Healthpeak Properties Inc (PEAK) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 HCP Earnings Conference Call. My name is Chanelle, and I'll be your coordinator today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session.

(Operator Instructions)

Now, I would like to turn the presentation over to your host for today's Conference Call, John Lu, Senior Vice President. You may go ahead, sir.

Thank you, Chanelle. Good afternoon, and good morning. Some of the statements made during today's Conference Call will contain forward-looking statements, including the statements about our guidance. These statements are made as of today's date and reflect the Company's beliefs and best judgment based upon currently available information. The statements are subject to the risks and uncertainties and assumptions that are described from time to time in the Company's press releases and SEC filings.

Forward-looking statements are not guarantees of future performance. Some of these statements may include projections of financial measures that may not be updated until the next earnings announcement or at all. Events prior to the Company's next earnings announcement could render the forward-looking statements untrue, and the Company expressly disclaims any obligation to update earlier statements as a result of new information.

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

Thanks, John. Welcome to HCP's earnings conference call for the quarter ended June 30, 2011. Joining me today are Executive Vice President, Chief Investment Officer Paul Gallagher, and Executive Vice President and Chief Financial Officer, Tim Schoen. Let's begin with our most recently announced results, and for that, I'll turn the call over to Tim.

Thank you, Jay. Let me start with our second quarter results, followed by our investment activities and balance sheet, and end with an update to our 2011 guidance.

For the second quarter, we reported FFO of $0.78 per share, representing a 42% increase, compared to $0.55 per share for the second quarter of 2010. In addition, we reported FAD of $0.62 per share, representing a 32% increase, compared to $0.47 per share a year ago.

There are several items that occurred during the quarter I would like to highlight. First, commencing April 7, our results reflect the ongoing benefit from our accretive $6.1 billion acquisition of the HCR ManorCare real estate portfolio, and our $95 million investment in the operations of HCR ManorCare that represented a 9.9% equity interest at closing.

Second, our results for the quarter were favorably impacted by two non-recurring items, including interest income totaling $34.8 million, or $0.09 per share, from the previously disclosed early par pay-off of our debt investments in Genesis Healthcare, and income of $0.01 from litigation proceeds we received from a prior sale of assets.

Third, our FFO results also included a net positive $0.01 from HCR ManorCare merger-related items incurred during the first six days of the quarter prior to close. These items consisted of $0.05 of income primarily related to gains from re-investing our existing HCR ManorCare debt investments, partially offset by $0.03 of direct transaction expenses and $0.01 of negative carry pertaining to our pre-funding activities. Excluding these merger-related items, FFO as adjusted for the quarter was $0.77 per share.

Lastly, our second-quarter cash same-property performance increased 2.6% year-over-year. The growth was negatively impacted by a $4 million deferred rent payment received during the second quarter of 2010. Excluding this item, year-over-year, cash same-property performance would have increased to 4.5% for the quarter. Paul will review our performance by segment in a few minutes.

Turning now to our investment activities and balance sheet. In addition to our HCR ManorCare acquisition, we made investments totaling $97 million during the quarter, including $65 million for The Cove, the premier development site in South San Francisco, and $32 million related to construction and other capital projects.

During the quarter, we pre-paid without penalty $92 million of mortgage debt that had an average interest rate of 7% and an average remaining maturity of five years. At the end of Q2, our financial leverage and secured debt ratios were at multi-year lows of 40% and 10%, respectively. Our 2011 remaining debt maturities totaled $312 million.

We ended the quarter with $276 million of cash, of which $225 million was used to retire a working capital liability paid after order-end. We also had $1.4 billion available under our revolver.

Finally, let me conclude with an update to our 2011 guidance. We are raising our full-year cash same-property performance growth to range from 3% to 4%, primarily driven by improved performance in our senior housing segment. We are raising our full-year FFO guidance to range from $2.48 to $2.54 per share, up $0.01 from our last guidance.

There are a few items not previously contemplated that led to this increase, including $0.02 from the increase in same-property performance and the pre-payment of the $92 million mortgage mentioned earlier, a $0.01 benefit from the litigation proceeds received in Q2, partially offset by $0.02 higher G&A expenses due to several items.

Our full year FFO guidance reflects a negative $0.15 impact from HCR ManorCare merger-related items. These include the $0.16 reported in Q1, partially offset by a positive $0.01 in Q2 discussed earlier. Excluding these merger-related items, we expect 2011 FFO as adjusted to range from $2.63 to $2.69 per share, which is also $0.01 higher than our last guidance.

We are raising our FAD guidance to a range of $2.09 to $2.15 per share, up $0.03 from our last guidance. The increase is driven by the same $0.01 net benefit just mentioned in our FFO guidance and $0.02 from lower, second-generation capital expenditures, due to timing of projected leasing activities. With that, I will now turn the call over to Paul. Paul?

Thank you, Tim. Before I begin, I would like to note that with regard to our HCR ManorCare acquisition and the buyout of our partner on our Ventures 2 portfolio, our same-store property count represents just 58% of our portfolio, versus 95% year-end 2010. Now, let me break down 2011 second quarter performance in detail.

Senior housing -- occupancy for the second quarter in our same-property senior housing platform was 86%, a 50 basis point sequential decrease over the prior quarter, but an 80% increase over the prior year. Facility rates and margins for our senior housing portfolio continued to improve, and cash flow coverage is up slightly, to 1.20 times. Current-quarter year-over-year same-property cash NOI growth for our senior housing platform was 6.7%, driven by properties transitioned from Sunrise to new operators, and by improvements in the retained Sunrise portfolio.

On June 1, 2011, HCP entered into definitive agreements to form a strategic venture with Brookdale Senior Living, in conjunction with Brookdale's acquisition of Horizon Bay. Horizon Bay currently operates 37 HCP-owned senior living communities. Brookdale will assume an existing triple net lease on nine of the communities, assume the management contracts on three communities, sign a new lease for four communities, and enter into a RIDEA joint venture on the remaining 21 communities. Brookdale will buy a 10% ownership interest in the 21 RIDEA-managed assets.

Pro forma for our Brookdale joint venture, operating assets in HCP senior housing sector, will represent 4% of HCP's total investment portfolio.

