.

Okay. And just one final question from me, can you give us an update today, I know you talked about debt, and the amount coming due this year, I think the $200 million of unsecured. Where do you think you can issue today?

Yes, in terms of the unsecured markets, plus or minus at the five-year maturity, we would be 5.25%, and plus or minus at the 10-year maturity, we would be at 6%.

Okay. Thank you.

Yes.

Your next question comes from the line of David Toti of Citi.

Hi, good morning, guys. Michael Bilerman is here with me as well. My first question, Tom, can you walk us through maybe some of your goals for 2010, with respect to the balance sheet perhaps increasing liquidity further, [arbitraging] some of the low-rate environment? What are some of your top priorities for the next 12 months?

Well, David, Michael, as I think about the balance sheet, we have brought it down in a single year from 48% financial leverage down to 43%, brought the coverage up from 2.3 times, to 2.6 times. We have about $300 million of 2010 maturities, two thirds of that being unsecured, one third being secured, so we feel really good. We have got a free and clear revolver, so I as I think through to what is going to take place in the next year, probably some time in the fourth quarter we officially launched looking at our revolver that doesn't expire until August of 2011. We're looking at taking out the unsecured that isn't due until September of 2010, possibly with additional unsecured debt. So we feel very comfortable with the leverage liquidity, and maturities that we have in place, so no great concerns from that standpoint.

As I look at the overall leverage at 43%, I'm very comfortable. Not looking to lever up on any long-term basis, so if we were leaning in any direction, maybe slightly delever over time, but very comfortable at the 43% level.

Okay. Jay, it's Michael speaking. As you talk about five-by-five, and obviously the five sub-sectors that you are involved in, my guess is, as you think about going forward, does that eventually evolve to a six-by-six, seven-by-seven? I mean is there more diversification that you want to have in the Company?

No, I think as a practical matter, we're in the biggest sub-sectors. The other sub-sectors that are out there are probably not sufficiently large enough, or sectors that we think we would have a competitive advantage in. So I think the other thing that would be out there, which might be a geographical move, but again, as I have said consistently, in any scenario, out five years, out 10 years, I would continue to see - - . I mean there's only one civilized society in the world that has 16.2% heading to 20% of its GDP in health care, which is not necessarily a good thing, as have we now probably all become a little more aware of what the burden on these entitlements are likely to produce in terms of continued deficits. I think there's a potential there for some geographic expansion, but I don't anticipate that ever being something more than potentially 5% or 10% of the company's

Is there different ways that you want to be invested in this space, so you think about the loan portfolio or the real estate, maybe trying to leverage the TRS more over the next 12 to 24 months, and figure out a way to be more operational?

Well, again, I think - - I hope we're pretty good at knowing what we're good at. I think we're really good at knowing what we're not good at. And no one will ever confuse us as operators.

Or to bring something in house? I'm just trying to think about, if you think about transaction activity, whether that's an area that we could expect something?

Yes, I think from our standpoint, the TRS, we always thought if you go back 18 months when it first became likely that the passage would be effective, and then in fact did become effective last year, we always thought kind of the hype was a little overblown, but certainly, so we view it as another arrow in our quiver. The classic example would be if we could migrate some of our high-quality real estate that might be under managed, and migrate that to a more efficient operator, particularly at the bottom of a cycle. Obviously you could kind of have a two-fer in terms of upside; you would be getting normal cash flow growth, and then if we were in the bottom of a cycle in one of our sub-sectors, you could kind of have that turbo charged with dis-equilibrium between supply and demand.

So we think about that and we watch that, but the driver isn't to kind of have "x" amount of assets in our TRS or take advantage of it. The driver is to buy good, quality real estate or make investments that may have a pathway to ownership of good, quality real estate, and most importantly, create the majority of the value for HCP shareholders on the buy. I think that's really, really important. In this business, you really got to make your money on the buy, and if you think back where we have made our moves, it has largely been in choppy capital markets, or markets that were very down, and it's oftentimes been where we saw mis-priced or inefficient pricing precedence for the sectors, most notably, our Met Cap acquisition in '03.

Yes.

The CNL acquisition in '06, the Life Sciences acquisition in '07, and both debt investments in the last half. So that's our M.O., and I don't really see that changing, going forward.

Okay, just last one, just on I guess on your selection of your "Red, Red Wine," I assume that's all Valentine's Day, and you are not drinking to get over something that you lost in the last year?

I would agree with that.

Okay.

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

Thanks. Just a couple of things. I guess, one on Life Science, you have a fair amount coming out of development, I mean, some just opened, I think you touched on, and then some of the redevelopment stuff comes out next year. I was just wondering if we could get a little more color on lease-up prospects for that, and particularly on Roche-Genentech, whether any firming up of maybe space relocating, or them relocating to your area.

They are already our largest client, right?

Right.

And so you mean are - - you talking about additional - - ?

Yes, I thought there were some Roche facilities, maybe down in the [peninsula], or they had talked about maybe even consolidating with more of their research operations perhaps - - .

Yes. I think on that specific situation, I think, and I don't know if it's a function of what going on with the economy or the capital markets or what. My sense is that they are, or maybe it's the, kind of the Swiss being their normal deliberate and cautious self, which is just fine. I think they have looked at a lot of things. We have talked to them about a lot of things, but to date, there's really been no change in their facility based sort of profile up in the Bay Area.

That still could change. I suspect it probably will. I think that probably the driver there will be prospects for the company, particularly, them hitting on maybe some new drugs or things like that.

With respect to Life Science more generally, the first part of your question, we just placed in service a couple of buildings, and we have got some additional redevelopment that will be coming back on line probably 12 months out. I point out, Jerry, that in terms of the absolute level of that, it's very, very small relative to our overall Life Science portfolio, which really goes to what are the prospects for leasing? As you can see from Paul's report we continue to have a good success rate in terms of quarter leasing activity, there's not a lot of vacancy we have to start with. And I think we're probably in a mode here where people are still trying to figure out what kind of economic environment they are going to be dealing with, but we certainly have more foot traffic through our available vacancies, and we seem to be having more substantive discussion with those folks in terms of what their near-term business needs are, and what their process would be to move forward, and create some additional leases. Certainly, it's far better than what it was, say, 12, 15 months ago.

Okay. And then, on the Senior Housing side, you guys saw a little bit of slippage in the third quarter. I think some of the feedback I'm getting from operators more optimism as they look forward. I was just trying to get a sense, particularly since your data is kind of a quarter lag, just how you are feeling about outlook for Senior Housing broadly?

Yes, as you correctly point out, the numbers that Paul was citing were fourth quarter, we get flash fourth quarter numbers, and they are pretty much flat, so I think we feel very good about the fact that there's meaningful stabilization there. Again, that comment would exclude the Sunrise component. And going forward, I think you have almost got to make a decision on what the economic environment is. As you know we have consistently been more on the bear-ish side. I probably shouldn't have listened to, but I did listen to this morning Mr. [Rubini] and Mr. L. [Arian], and they were increasing their probability of a double dip recession for the second half of this year.

So I think absent something like that, things are just fine, and they are going to slowly but steadily get better from year, but, who knows. You have to make kind of a macroeconomic call in terms of economy, the prospects for real and sustainable job growth, which we obviously haven't seen yet, and what if any the impact will be on the housing markets. I think those are really more the issues that will decide where we go from here as opposed to anything unique in our portfolio.

One thing I would add is when you look at Senior Housing excluding Sunrise, for the fourth quarter on a year-over-year basis, the same-property performance was actually fine, right in the range of what we would have expected. It was a couple of the Sunrise transactional items, and the insurance credits in '08, and some funds that were held back that caused Sunrise to be dramatically below what we expected, thereby having Senior Housing show a number that was quite a bit smaller on a year-over-year basis as a whole, but for the Senior Housing, excluding Sunrise, the results were fine.

Okay. And then the last thing I have is just, any update on litigation, I assume nothing dramatic has happened. And just maybe remind me what the time line is with the Ventas and Sunrise in terms of when we might expect something else to happen.

On the Ventas, and this is completely described in our 10-K, we filed an appeal with the Sixth Circuit Court of Appeals last November. We have very strong arguments on appeal, but we do not expect a decision there until some time in 2011.

And then on Sunrise, that litigation is preceding in two courts, the Delaware Chancery Court, and the Virginia Federal District Court. Proceedings are moving along very quickly in Virginia, and we anticipate going to trial there in the spring of 2010. That particular trial will involve a portfolio of four of our properties that will be the Virginia case, and, again, we believe we have a strong case, and that we'll prevail at trial.

Okay. And the Chancery is a slower track, and that's where more assets are involved?

Yes. Yes. I think that's more kind of later this year, early next year in terms of the Delaware Chancery Court.

Okay, good. Thanks.

Yes.

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

Good morning, or as they say in Chinese ( speaking Chinese ) Which I think is thank you, I think in Mandarin. Regarding the Life Science, the 19%, I think same-store NOI growth, 19.5%, you mentioned a lot of that was from leasing activity, mark-to-market rents, just looking at my notes, but you have limited sort of lease expirations on a go-forward basis in 2010 and 2011. I'm wondering if you view that as a missed opportunity or a good thing in the sense that you are not able to, maybe potentially roll up leases on those expirations? Trying to get a sense of the marketplace for your expirations - - .

I think in light of the environment we're in today, remember, the history here was when we agreed to buy that, that portfolio was 82% occupied, and we had indicated to the Street that our plan was to get that to 90% over two years, but performance being what it was, we moved it to 90% within six months, so what you are now seeing is the result in 2009 of an extraordinary amount of very successful lease-up activity. Your comment about, do you think it was a missed opportunity?

My sense would be, that were we to be able in this environment to have achieved that same lease up, we wouldn't come close to the rents that we achieved back in the latter half of '07 and '08, when we did that, so I would say the tiger was smiling on us, so it would be just the opposite of missed opportunity, it was a very fortuitous timing on our part.

Okay. So the leasing is leasing up vacant space, not necessarily rolling already occupied space, that's not where the opportunity is?

Yes, the ability to do that was really kind of '07 and '08. Remember, we had, part of the lease up was that a lot of those leases had been five-year leases up in the Bay Area, in particular, when the dot-com group went bust five years earlier, so when we were rolling a lot of those leases, which we obviously saw, we stepped into a lot of below-market rents, and when we were able to roll them in '07, and '08, that's when we were getting those ridiculous bumps.