Post-acute skilled nursing -- on April 7, 2011, HCP closed a $6.1 billion acquisition of 334 HCR ManorCare post-acute skilled nursing and assisted living facilities. The lease is guaranteed by HCR ManorCare. As reported in this quarter's supplemental and consistent with HCP's historical reporting of our triple net lease portfolio, for the trailing 12-months period ended March 31, 2011, HCR ManorCare reported cash flow that produced a fixed-charge coverage ratio of 1.57 times pro forma for the full year's rent obligation to HCP.

Cash flow for the nine months ended June 2011 on an annualized basis produces a coverage ratio of 1.66 times, and includes the pro forma full-year impact of RUGS 4. This compares favorably to HCP's underwritten coverage of 1.50 times, which excludes any benefit of RUGS 4. HCP's remaining post-acute sniff portfolio is comprised of 45 assets leased to six different operators and comprised the entire same-store property count.

The year-over-year same property cash NOI for the second quarter increased 2.8%. Cash flow coverage is strong at 1.69 times, an eight basis point increase over the prior quarter, and a 20 basis point increase over the prior year. These trailing 12-month coverages reflect six months of Medicare reimbursement rates under RUGS 4. All but four of these 45 properties are structured in master lease pools and all have parent or personal guarantees. The annual rent from the four non-pooled properties totaled $1.3 million.

Hospitals -- same-property cash flow coverage increased three basis points to 4.68 times. Year-over-year, same-property cash NOI for the second quarter increased 2.9%. The growth continues to be driven by the Hoag lease at our Irvine Hospital, and as a result of Hoag investing nearly $85 million in upgrades to our asset, the property was awarded Lead Silver designation.

Medical office buildings -- same-property cash NOI for the second quarter was up 3.9%. The growth was due to an increase in occupancy, normal rent steps, and expense controls resulting in $1.1 million of operating expense savings versus the second quarter 2010. Our MOB occupancy for the second quarter increased to 91.1%, with good leasing activity in Tampa and Houston.

During the quarter, tenants representing 336,000 square feet took occupancy, of which 254,000 square feet related to previously occupied space. Our year-to-date average retention rate was 80.4%. Renewals for the quarter occurred at 1.1% higher marked-to-market rents, with the average churn for new and renewal leases at 52 months.

We have 988,000 square feet of scheduled explorations for the balance of 2011, including 233,000 square feet of month-to-month leases. Our leasing pipeline includes new and renewal prospects totaling 922,000 square feet or 93% of our remaining 2011 roll-over exposure.

As a result of our sustainability initiatives, utility costs continue to yield positive economic results. On a same-property basis, utility expenses were down $530,000 versus 2010. We received another Energy Star label at our MOB on the Skyline Ridge campus in Denver, Colorado, bringing HCP's total Energy Star label properties to 30 across MOB, life science, and senior housing assets. During the quarter, HCP was recognized by the US Environmental Protection Agency as the leader in Energy Star certifications for the medical office category.

Life science -- same-property cash NOI was down 4.3% in the second quarter. This decrease was driven by the final repayment of previously deferred rent received in the second quarter of last year. Absent that payment, NOI for the quarter was up 3.1%, largely driven by contractual rent increases and increased recoveries on expenses.

Occupancy for the life science portfolio increased 20 basis points during the quarter to 89.2%. The life science development pipeline continues to consist of three re-development projects, totaling 204,000 square feet, with total remaining re-development funding requirements projected at $25 million.

For the quarter, we completed 19,000 square feet of leasing, bringing the year-to-date total to 251,000 square feet, with a retention rate of 57.8% on expiring space. Including leases executed with new tenants, over 90% of the expiring space was released without any down time. In addition, we completed 64,000 square feet of leasing during the quarter that will commence in subsequent quarters and have approximately 82,000 square feet of leasing in the pipeline.

Through June, we have addressed 130,000, or 43%, of the 299,000 square feet left to expire. HCP's portfolio of tenants continue to experience success in accessing capital in both public markets and private partnerships. Most prominently, LinkedIn, which leases over 125,000 square feet at our Mountainview Campus, raised nearly $350 million in their IPO. Also, Rogelli, tenant in approximately 150,000 square feet in South San Francisco, raised $150 million via a follow-on offering. Other HCP tenants, including Alexa, OncoMed, and Cytokinetics raised over $90 million in the quarter due to various partnership agreements and milestone payments.

Finally, as a reminder, HCP's real estate portfolio is comprised primarily of long-term triple net leases that represent 83% of the entire portfolio. The remainder of our portfolio consists of multi-tenant medical office buildings, where 20% of the MOB's portfolio of leases roll each year, and where HCP has been able to achieve 80%-plus retention. Lease expirations excluding the MOBs for the next five years average just 2% per year of HCP's total annualized revenues, with no one year higher than 2.6%.

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

Thanks, Paul.

Despite unprecedented macro headwinds, HCP's real estate portfolio continues to perform well. This morning, we raised our adjusted same-profit performance guidance to 3% to 4% for 2011. This is the fourth quarterly increase in guidance of this metric in the last seven quarters. Unlike a number of the other property sectors that are rebounding from depressed performance results, HCP's positive 3% to 4% for 2011 is on top of a positive 4.8% for 2010, and a positive 3.2% for 2009.

During the quarter, we consummated two important strategic initiatives. One, a joint venture with senior housing leader Brookdale Senior Living; and two, the Propco acquisition from post-acute industry leader HCR ManorCare. The Brookdale JV includes our formerly Horizon Bay-managed portfolio and will result in 21 of these properties managed under a RIDEA structure. The economics of this transaction provides HCP with an attractive spread over the alternative of a triple net lease format.

The April closing of our HCR Manor Care transaction successfully recapitalized HCP's prior debt investments with the Company, and secured long-term ownership under an attractive triple net lease structure for HCP shareholders.

With regard to the Ventas litigation, we were disappointed by the July 5 decision of the Sixth Circuit Court of Appeals, which remanded the case back to the trial court in Louisville, Kentucky, for a trial on Ventas' claim for punitive damages. We do not believe we should have any liability for punitive damages, in addition to the full compensatory damages that the Court has already awarded. Obviously, the litigation has been expensive and distracting and we would prefer to resolve this case if reasonably possible.