I remember, I think it was a NAREIT conference a couple of years back in June, Rich you, in particular, were scratching your head saying, how can you be getting 25%, 30%, and 40%, a lot of that was what the stepping-off point was. So, again, we have been very fortunate with the performance there, and Tim [Shown], and John [Berkeschneider], who run that platform for us, have done a fantastic job for us.

A lot of that is converting conventional office in to lab use, correct?

No, not really, that's what all of the redevelopment is about. The three buildings that we have in redevelopment, everything was blown out of the door there when we first acquired that in '07 and '08, and then when the market softened, we perceived an opportunity to get a better return by going down the conversion process, which is what we did with those three buildings, we took them off line, we have got those in redevelopment, and they'll come back online late this year, end of next year.

Okay, turning to Sunrise, is there any feeling of being less motivated to transition some of the rest of the portfolio; I think there's some sense that Sunrise is starting to see some stabilization in their operations. Do you feel that, or are you just as motivated as ever to go after the other 75%?

I think our responsibility is to ensure that, our shareholders are getting proper return on our high-quality real estate portfolio, and as you probably have gleaned from Tom Herzog and Paul Gallagher's comments this morning, if you drill into Senior Housing and bifurcate the Sunrise portion from the non-Sunrise portion, very different things are going on there with respect to performance, so - - .

Right. That's the past though, I guess I'm thinking about the future. Do you still feel the future is going to be somewhat of a mirror image of the past?

Well, we're talking about a company, you have got, next month will be the second-year anniversary of the current CEO there. We have yet to make any money during that time frame from cash flow from operations. So that will probably be one fundamental milestone. I think it would be good if we could start to see them. This really isn't unique to our portfolio, it's just a global matter, in terms of making them profitable, from an operations standpoint.

They have obviously sold a number of assets. Their business model had been asset-light to begin with, so now they're assets-very light, so there are less assets for them to sell, and, they currently have a vacant Chief Operating Officer function. So we haven't seen a whole lot that's transpired that's improved their ability to focus on what we would like them to focus on.

Okay. Just a quick one back to Life Sciences, the 118,000 square feet of terminations during the quarter, I think that's what it was, can you comment on who or what the situation was there, the individual tenant?

Yes, I don't think we have mentioned the name specifically, so I think we would probably like to pass on the opportunity to answer that question.

Okay. And last one is for Tom. What do you have in your model for total [DFL] income, inclusive of the non-cash amount of $7 million, for 2010?

I'd have to look back at that to get the specific number on that Rich.

Okay. Alright. Thank you.

Yes.

Your next question comes from the line of Dustin Pizzo of UBS.

Hi, thank you, good morning, guys.

Hi.

I guess to Jay or Paul, can you just provide some more color on the operators that now make up that other basket in the Senior Housing portfolio, and I know it's trailing, but what drove the 600 basis point decline in occupancy from the third quarter?

Yes, actually what that reflects is the movement of our Eden Care II portfolio out of the Sunrise basket into that other basket. And that portfolio was covering up 0.72 times, so that's really what drove the entire differential there. There are about 14 or 15 different operators that are continuing to perform well within that group, but that's the biggest driver.

Okay. And then can you talk about what exactly is driving the 4.5% to 6.5% same-store NOI growth? How much is rate versus occupancy, et cetera?

In Senior Housing?

Yes.

We get normally anywhere from 2% to 3% normal rent growth, but the lion's share of the increase is coming from the renegotiated contracts both from our RES transfer, and our Eden Care II transfer from Sunrise. So you can kind of do the math to say, regular 2% to 3% from the portfolio, plus some significant new growth from those new repositioned assets.

Okay. And I would imagine the bulk of that, you are planning on occupancy increasing, or - - ?

No, that is just a more efficient operator taking over the high-quality real estate, Dustin. Any additional occupancy gains will be further gravy there.

Okay. And just on a similar note before I move on on the Senior Housing side, can you talk about what is going on with the Horizon Bay assets and investment management platform? It just appears that the performance out of that pool is significantly below those in your wholly owned pool, and - - .

Yes, we actually mentioned that in our last call, where what we did was we provided them with a modest rent deferral. Where we were going to be deferring rent the impact to HCP was about $5 million in rent, and they provided us with projections as to how they were going to proceed over the coming months. We have closed on that modification. We have been tracking now for about four or five months, and they are performing as we have expected based on the modification that we work through.

And then Dustin taking one step back from that, that portfolio is different than the rest of our Senior Housing, in that it is largely independent living, as opposed to the majority of our wholly owned portfolio, which is heavily assisted living, and I think it's been pretty much accepted that within the Senior Housing sub-sectors, independent living probably had a little more exposure to the - - it's a little more discretionary as opposed to the needs-driven demand that you are going to see in assisted living, so that has probably been a little more exposed to the economic downdraft.

Notwithstanding that, Horizon Bay is a terrific operator, and might be a couple weeks out of date, but the last time I saw the metrics on that portfolio, they were tracking in right around 90% occupancy, and a low 40% operating margin, so their metrics continue to be quite good, and we continue to be very strong supporters of that management team.

Okay. And then I believe Ross had a couple of follow-ups as welt.

Yes, hi, Jay.

Hi.

On the MOB portfolio, the 1.6% increase you had on releasing in the fourth quarter, is that cash or GAAP?

That should be cash.

Okay. Because I'm trying to reconcile that to, and I'm looking on page 17 of the SEP, the expirations you had in the quarter were a little over $24.00, and yet the new leases in the renewals were anywhere from $20.00 to $23.00 a share. So how should I think about that, because it looks like the new leases are coming in below the expirations? I know it's not apples to apples. I'm wondering if the 1.6 number is just the same space number, and the other columns are not?

Okay. Ross what page are you on in the supplemental?

I'm on page 17, where you have your leasing data laid out.

Oh, you know what goes on there, those numbers have a combination of both, triple net, and modified gross, and a variety of different types of leases. We can go through and kind of walk you through, apples to apples what those numbers were, what went up and what went down. So there is a lot of noise in how those numbers were presented.

Yes, I would like that. Because just on the surface, you look at those columns and obviously they don't put out.

Right.

The other question, Jay is your commentary in terms of what you are thinking on the new investment front, being I think a little more interested in [snips] and having MOBs or Life Science, I should say, on the lower end, why? What are you seeing in terms of the return profiles, in terms of the pricing you are [seeking out] on new investments, as well as the potential growth off of those levels that causes the rankings that you put out there?

Well, there's a couple of things going on there. It's not all return. Recall, I think I put it towards the bottom was Hospitals, just because our view on that is that's, of our five sub-sectors, that's the least real estate intensive and the most operational intensive of our five sectors, which is, something that we don't think necessarily plays to our strengths. But clearly, what plays to our strengths is our ability to partner with either high-quality tenants, or high-quality operators, and kind of fill vacuums that are there in the markets.

So in an environment where things get quite frothy, as was the case most recently for an extended period of time, in the first half of '07, and then most recently for a very short period of time December and early January, that probably reduces our competitive advantage. I think we're advantaged most when markets get a little choppy, and people have got things to do, and they have to get them done, and, capital market execution that they had hoped for or had planned on might not be there. So we just have a sense that those opportunities for 2010 are most likely to be in the Skilled space, and the Senior Housing space in that order, and then moving down from that, MOBs and then kind of Hospitals and Life Science, so I think it's really more where we think we can - - because it's so important in this investing, particularly in this sub-sector, to create your value on the buy.

We just think that's going to be where our relative advantage is maximized. There's a lot of things that have to happen there, there's a lot of very large Skilled Nursing operate that are owned by private equity firms. I think in fact, of the five largest, I think four of them are private, and private equity firms with the time horizons they have are going to be looking for exits. Some of those investments are two, three, four years on, and it's time for some exits to occur there, so that is something that intrigues us.

And then Senior Housing, we love the current supply demand. I think it's fascinating to take a look at a sector that has got the underlying growth in the baby boomer that it's still today at high 80s sort of occupancy, with next to nothing in the way of new supply coming on, so - - I mean it's not just a return, it's really more kind of projecting out where we think there could be some opportunities to really, make investments that have been, consistent with the way we have made, MedCap, CNL, Slough, and Manor Care.

Thank you.

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

Yes, thanks. Jay just to follow up, a couple of questions on sort of the spectrum of assets. When you are talking about the [SNF] assets that might be interesting, are you talking about the private, rather than the public or the privately held? I'm sorry, the not for profits? What I'm asking is, you in the past said that you prefer to own particularly in that sector, since there are a lot of kind of junky nursing homes, the higher quality assets, and it seems that a lot of those are in private hands right now.

Yes. I think probably the two most obvious examples of that would be the Genesis portfolio, and the HCR Manor Care portfolio. I think it's several things. I would remind you, and again, I think if you take a look at our track record here in terms of what we bought, and what we sold, we really do not care for Medicaid exposure.

Right.

In the 10-K we update our Medicaid exposure, I think we have got that down to - - 7% of the entire revenue stream of the Company now has got exposure to Medicaid, and I think a lot of that is through some debt investments, which obviously put us higher up on the capital stack. So we feel that we've - - we're very pleased with what we have done in terms of managing our Medicaid exposure, which becomes very important when you take a look at the deficits that are ripping through the various states right now. So I think that's one thing we take a look at.

If you think back about the strategic decision we made to divest down to a very modest exposure in this space, a lot of that was driven by the fact that we had all of these one-off operators that, again, didn't play to our strengths, I think you heard me refer to the Costco, SKU concept as opposed to the Albertson's or things like that. So there are a lot of different things that go in to that calculus, but in general, nursing home beds, as you well know, are steadily going away. It's the same supply/demand dynamic that you see in Senior Housing but it's occurring for different reasons. And the more efficient operators of the higher quality real estate that have a quality mix that's much more of a post-acute discharge sort of setting in our view are most attractive to us.

Okay. Makes sense. And then you commented that the parent demise of health care reform may have forced some rethinking on the parts of operators. [Assuming] that there is anybody that has got anything to lose from this, it would be the hospitals, in that you'd have a lot of uninsured patients who might have gotten insurance now don't look like they would, which, if you take it one step further, might make them more willing to shake off some MOB assets, given that they're not going to be any support for the uninsured. Or I am giving hospital Boards way too much credit for being forward thinking?

Well, most of the hospital Boards, if we're talking about the nonprofits - -

Yes.

I wouldn't say they are not forward thinking. I would just say they are very slow moving, unlike the for-profits. But I thought it was interesting that within days of the health care reform doing whatever it did, being delayed or postponed or eliminated, you saw HCA move very quickly and reduce the equity holders investment in that company by a substantial amount via a dividend, as opposed to an IPO.