Last Friday, CMS, the Centers for Medicare and Medicaid Services, issued their fiscal year 2012 reimbursement levels for skilled nursing facilities that care for post-acute patients. Everyone acknowledges that the changes CMS made in fiscal year 2011, RUGS 4 rates, resulted in higher rates and earnings than they intended, although provider costs also went up because of related changes. The 11.1% CMS reduction in fiscal year 2012 rates will take the rates back to the levels CMS intended, and the industry will likely respond with significant labor cost reductions and there will clearly be disruption.

Many of you will recall that one of the reasons we chose to invest in the assets of HCR ManorCare was that management team's proven ability to adapt to a changing reimbursement environment, something they have done successfully on a number of occasions.

We expect they will do the same in light of the CMS announcement for fiscal year 2012. I understand HCR ManorCare plans to make significant reductions in their costs to offset a good part of this rate reduction, while maintaining their commitment to quality patient care and lower-cost rehabilitation for their post-acute patients.

From a credit perspective, HCR ManorCare has more than sufficient financial flexibility to negotiate changes ahead. As of June 30, 2011, the Company had $230 million of unrestricted cash on its balance sheet and was comfortably inside its corporate debt covenants. Capitalizing its lease payments using a market approach, HCR ManorCare's adjusted net debt to EBITDAR ratio was below five times.

It is reassuring that HCR ManorCare and other post-acute providers have proven to be a lower-cost alternative for many patients being discharged from hospitals, compared to the alternatives of staying longer in the hospital, or going to higher-cost in-patient rehabilitation facilities, or long-term acute care hospitals.

We expect quality post-acute providers like HCR ManorCare will continue to have a growing role in providing services to a targeted number of patients requiring short-term rehabilitation. It is likely that the CMS action will prove to be a catalyst for market share opportunities and consolidation within the post-acute, the skilled, and the senior housing sectors.

This development comes at an especially opportune time for HCP, given our scalable partnerships with best-in-class operators HCR ManorCare and Brookdale, and a balance sheet that is unusually liquid. As was the case during the 2008-2009 investment environment, HCP is poised to capitalize on these developing conditions.

With that report, Paul, Jim, and I will be delighted to take your questions. Chanelle?

Thank you.

(Operator Instructions)

Your first question comes from the line of Derrick Bower of UBS.

Good morning, Jay. It's Ross Nussbaum here with Derrick. Two-part question for you. First, what is your outlook for skilled nursing reimbursement for later this year tied to what's going on in Washington with the budget? And do you have any thoughts for what happens as we look a year forward, based on the discussions that you have with lobbyists on this issue? That's part one.

Okay, so basically it's a general outlook looking past the fiscal year 2012, reimbursement decisions so as we get into 2013 and beyond relative to what, entitlements in general, is that the question?

Correct, and what could happen in November tied to the budget, do you see any risk there?

Well relative to what could happen in the budget, it's my understanding if they go to the automatic changes, those impacts will all be fiscal year 2013-related.

In fact, there was a New York Times editorial yesterday that talked about the amount of the debt-ceiling reduction, which is slightly less than a trillion dollars -- I believe it's $917 million, only $22 billion -- get this -- only $22 billion of the $917 million is actually a fiscal year 2012 impact, so for the most part, all of that amount that was approved yesterday, and any prospective amount, which will come either automatically by the trigger mechanism they put in place, or from the group -- from the Joint Commission -- that will all impact 2013 and beyond, so that's how that works.

But let me take the thrust of your question, which was more -- I'll rephrase it, kind of future of Medicare and entitlement reform, if you'll allow me a little bit of that characterization. I think a couple of sound bites here that have been important to our thought process. We're not real big on Medicaid. That's the state-based programs, the states albeit benefiting from slightly better economic situations this year than they had anticipated, are still not in strong shape. A lot of what got them through kind of the 2009 and 2010 period was support from the federal government. It's not clear to me that's going to be there, either in general or certainly to the magnitude it has been historically.

But I think where you're really going, Ross, is what's the political will of our country, of our Congress and quite frankly, of the seniors in the country to have meaningful healthcare reform. I would point out that the June 2011 election, the special election up in upstate New York for the 26th Congressional District, I think that's a very important development.

For those of you that are not familiar with what happened there, literally two weeks before that special election, the Republican contestant was -- almost had a 20 point lead in the polls, and that contestant about two weeks later lost by almost the same amount to the Democratic contestant. And the only thing that really happened from the time frame that Republican was up 20 points to losing 20 points was Paul Ryan announced his proposed Medicare reform, and I think we all recall the attention and the comments that received.

That actually is -- a lot of what is in that is in the Simpson Bowles proposal, and it's probably a fix for entitlements, Medicare, Medicaid, Social Security that over a longer period of time would do a very good thing for our country. Whether we'll get there or not is anybody's guess but I guess that's kind of how I would look at that issue.

Okay, broad topic obviously. The second part of my question relates specifically to the coverage ratios that were cited in the prepared remarks, as well as on page 15 in the supplemental for HCR ManorCare. I guess there's a new number it looks like you disclosed, which isn't at the OpCo level, but it looks like it's at the Propco, level the 1.28 times coverage for the --?

That's not new -- we've always, we've consistently reported our coverages both ways, so that's not new at all.

So how -- the biggest difference between that number and the broader OpCo fixed-charge coverage, Can you help us understand the dynamics?

It's pretty straightforward. The 1.28 involves a guarantee that was consist the with the guarantee we had when we owned the debt in PropCo, so the entire amount of the guarantee we had for those debt investments were facility-based revenues, facilities that were owned by PropCo.

As part of the transaction that we announced last December, the guarantee we have is now a complete corporate parent guarantee that includes every revenue stream, every business that comes into the Company. So that's why you can look at the property level of 1.28 but the guarantee that we have standing behind our rent obligations is if you include the -- consistent with our HCP reporting practice -- the trailing 12 months lagging the quarter, the March 31 quarter, that's 1.57 times.