So I think that's a good example - - I think people, they have got a lot of plans, they're looking at a lot of different opportunities. They are going to play the cards that are dealt to them, and I think on the last call, at that time, I think everybody felt that the passage of the health care reform legislation was certainly likely, and in fact eminent, and I think that's no longer the case, so people are reevaluating the cards that they are holding and trying to sort that out. I think what you have indicated is entirely plausible, that some of these for-profit or nonprofits may now be more motivated to part with MOB assets, which from our standpoint would be great. But, again that's going to take a little bit of time to manifest itself in actual decisions.

Okay. And then Tom, just a couple of clarifications. You said, looking at cash in 2010, amortization of previously deferred rents of $4 million. Is that the SAB 104 deferrals?

No. No, that has to do with, as we had previously been deferring rents in connection with assets that we had TIs that had not been completed, that number went the other direction last year.

Right.

And now there are some amounts that are hung up on the balance sheet that will reverse and be amortized in over the subsequent periods, and we no longer have items of that nature that are being deferred in the current period. So the SAB 104 is something that technically should neutralize itself to zero over the course of the year. So you're right that that would not be the SAB 104; it really is the other thing that I've described.

Okay. So, yes, so SAB 104 has become sort of a zero. And then the tenant improvement deferred revenues which are up from the $13 million neighborhood this year, to the $4 million neighborhood in 2010?

That goes the other direction, Rob.

Okay.

Last year we had actually deferred rents in that amount of $13 million, and this year it goes the other direction, where we're no longer deferring, because we don't have assets that are undergoing these TIs, where we're receiving rents, and therefore deferring amounts, causing this adjustment. Instead it goes the opposite direction where we have deferred amounts that are now amortizing back off.

Okay.

Thereby that $4 million goes the opposite direction of last year's $13 million.

So the sign switches?

Yes, the sign switches.

Got you. And then your guidance for SG&A, fourth quarter level was below where you've been the last few. The guidance suggests that you can sustain something around that level, is that a product of any particular initiatives that you have done at HCP?

We have slowly and steadily been able to take costs out of the operating platform, for different reasons. When we acquired CNL, obviously there was a lot of duplication there, and I think we went about that in a very deliberate way. We were able to, a very pleasant surprise, take a substantial amount of costs out of the Slough platform. In fact, we had assumed, in terms of the recommendation we made to our Board, that we'd actually have a negative synergy there to build that platform out, and in fact, there was a substantial recovery on an annual going-forward run rate basis with costs.

So I think we have continued to poke at that. We obviously had the benefit of Mr. Herzog joining us in the middle part of last year, and he has taken the efficiency of his department, which is substantial, through a variety of new initiatives, and we have taken some additional costs out there. And I think quite frankly migrating - - 2009 was the first year that we experienced a complete year with our new organizational structure with the line of business, that I think, Rob, when you had a number of your investor clients out last September, you had a chance to visit directly with the three line of business heads, and there was just some additional synergies that came out of that. So I don't think there's a lot more low-hanging fruit. I think we have got all of that, but I think it's fair to say, we have consistently become more efficient and mindful on the cost side.

Okay. Thanks all I had. Thanks a lot.

Your next question comes from the line of Tayo Okusanya with Jefferies.

Hi, yes. Good morning. Just a couple of quick questions. Hello?

Tayo.

Just a couple of quick questions. Page 15 of the supplemental on the Owned Life Sciences portfolio, I know again the change in rents tends to be a mixed bag of numbers, but it shows the 69% number change in rents, and I was just wondering, if I was just to kind of look at a specific space, and trying to figure out what what the difference is between your in-place rents versus market rents, what would that number be, if I was just doing an apples to apples comparison?

So if you were to - - say that again.

If I was looking at page 15 in the Owned Life Sciences portfolio.

Right.

It gives me from third quarter to fourth quarter, a change in rents of 69%.

Right.

Which I know is the result of a mish mash of a whole bunch of things going on in that quarter.

Right.

But if I just wanted a apples-to-apples comparison in regards to a particular space, lease expires, you guys get a new tenant, - -

General mark-to-market in the portfolio like what we would expect for next year?

Right.

I think that would probably be in the range of a decline of about 15% to 20%. But, again, remember what we did was we did a lot of blend and extend in 2009, so we had very little rollover left in 2010 that would be impacted by that.

But if there was any it would be a decline, you said?

Yes of about 15% to 20%.

Okay. That's helpful. And the second thing the development pipeline - -

By the way that question and answer is the exact point that I that was making when Rich asked his question, was at it missed opportunity with the Life Science portfolio. In fact it was very fortuitous timing that we didn't have all of that lease-up to do this in environment, as opposed to when we got it done.

Right. And in the development pipeline, I noticed the estimated total investments is about $30 million more for the redevelopment. And you pushed out the completion dates for a few of the assets by a quarter.

Where do we have those, mostly coming on line at the end of the year?

This is page seven. Could you just give us an update on that in regards to why the one-quarter delay, and why the higher total investment cost?

Well, I'll let Paul talk to the higher investment cost. With respect to the delay, I think we're just trying to be conservative. As I mentioned, foot traffic has picked up, we're having more substantive discussions, but prospective tenants are still feeling their way and being quite ginger in terms of stepping up to the plate and making certainly long-term lease commitments. Do you have a perspective on the difference in the - - ?

On the costs, I think some of the cost would be around things like, what it is that we're going to be doing with the asset over time, and as we get in to the market and figure out what its highest and best use is, there has probably been a little bit of a change in kind of what the approach to the concept would be.

Okay. Does that mean development yields in general are coming down, or are you still forecasting the same development yield as when you started the project?

No, they would be very similar.

Okay. And then the last question from my end is on the Senior Housing portfolio, I know where it kind of talked about the operator concentration, we've talked about Horizon being a little bit on the other portfolio, but there are some of the names where the EBITDA coverage is pretty close to one, and I was wondering if you kind of talk about those operators, like Aegis and [Harbor] Retirement, what is going on at those assets?

Yes, I think in both of those Aegis is something we acquired back I believe in early 2006 or so, and that was always structured with a much higher rent bump than others. They continue to perform well, it's just that each year as the rent increases, they generally tend to remain right around a break-even coverage. Couple of quarters, they're slight below, a couple of quarters, they're slightly above, so that's probably expected.

And Tayo, by the way, let me just interject one thing, that particular portfolio acquisition, Tayo, was structured as a down REIT.

Okay.

So with the principals we have nice alignment there with their continued ownership stake in HCP.

And with HRA in that particular portfolio, that operator has actually had some of the better occupancy gains kind of across the board, so we expect that portfolio to do better going forward. We have also transitioned a couple of the Eden Care II assets to that particular portfolio, so I that overall as they improve the efficiencies there, that portfolio will do just fine.

Okay. What about [Capital] Senior Living, just the last one?

They have got a couple of assets in markets in both California and Florida, and they have been hurt simply because their independent living, and one of the things that they have been trying to tackles is converting various different wings into Alzheimer's and assisted living, and they are in the process of going through and repositioning those assets. But, again, in all of those cases you talk about master lease portfolio, so we feel pretty good about what we.

Great. Thank you very much.

You bet.

Your next question comes from the line of Unidentified Participant 2 of Barclays Capital.

Hi, thanks for squeezing me in here. Just a quick question here as it relates to your MOBs, you showed a lot of cost savings in 2010, can you kind of give us some color as to where those savings came from? And then just a quick follow-up to that is what kind of assumptions do you have for that to continue in 2010, in that I think you said 2.25, 2.75 NOI growth?

As I just mentioned two questions ago, we have been kind of slowly but steadily becoming much more efficient in taking costs out, in particular in MOBs when we put Metcalf together with HCP's portfolio, and then had some additional portfolio acquisitions in the '06 and '07 time frame, the biggest of which was the MOB portfolio that we got when we got CNL. We ended up with, if you can believe this, 19 different property managers. We don't have that function internally, we outsource it, so Tom [Klaritch] and his team in Nashville, to their credit, have slowly but surely been consolidating that 19. I think we're down to about seven now, three of which we have we're the property managers [at the time] we made the acquisitions, so we are contractually obligated to those for some additional period of time, one of which rolls off at the end of this year. But I think the big driver there has been some of the costs we have been able to take out of just a very significant amount of consolidation, and I think we have also made some good progress on energy.

Yes, we have had some very good energy reductions, especially in our Texas portfolio on some bulk buying. One of the things that Tom did back in January of last year was basically, on every service contract that we had, whether it was with our Life Science or MOB, we went out and we rebid all of those, so we have been kind of looking across the board for all ways to save on the expense side. But then going forward I don't think - - I mean those numbers we have got in there for the positive same-store growth for 2010, I don't think there's any significant initiative, it just - - It's going to be more a modest occupancy gain and slight revenue gain driving 2010.

Perfect. Thanks a lot.

Yes.

Our next question comes from the line of Unidentified Participant 3 of Banc of America Merrill Lynch.

Thank you, good morning. Just had a quick question on the transaction market. Can you comment on some of the trends you are seeing in the transaction market, like are you not seeing more of the single assets come online, or are you now seeing some of the portfolios for sale?

I think it's probably more portfolios, private equity firms that have made some investments looking for an exit, some operators, maybe some consolidation at the operator level, which can sometimes drives some portfolio transactions. So I think to answer your question, it would probably be more portfolio driven as opposed to single asset driven.

Great. And also as we think about 2010, can you provide what your expectations are, in terms of how much acquisitions and dispositions you guys expect?

No.

Fair enough. And just one last question, then, regarding the three Senior Housing assets that were sold for $14 million, can you tell us a little bit more about the assets and the cap rate it was sold for?

Yes, on the assisted living, really, there was really one that was kind of income-producing. That sold slightly below an eight cap rate. A lot of the assets, just in general from a sales stand point were things like MOBs that had been impaired from Katrina, closed hospitals, and things of that nature, so not a lot of those a sets of the 14 really had a real tangible cap rate that you could assign to them. But as a result of all of those sales we did book a gain of $37 million.

Great. And then just one last question, as we think about cap rates for the different health care property types in your portfolio, can you comment where you think knows may be?

Sure, I mean, for stabilized assets, Senior Housing right now is probably good quality real estate, 8%, 8.5% something like that. MOBs good quality real estate stabilized are probably in the 7.5% to 8% ZIP code. Skilled Nursing, on a lease-rate basis, they would probably be in the 9% to say, 10.5% zone. Life Science, you would be, again, it's kind of hard to do this, because, if you have got [Navartis] on a lease, that a far different animal that a venture-backed company that is in cash burn mode trying to move a molecule from Phase 2 to Phase 3. But you are probably in Life Science, somewhere in the 8% to 9% zone, and then Hospitals that's really a different animal all together. Lease rate there would probably be in the 9.5% to 11%.