If you take -- we now have actual results through the June 30 quarter -- so if we take the nine months that the RUGS 4 benefit has been in place ended June 30 and you annualize those nine months so you get a full years impact of the RUGS 4 benefit, and then put against that a full year's rent payment from HCR ManorCare to HCP, that gets you to that 1.66 times.

So again, consistent with what we announced last December, we never underwrote any of the RUGS 4 benefit into our thought process, and then we came up with a 1.5 coverage ratio so it should not come as any great surprise that the actual coverages are materially higher than that, 1.57 reflecting six months, 1.66 reflecting nine months annualized. And you will see these coverages for each of the next two reporting cycles for HCP continue to move higher from that 1.57.

Parenthetically, you'll also see our coverages for the remaining post-acute skill portfolio that we have, you'll also see those march materially higher in each of the successive quarters as well, because you're reflecting -- next quarter you'll have three quarters of actual results of the RUGS 4 reimbursement. And then finally for the quarter that we report in December -- which won't be reported until early February -- you'll have the full 12 months. You won't see those coverages begin to tick down until we report our March 31, 2012, quarter in early May. Understood. Thanks, appreciate it.

Your next question comes from the line of Jay Haberman of Goldman Sachs.

Hi, good morning. Just following up on CMS a bit, clearly a bigger-than-expected recommendation for cuts up front. I'm just, can you quantify, I guess, or give us some perspective on the disruption? I know you mentioned that part of it would be cost reduction and it sounds like you view that as manageable, given reducing this reimbursements back to 2010 levels, but can you give us some sense of perhaps what you're expecting in terms of -- you mentioned perhaps acquisition opportunities, or just even changes in pricing going forward?

Yes, well let me say this. Look, a year ago, a law was put into effect that was meant to be revenue-neutral to the industry, and they missed a little bit, okay? They missed a lot, in favor of the operators. They've now, last Friday, proposed a final ruling, which is still subject to Congressional approval, that misses a little bit going the other way. But let's take a step back and let's take a look at what we got. Let's take a step back from the hysteria that's out there, and the confusion.

Let's just focus on a couple of facts. One, we've got a demographic in the United States with the aging baby boomer that is continuing to demand these sorts of services, and that's not going to change for the next several decades. Two, the post-acute skilled environment is without a doubt the lowest-cost setting for this type of service, and you can go look it up on the CMS website. It's materially a lower-cost environment that either the in-patient rehab or the long-term acute care hospitals. So the point of that is that sooner or later, sanity ought to prevail.

Third, we are -- we have hitched our wagon to the premier operator, HCR ManorCare, in this space, and that came with it the premier real estate portfolio in that space. This is an entity that is incredibly well-capitalized, and given what I've just cited on the facts, will continue to get even better capitalized in the next 90 days from a cash-flow generation standpoint. This is without a doubt a company that is going to -- has proven its ability to manage through reimbursement environments. It has a scalable platform. It has the three necessary elements that we've always cited in terms of who we want to align ourselves with in the healthcare space.

It has quality outcomes, it has critical mass, and it has efficient operations. I think the next quarter or so if I had to guess, they will be right-sizing their business platform and their business model from a cost standpoint to deal with fiscal year 2012, and I think once they get that stabilized in the next quarter or so I think you'll see this management team become active from a standpoint of consolidation opportunities that will present itself in this space.

There's going to be a tremendous amount of disruption. This movie has played out before. This management team has excelled in this sort of environment and we are hopeful as a capital partner to this company that we will benefit indirectly in terms of our ability to put additional attractively priced real estate on our balance sheet, and quite frankly, to grow our OpCo investment in the company. So that's how I see this playing out over the next six to 12 months, Jay.

That's helpful. So it sounds like you see opportunities both from the operator side, as well as from the real estate side? It sounds like from HCP's perspective, you'd prefer to still focus on the real estate?

Well, certainly we'd prefer to focus on the real estate. We do have an OpCo investment that I think over time will morph itself into additional real estate. That's the way we view that investment.

Okay, thank you.

Your next question comes from the line of Adam Feinstein of Barclays Capital.

Hi, thank you. Good morning, everyone. I guess a lot of questions already on the nursing homes. I guess clearly, Jay, just back to your last point, opportunity to grow in terms of finding other assets for ManorCare to manage and that seems like a big opportunity. Just curious to get your thoughts in terms of what sort of time period you would expect that to play out over, and we can make that one a quick one, I guess since most of the questions have been on ManorCare. I was going to ask more about the recent Brookdale deal. It seems like a great opportunity for you guys. Just wanted to get some more thoughts in terms of where you see that deal ultimately going?

Sure. On your first question, Adam. Again, I think HCR ManorCare -- and if I had to speculate, a lot of the other skilled post-acute operators are, yesterday and today, are focused on making some very difficult decisions relative to labor cost reductions and changes in business models and things like that.

My guess is in the case of our friends in Toledo at HCR ManorCare, that will -- they've got plans in place. They anticipated -- they didn't anticipate this magnitude of a cut -- but they certainly had plans in place for whatever the magnitude of the cut was. So they're going about the business of right-sizing the cost structure. My guess is they will get that stabilized later this year, and I would think coming either into a year-end sort of time frame, calendar year-end, or coming out of the year-end, a process the first part of next year, I would suspect that we will be looking at consolidation opportunities together. So that's how I would put the timing on that.

With respect to the second part of your question which was the Brookdale JV, yes, this really worked out quite well. What was part of this, an important part of this, was Brookdale's acquisition of Horizon Bay, which previously had managed 37 of HCP's properties. So Brookdale will take that over, that's obviously someone we've known quite well. We have enormous regard for Bill Sheriff and his team down just outside of Nashville, in Brentwood, Tennessee.

What we've done there is we've really kind of broken that 37-property portfolio up into several different arrangements. We've got -- first of all, Brookdale is going to affirm and guarantee a lease on a number of properties, nine properties that we transitioned from Sunrise Senior Living a year ago next quarter to Horizon Bay under attractive terms, so Brookdale will become the guarantor on that lease.