Great. Thank you.

Your next question comes from the line of Michael Mueller of JPMorgan.

Hi, few questions here. First, Paul, on the comments on the mark-to-market on Life Science, was that a 2009 discussion or is that something we should apply when we're thinking about the 2010 and 2011 expirations?

That would be for 2010. I would have to look back, but I believe the number was about 300,000 square feet of roll in 2010, 306,000 square feet, so I would expect probably a 10% to 15% reduction as we roll those, and that's rolled up into our same-store guidance.

Okay. Great. Secondly on Senior Housing, what was your gut tell you in terms of when occupancies flatten out and potentially turn the corner, is the first part? And second part is, when we're looking at the, I think it was 4.5% to 6.5% same store NOI increase, how much of that is coming from simply the transitioning of the assets over the past year or two to new - - ?

I'll let Paul take the second question. On the first one, I guess, are we going to have a double dip recession or V-shaped recovery, it really is - - you have got to make a macro call here. That is far and away the driver.

Yes. I think with respect to the breakout, I haven't done the calculation what the increase of those two portfolios would be to the same-store number, but as I mentioned, we're typically in the 2% to 2.5% normal rent growth range for the portfolio, absent a bunch of one time stuff, so the fact that it's coming in between 4.5% and 6.5% on the entire portfolio, including the performance of Sunrise, kind of gives you an indication of the magnitude.

So Michael just to connect that, what Paul is saying is, you are take the entire Senior Housing sector up at 4.5% to 6.5% for this year, that is heavily weighted to the contribution on the two portfolios we have transferred out of Sunrise.

Okay.

Much like the big pop you are going to see in Hospital, same pop performance in year, is largely a function of the good things that are happening down at the Irvine Hospital now that Hogue has taken over for tenant there.

Okay. Got it. And a couple of Tom questions. You mentioned the accelerated deferred rent payment in Life Sciences in the third quarter. How big was that payment?

$3.7 million, something like that.

Okay. And secondly, you talk about a bunch of non-cash numbers, but the $13.3 million interest accretion on the Skilled Nursing loans that you had in the fourth quarter, is that a good run rate for looking forward to 2010?

If I was looking to 2010, I would use a number of $54 million for the total year.

Okay. Great. Appreciate it. Thank you.

Your next question comes from the line of Karin Ford of KeyBanc.

Hi, good morning. Just a quick question on Manor Care. On previous calls you had laid out a few different scenarios on a potential exit strategy there, with an IPO, potential [GP] buys in the company, or maybe just tase you off. Given the change in the capital in the markets today, as well as in health care reform, are all three of those - - or are there new potential alternatives there? And could you sort of handicap where you think the exit on Manor Care might come from?

Yes, I can't think of any new potential exit. I think what we have done in the past Karin is kind of barbell those scenarios as 100% cash payout and one end, and at the other end, us stepping into the real estate at maturity. So you can have combinations that can vary between those two end points. I can't think of a new alternative that has presented itself since we spoke about this last.

I would say if I had to handicap things, I think the driver as to why I might point the likely exit towards one of those ends versus the other is probably most important thing - - well, I guess the most important thing would be, the variability in the company's performance, but if we were to assume that this awesome operating platform continues to hum along, I think you can kind of take that out of the equation. So I quite frankly think the biggest driver is what is going on in the capital markets at a given point in time, and I would say that the frothier the capital markets are in terms of credit availability and access to the capital markets, and valuations for property stocks, I would say that would tilt me to handicap a likely execution as being a part payoff, and to the extent that markets got choppier from here, and/or there was some sort of change in the reimbursement that might point me more towards some exit involving ownership of the real estate. So I think that would probably be the - - from our standpoint that would be the most important driver.

That's helpful. Just another question on investments, I know you are not looking to give any guidance on volumes there. Can you just talk about timing? It sounds like things may have gotten delayed a little bit? Is there anything you have that's eminent, or should we expect it to be more weighted, anything you guys do towards the back half of the year.

Again, we really prefer to stay away from volume or timing. When you least expect it, that's probably when you'll see something happen. I would, again, underscore the fact that when the markets get choppy, that probably plays to our advantage, and when they are frothy and bring other people into play, that probably, on relative basis disadvantages us. We are beginning to see, in a couple of situations, the reemergence of the financial buyer. I find that to be of interest.

Interesting. And just last question, how much did you sell the Slidell Hospital for, the one closing in April?

Again, we really don't like talking about stuff until it is closed, so I would expect by the time we have the opportunity to visit with you on the next earnings call, that will have been closed, and we'd be delighted to take you through the specifics at that point.

Okay. Great. Thanks.

Your next question comes from the line of Unidentified Participant 4 of Morgan Stanley.

Good morning,gentlemen, you have spoken already to Senior Housing performance, but I wanted to get a little bit of a feel as to what your performance outlook is for CCRCs, considering the headwinds that this space is facing?