In addition, of the 25 properties that were in what we call Joint Ventures 2, four of them had a significant skilled component to them, and consistent with HCP's historical view that we do not want to have RIDEA structures in the skilled space, we kind of developed a high-level of intensity and conviction around that perspective the last two years working with the HCR ManorCare folks. We took four of the properties and put those in a triple net lease, which again, will be operated by and guaranteed by Brookdale. Then the remaining 21, we've put into a RIDEA joint venture, it's our first RIDEA joint venture.

It's the first time we've been able to see economics that were materially higher than a triple net lease execution. Again, another part of our strong-felt conviction is, if you're going to do RIDEA structures, you need to get premiums to the triple net lease execution in order to justify taking on the incremental risk associated with a RIDEA structure. To date, until this particular transaction, we did not see those sorts of premiums in the deals that we had looked at previously, so anyway, that's what we've done with that portfolio.

Again, not unlike our situation with HCR ManorCare, we anticipate adding to that joint venture and to that relationship with Brookdale, and we're currently looking at a couple of different opportunities, no guarantees. But it is our intend to grow that relationship with Brookdale just as it is our intent to grow our relationship with HCR ManorCare.

Hi Jay, it's Brian. Just a quick one for me on the improvement you mentioned on the Sunrise facility. The Legacy Sunrise facilities that you guys still have renting out to them. Is it more something you're seeing on the top line there? Is it them kind of improving the cost management, which kind of was the issue before?

Actually, one of the things that we've seen there is with the transition, Sunrise has taken some of the Executive Directors that were in some of the transition assets, and moved them back into HCP-retained assets, and they've just been able to out-perform.

All right, thank you very much guys. Appreciate it.

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

Yes, hi, it's Quentin Villeley here with Michael. Just going back to HCR ManorCare, and you are 9.9% of the operating company and you commented that they need to make significant cost cuts, but I'm just curious what your expectation is of EBITDAR and earnings over the next couple of years as the CMS cut comes through and they attempt to cut costs.

Well, I think it's pretty straightforward on a same-store basis. Remember, this is a company that has grown for the last decade all organically. They haven't acquired anything. The last significant acquisition they made was back in 1999 when HCR acquired ManorCare, so from an organic growth standpoint, you're going to see fiscal year 2011 results materially higher than fiscal year 2010, and you'll see on a steady state basis fiscal year 2012 results lower than they were in fiscal year 2011, and that evidence is the RUGS 4 benefit.

Again when we cut our deal, which was back in the second half of 2010, we excluded any benefit from that. So we're going to end up with a result in 2011 that will manifest itself either in earnings for our 9.9% interest in the company, or coverage ratios. We'll have a result that is materially higher, i.e., materially better than what we underwrote.

And then fiscal year 2012 will look like it will be certainly a downdraft from fiscal year 2011, but I think probably the more appropriate way to look at fiscal year 2012 will be just kind of make believe fiscal year 2011never happened, and look at the trend from 2010 to 2012, which is going to be more consistent with what our underwriting was.

So that's what that management team is doing. They are exceptionally good at it, and obviously it excludes any benefit from any consolidation opportunities that I suspect will soon be at their doorstep, if they're not already there.

Jay, it's Michael Billerman speaking. You made some comments on the lawsuit with Ventas, and I think you referenced it's costing a lot of money and costing a lot of time, and you were disappointed that it got pushed back down to lower courts for potential valuation of punitive damages, and I think my notes are not perfect, but you said you'd like it to be resolved if reasonably possible. I don't know what adjective you used.

I think your notes are exceptionally good on that point.

Well, thank you. I guess you're in the predicament you are now, with the potential liability potentially growing in size with punitive damages, and I guess, how can you, what is the option to reasonably resolve the lawsuit? Do you regret sort of pushing it to this point or following it through to this point, versus sort of the initial, maybe cutting it off a number of years ago at the outset.

Look, I stand by what I said. This has been an expensive matter. It has been distracting. It takes two to resolve this. We would prefer that this matter be resolved, be settled and we can get this behind us if reasonably possible. But it takes two to work something like that out.

And I guess just in hindsight, does it give you any pause about letting it get to this point? Does it change your sort of views on how the Company conducts itself, or does it bring a different perspective to managing the organization from this standpoint.

Yes, I think the results speak for themselves, Michael. We feel very good about the business portfolio that we have right now, the mix of businesses, how we're positioned for both the near term and the immediate term, and other than that, I really, it's not appropriate for me to make any other comments on the litigation.

The other aspect of the CMS cuts is the fact that some of the senior housing operators got into some of the skilled-type revenue sources and providing some of that, some of those services. Is there any impact at all that you're going to see on your senior housing portfolio, potential reductions?

Well, I think if you've seen both two of the three large publicly traded senior housing operators had press releases out, Michael, yesterday, even before the market opened. I don't know if you read that, but they both quantified the impact, so I think there's, as I made mention, we think there's going to be impact across the skilled, the post-acute, and the senior housing. We think this will be a catalyst for a consolidation activity.

If you go back and study when industries consolidate, you'll find that in sort of benign environments where you've got reasonable, not even excessive but reasonable sorts of returns, you very rarely will see any consolidation activity. When you see an external shock to a system, and probably in my business career the most obvious one was back at the end of 1989 when President Reagan had prevailed in the Cold War, the Berlin Wall came down, you had the defense department budget cut almost in half overnight. You went from 25 to 30 publicly traded aerospace defense contractors down to about five or six in a three- or four-year time frame.

This is absolutely an external shock. This impacts the skilled space, the post-acute space, the senior housing space. I believe it, with passion, it's going to be a catalyst for a consolidation. It doesn't hurt from a consolidation catalyst standpoint that there's some other bad stuff going on out there, like the net worth of the senior population in the country, the unemployment, the dampened economic recovery and the residential real estate market.

I think this all might very well produce an unprecedented level of consolidation activity. We're sitting here with the ace in the post-acute space, HCR ManorCare, and Brookdale Senior Living, who we have enormously high regard for. We've structured operating relationships with both those two concerns, and we've got a balance sheet that's never been as low-levered and as liquid as it is today. So this becomes a very interesting opportunity for HCP.

Thank you.

Your next question comes from the line of Paul Morgan of Morgan Stanley.

Good morning. This is Jarell with Paul on the line. Jay, I just wanted to touch on a comment you made during the last call. You mentioned that there was a $15 billion in potential transactions for the real estate space in 2011. I just wanted to know if this number is still active, and if so, do you have an updated number, and how would you break out the potential opportunities among asset classes?

Well, I think -- again, what we've said, we generally, the last couple years we've announced what we think the next year's worth of announced M&A deals are. So last November, I indicated I thought that could be $15 billion. I think we've got announced M&A deals already this year of $12 billion, so we're well over 80% of that goal. We've got half a year to go, and certainly the deals that we are aware of that are in various stages of discussion, if they all happen, would be well in excess of taking that announced number of $12 billion today above $15 billion. So absolutely, it's still an actionable and viable number.

With respect to where from a property tax standpoint where those deals are, I would say they are for the most part, in terms of the way we look at the world, spread across -- each of our five sectors is represented in that incremental number and then some. I would say the space that probably has the least dollar amount of transactions that we're looking at today is the hospital space. And I would say that the other space is medical office, life science, senior housing, and skilled are very material, and I'm not sure I could even distinguish one versus the other.

There's an awful lot under discussion in each of those four remaining sectors. So the outlier to the downside from an activity level, at least from HCP's five sectors, would be hospitals.

Okay, thank you. And I just wanted to touch on Brookdale, particularly the manage of RIDEA JV assets. What is your growth expectation for those? I don't believe I've seen that.

Yes, I think that's because we haven't disclosed it.

Okay, that's a good reason. Then the other question is, in terms of same-store NOI, as for the senior housing space, there was a 6.7% increase. How much do you attribute this to the Sunrise transition versus the rest of the portfolio?

Most of the growth in the senior housing sector is from either the transitioned Sunrise assets or the retained assets, so it's all related to Sunrise.

Okay.

Its better performance, better performance under the Sunrise assets, and then better performance under the transitioned assets.

Okay, and then the rest of the portfolio is just in its more normalized 3% same-store NOI?

We've got the contractual ramp-ups there.

Okay, that works for me. Thank you very much.

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

Thanks. A lot has been covered, so just a couple things, Jay. Development, I want to just focus own that a little bit. You acquired that premier site in South San Francisco. Expectations for development, might we expect that pipeline to be ramping up, and any sense of what a dollar magnitude might be, and a time frame?

I think for us, the development is more taking advantage of -- well, I'll call lay up opportunities within our existing footprint. We've obviously got a material, and very successful footprint in South San Francisco. This will add nicely to it, The Cove property that you referenced. I think in senior housing we're doing some of that in markets and with operators that we know well. I think we're very excited about the returns on those. I think it's not going to move the needle from a Company standpoint.

In medical office building, we're doing some redevelopment. We're also doing some redevelopment in life science and so that's, I think it's nice stuff. It's accretive. It adds to the bottom line. It helps us grow the dividend. But in the big scheme of things, you're never going to see it as a magnitude of say one of our existing five property types or anything like that.

Just sort of on a run-rate basis, I think you've got, I don't have the number right in front of me, but a couple hundred million or so that you're running through now. Is it -- any order of magnitude what we might see on an annualized basis on development?

Define development. New starts or -- NOI coming off of developments? Jerry, are you there?

Yes, I am, both new and redevelopment. I put it all together.

I suspect that if you add up the development redevelopment we've done this year, I wouldn't expect to see that get much higher in 2012 or 2013.

That's fine, thanks. And then just on the senior housing stuff, a lot has been talked about. You've got a few other operators in the portfolio where some of the leases are -- lease coverage itself is a little thin. Are there other opportunities for RIDEA or transitions within the existing portfolio?

No, I think we like what we've got. I think you're going to see --

(inaudible - multiple speakers) zero coverage, there's no, I think it's one-to-one coverage, that sort of thing.

I'm sorry, for who? Are you talking about a specific operator, Jerry?

Yes. A specific operator in your portfolio. It's [Ija] senior living is basically one-to-one.

I think in terms of RIDEA and senior housing, I think you should think about that being Brookdale Senior Living.

And not re-transitioning portfolios you've got, Okay, last question from me. I don't want to re-do a lot on Medicare, but on the property level coverage, if you were doing the same sort of nine-month calculation, I assume that 1.28 would also be a decent amount higher?

On the corporate level (inaudible - multiple speakers) you'll see that. Again, you'll see these coverages, you'll see these coverages as you will with our non-HCR post-acute portfolio, you'll see these coverages march successively higher for our Q3 results and our Q4 results.

Okay.

Across-the-board.

Thanks, that's all for me.

Your next question comes from the line of [INAUDIBLE] of Jefferies & Company.

Hi, good afternoon Jay. Again, thanks for the clarification this morning. A follow-up in regards to Jerry's question about some of the senior housing operators that have lower coverage. Is the idea here really that occupancy is expected to improve, that would improve the coverage ratios? And how do you see that happening if everyone is kind of predicting a world of a slower economic growth going forward?

Well, I think our overall senior housing portfolio is covering at 1.2 times, okay? Paul talked about that. So we feel very good about that. We're at occupancy levels that are clearly up from what they were at the beginning of the last decade, but clearly down from where they were at the peak, which would have been kind of 2006. We've got very good structures like we have in the post-acute skilled space and we think that over time, those occupancies will move up.

We also think that a combination of what is likely to be not a lot of wage push from the labor side of the equation, as well as some more moderate rate increases, that these coverage ratios will continue to go higher as well, just like they're going to go higher in post-acute and skill, albeit for different reasons. So we're very comfortable with what we've got. You've obviously got the two major economic drivers stepping back, which is the aging Baby Boomer, and the fact there's no new supply coming into the space, and no new supply being financed. So we're quite pleased with the portfolio of senior housing assets we have today, and quite frankly we'd like to grow that.

Okay, that's helpful. Going back to the world of consolidation in the skilled nursing space, do you see yourselves doing more of -- starting off owning some of the debt of an operator, and possibly taking over the real estate similar to ManorCare, or do you see more of a world of just buying the assets outright?