Sure, and we have - - let's see, we have a total of I guess 10 CCRCs. And quite frankly they are performing great. They are by and large all stabilized. In fact the most recent occupancy figures we have are through the third quarter. As an entire portfolio they are right around 90%, actually 91% occupied, and the cash flow coverages there are at about 1.4 times, so I think, I shouldn't misspeak, but I think we have that detail on the supplemental, but for us, our portfolio of CCRCs is a real strength.

We are not developing any CCRCs, and so we like what we have got, but we're probably not looking to add to that right now. I mean, that's probably the sector that is most, even more so than independent living, most exposed to the travails of the housing market, and that gets exasperated when it's the entry fee component of CCRC as opposed to the rental market. So fortunately we're in really, really great shape with what we have, and we're probably of the mind to keep what we have got, and hold for the time being.

Okay. Thank you. And my other question was, I was wondering if you can comment as to how the proposals that were made recently by Governor Schwarzenegger in regards to the California budget would affect your operators? Specifically, I'm talking about there was this proposal to defer payments to institutional providers in California, and I just want to know how this could possibly affect your operators in the Acute Care, and Long-Term Care industry?

Well, again, that was part of our strategic decision to divest out of Medicaid exposure as much as possible in the last couple of years, so the good news is we really have very little of California-based - - in fact I'll quantify very little for you. We have a grand total of one Skilled Nursing facility in the state of California, so really it's not something that we're terribly concerned with.

Okay. Thank you.

Yes.

Your next question comes from the line of Unidentified Participant 5 of Wells Fargo Securities.

Good morning, thanks for taking my call. I'll keep it brief here. Just looking at the maturity schedule for your debt investments, it's about $13 million in revenues from these loans that come due this year.

This is the asset side of the balance sheet, Todd, or the liability side?

This is the asset side.

Oh, okay. All right. So these are loan investments we have made.

Page 11 of the supplemental, right?

Thank you, Tom. That's right. What are the rates that you are getting on those now, and if you were to reinvest that money, what kind of rate do you think you would get?

Well, let's just take them, Manor Care One, it's LIBOR plus 400, but keep in mind we purchased that at a significant discount, paid $900 million for $1 billion face amount, so the IRR on that is much higher. Manor Care Two is LIBOR plus 1.25, but we purchased that at $130 million discount, and it came subject to secured debt at LIBOR plus 100. I think we talked about an all-in IRR on that being close to 13% using the forward curve, so that's Manor Care, so the rates there are great. What we would reinvest that at, hard to say at this point in time, but that's not coming due until 2013, and possibly we convert that into real estate at some point in the future, and possibly not. We'll see.

Is he asking about the ones maturing this year?

Yes, just for 2010. It looks like about 11.8 in hospital revenues. Just looking at aggregate of about $13 million in revenues that comes - -

I think that's mostly Cirrus, right?

Right. And what we're looking to do there, as I mentioned we're renegotiating that particular transaction to extend out the maturity date, so we would look for those to be repaid, kind of over time, over the next two to three years, so not the entire chunk would be coming back in 2010. I mentioned in the Skilled Nursing that we have a loan coming due. We have assumed that that loan would pay off, and again, as Tom said, what the reinvestment rate is, it's just going to be depending on what it is we do at that particular time.

And in general, just loans to tenants, what kind of terms are you offering right now? And how long are you willing to underwrite these, just in terms of years?

Todd, that's not really a business that we're in. I guess never say never, but - -

Okay. Thank you.

We like owning the real estate, or like owning a debt that would give us an attractive return, and the potential to maybe have an exit into the real estate.

Thanks a lot.

Yes.

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

Sorry just one more for you, Tom. The straight-line rent in the quarter was well below where it was in the third quarter, and based on what you said you expected in 2010, kind of below where you are expecting it to be in 2010. Was there anything that was affecting that number in the fourth quarter?

Yes. We had a Life Science tenant that we received a deferred revenue amount all at one time during the quarter, and that of course offset what you would have expected for the quarter on a run rate basis, so it was a one time shot.

Okay. Great.

Other than that it would have been just the typical run rate that you would have been seeing over the prior three quarters, my recollection of about $12 million a quarter, something like that.

Right.

$4 million number approximately in Q4 offsetting it.

Okay. Great. Thanks.

Your your final question comes from the line Tayo Okusanya of Jefferies.

Yes, just a quick question in regards to Manor Care. Could you let us know what assumptions you are making in regards to Manor Care in your 2010 guidance?

Well, I think the only assumption would be what the LIBOR rate is, right?

LIBOR rate, we're accreting the discount using the effective interest method through January of 2013.

Perfect.

And I think Tom has previously indicated that we have hedged a majority of that investment, but we do have some exposure, such that if LIBOR were to increase, we would benefit. We kind of felt it was a good time to put the hedge on last year, when LIBOR couldn't get a whole lot lower, which it hasn't, but if in fact there ever is some job growth here, you have might actually see a little lift in LIBOR. We haven't assumed that that would happen, but that is the potential upside.

Yes, we left $300 million of net asset exposure to floating-rate debt, and match-funded the rest. So it's an asset-based exposure.

Great. Thank you very much.

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

Thanks, Chanel. Thanks, over. Hope you have a long great weekend. Happy Valentine's Day, and for those of you that will be down in West Palm in a couple of weeks' time, we'll see you and look forward to talking with you then. Thank you.

Ladies and gentlemen, that concludes this conference. You may disconnect. Have a great day.