I think it remains to be seen. My guess is that this external shock is so draconian and so unexpected that the shelf life of when the impact of this playing out in the industry to when it presents opportunities, is going to be much shorter. I think in order to really thrive -- I go back to my aerospace defense industry analogy -- you need to have quality outcomes, you got to have efficient operations, and you got to have critical mass. There's just not a lot of business platforms out there that have all three of those. We happen to be attached to the premier one, and I suspect there's going to be, quite frankly, lots of discussions.

Now, I would also tell you that given the quality filter that HCR ManorCare and we have, you shouldn't expect that we're just going to be out there buying up everything, but it's still got to fit from a standpoint of quality of real estate, quality of the operations, quality of the people, quality of the geographic footprint, the reimbursement levels and things like that. But I think once we get through this initial period of disruption and right-sizing, I suspect there's going to be an awful lot of opportunity back and forth between HCR and HCP, and quite frankly Carlyle.

And then just last question. Would you expect between now and October 1, when the new real estate effects -- that again, operators just press the lever as hard as they can to get every single dollar they can out of the current favorable rules, such that there's not as much dislocation as some people ultimately expect when the new rule's set in place?

No.

Do you think that timeline is just way too short?

I think the disruption started Friday afternoon, and I think it's only going to intensify between now and October 1.

Okay, appreciate it. Thanks, Jay.

Next question comes from the line of Rich Anderson, BMO Capital Markets.

Hi, thank you. First question is, what is the percentage of Medicare using any metric for your senior housing portfolio?

It's quite small. Do we have that?

Yes. It's under 3%.

Under 3%. So your thought of that senior housing having some consolidation opportunity is a much, obviously a much smaller opportunity in your mind?

Well, you're only looking at one of the external shock catalysts. I identified three or four. I identified the balance sheets of the seniors in the country today. I identified the tepid economic recovery, I identified what is likely to be --

Okay, so that's more of a broader commentary about the economy?

Yes. Goldman Sachs is out there today with a report demonstrating the analytics of when technically the economy will tip into a double-dip recession, and it's not too far from now. So there's various catalysts for various sectors. At the end of the day, sorry to sound like a squeaky record, but the quality providers, operators that have quality outcomes, efficient operations, and critical mass -- of which there are not a lot of those folks in either the post-acute space or the senior housing space -- are going to have very attractive opportunities. Given our existing relationships and partnerships that are scalable with those players, we're very excited about what the next six to 12 months could bring.

Okay. Next question is on just quickly on your comments on VTR. Do you have any knowledge or view of what we might, what one might expect in a punitive damages scenario? Maybe you can comment on what is a precedent out there, and what or how that might be playing into your thought process about a settlement.

Again, we just like we don't comment on prospective M&A transactions, we don't comment on litigation matters aside from the comments I made in my prepared remarks.

Okay, and then just broader on what you talked, first of all, the business of skilled nursing and post-acute. Obviously, it's a very fair statement that you're aligned with one of the best, if not the best, in the business. But how would you respond to the commentary of being a great Company in an industry that's otherwise in a tough spot right now. I mean, I understand the consolidation opportunities, but how do you kind of shake that guilty by association mantra?

We're very proud of our relationship with HRC ManorCare. Guilty by association I think--

Just of the industry I mean.

Well again, we're not a capital partner to the industry. We're largely a capital partner to one player, and we are extremely proud of that relationship. We have made an enormous amount of money for our shareholders since we made our first investment in that company back in 2007, four years ago next quarter. We suspect we'll make multiples of that return for our shareholders in the period ahead. We think it will be a little bit of a different, it will be maybe less organic growth than it has been the last four years, and more external growth. But we couldn't be more pleased with what we have in place, how we got there, and what the near- and intermediate-term future holds for us.

Okay, fair. Finally, you mentioned the consolidation opportunity. I'm curious how that works. I mean, is it something where you would just expect to be involved and HCR would take you along on real estate opportunities, or is there some sort of way where you're tethered to being involved in the real estate that may come off with some consolidation that they might get involved in?

I think all of those permutations are possible, Rich. So we'll play that out and post you as we put something in the end zone.

But there is a scenario where because of your ownership stake in the operating company, that you have a first kind of look at things.

We have a very close working relationship with HCR ManorCare, and we think there's going to be some attractive opportunities to present themselves, and when we get the specifics of those all identified and lined out, we will take you through them in a fair amount of detail.

And one last one, sorry. Just an order of preference -- if you were to go to the capital markets today, and maybe this is a first question for Tim, I suppose, or you. But debt equity, some combination, what looks attractive to you today, now that we're kind of going down the mindset of potentially seeing some more external growth from the Company?

Well, we're sitting on fairly good chunk of change cash-wise on the balance sheet. We've also got a line of credit that has nothing drawn on it. So it really kind of depends size-wise what are we talking about? We're obviously going to stick to our target 40/60, 40 parts debt, 60 parts equity leverage ratio. That's the arrangement, the deal we have, the handshake we have with the rating agencies. So you've got to think about how big a deal it is, does the seller want to take equity directly, which we've done in the past, all those sorts of things. But we've got the world by the oyster with regard to that right now.

Okay, thank you.

Your next question comes from the line of Jeff Syler of Green Street Advisors.

Good morning guys. Just really quick, in terms of senior housing, a lot of people have been talking about, we haven't seen kind of the big up-tick in occupancies, and you mentioned a bunch of the pressures that were in the industry. Are you seeing a backing up in pricing for deals that are in the market right now?

Well, I think the most accurate way to answer that question is, let's wait and see what the next transaction that gets announced is. I think the fact that the pace of the deal have slowed a little bit, you could probably infer that the answer to your question is yes, based on that, but we'll see. I mean, you can see the results. You can see the stock prices of the publicly traded senior housing operators, and I know you follow that stuff, so you can draw your own conclusions. But we still think this is a fantastic business over the intermediate term.

We think for different reasons than in the post-acute skilled space, and for different reasons still in the hospital space, these spaces have challenges that are going to really put a spotlight on the fact that the best players, the most efficient operators, the ones with critical mass, the ones with quality outcomes, HCA in hospital land, HCR ManorCare in post-acute, Brookdale Senior Living, Ameritus in the senior living space, they're going to out-perform.

Great and sorry, just one quick technical one. On the Q mix in your skilled nursing or HCR ManorCare portfolio, how much does bounce around? I saw that decrease a little bit. But is that just the general volatility you see quarter-to-quarter?

It's very steady, much like their occupancy, Jeff.

Okay. Does that cover just the post-acute assets, or is that also including the assisted living assets in there?

That's everything.

That's everything. Great, thanks.

Your next question comes from Mark Biffert of Bloomberg Research.

Yes, good morning, guys. Jay, I was wondering if you could talk a little bit about the Bloomberg -- or I'm sorry, the Brookdale switch-over of the assets, and what the coverage ratio was for the RIDEA assets that you brought in -- the 21. And then on the new leases that you signed for the four assets in a separate triple net lease? And is it your intent to bring in assets, because I saw the coverage on those is I think a 0.9 times, and I'm just wondering if you are better to put that into a RIDEA structure, and put incentives into it for Brookdale, given they have an ownership interest, so they can drive the fundamentals of those properties.

Well, I think that's what we did. The only exception to what you said that we did that we actually did is we carved out four of the 25 that had a skilled component to them.

Yes.

They were up in Rhode Island, and because we have a view that we don't want RIDEA structures for skilled assets. So we pulled those four out, put those in a triple net lease, master lease, corporate guaranteed, and then the remaining 21 are, as you identified, have a coverage ratio of below one, and there are certainly incentives there. There's a below-market management fee and incentives that run the other way to the benefit of Brookdale. Again, please remember the jumping-off point there.

This is a portfolio that has got a margin today of 37%. That's down from 41% two years ago. It's got an occupancy today of in the high 80s% and that was 92%, 93%, 94% two years ago. So we have a very high level of confidence that Brookdale, because they've got a geographic footprint that lays very nicely over this portfolio of 21 properties, as well as an ancillary revenue component to their business model, which Horizon Bay did not have, that you'll see both those metrics, the operating margin, as well as the occupancy, go back to where they were two years ago and exceed that in a relatively short period of time. So from that standpoint, this is a very attractive opportunity for our shareholders.

One of the other things that went into our thought process about the four leases was, those properties actually have slightly higher occupancy, and are much more stable, and there's not as much upside in those particular properties, and was much more conducive to the triple net lease. And as Jay mentioned, with the occupancy a little bit lower on the independent living and the ability to overlay ancillary services, there was more upside in the sharing through the RIDEA structure on the remaining portfolio.

So did Brookdale have any of their -- I'm sorry, did Horizon Bay have any of the ancillary income at all on those properties, and that's all going to be upside then in the RIDEA structure?

It was selective through third parties, so it did not fall through the bottom line to the properties.

Okay, and then lastly, Jay, on the amendments by CMS last week, how much of it do you think is they want to force consolidation in the space given that it's a way for them to reduce costs by putting a number of these companies together, and overall negotiating with them at some later point to further reduce costs for CMS? Well, I'd say two things to that, Mark. I'd like to say a lot more but I'll say two things. One, I was not in the room in Washington, DC, last week, so I was not privy to the deliberations. And two, you probably need to get a cocktail into me before I open up to my feelings on that. Clearly, there was, this has been a very significant adjustment. It was not anticipated, both in terms of the magnitude and time frame in which it's being affected.

I find it fascinating to note that as part of the deficit reduction bill that was signed yesterday, of that just under a trillion dollars, think about this, to give you some context here. Only $22 billion of that spending cut is going to find its way into the government's fiscal year 2012, the year that ends September 30, 2012.

It's estimated that the impact to the skilled post-acute space industry-wide is just under $4 billion, and that will all be done in fiscal year 12, so something just shy of 20% of the spending cuts that Congress just spent the last two months negotiating, is the impact of the post-acute skilled space at a time when there were, by CMS increases to the hospital space, the in-patient rehab space, and the long- term acute-care hospital space, so it's -- I think that should give everybody out there some context for how severe an adjustment this is, and which is why we think there's going to be a fair amount of disruption here in the near term.

And have they telegraphed at all in any other parts of Medicare areas where they are looking to cut and how that might impact HCP, if at all?

Again, Mark, I'm not in the room in DC on these conversations, so that's probably a pretty good summary of what I know today.

Okay, thanks.

Your next question comes from Todd Schneider with Wells Fargo.

Hi, thanks guys. A lot of my questions have been answered. I guess Paul, this might be for you, just looking at the Energy Star label for your medical office buildings. What percentage of your total MOBs have the star label part one and part two? Would you say that if you put an Energy Star label MOB side by side with one that's not, you get a premium cap rate to that?

We have definitely seen it on the second part of your question, people are interested in green buildings, so there might be a little bit of a premium. But that's going to represent itself from the standpoint of saving actual dollars. It's a real benefit to the efficient operations of the project. We have somewhere in the, I think it's 27 or 28 out of our 188 properties have the Energy Star label.

Okay, thanks and just looking at your guidance--

By the way, Todd on that, Tom Clarence and Mike McIlwayne our Senior Executives down in Nashville, I think you visited them in the past, they are front and center on that, maybe in addition to doing a great job with their MOB portfolio, they have done a wonderful job and as the environmental protection agency has now designated we are the absolute leader that they've identified in this space, so I feel very proud about that.

Okay, thanks Jay. And just looking at the guidance, your FAD guidance, leasing costs and tenant capital improvements, the estimates came down. Is there anything to read into that? Maybe it's a function of market demand or pricing power?

No, nothing to read into that.

Okay. All right, that's it. Thanks, guys.

Your next question comes from the line of Dan Cooney, KBW.

Hi guys, good morning. Jay, just a quick follow-up on the consolidation discussion. Could you guys talk a little bit if you've adjusted your underwriting assumptions for skilled nursing, just given the new reimbursement environment in terms of minimum rent coverage, cap rates, are you kind of foreseeing not a big change at all? Thanks.

Well again, we're now not quite 48 hours into the news, so, I think our Chief Investment Officer here Mr. Gallagher here runs a dynamic investment community process, but I'm not quite sure it's quite that real-time. But clearly, there's going to be an awful lot of disruption. We've made our bet with one hell of a management team in HCR ManorCare, and I suspect these opportunities, when they get fully bedded and flushed out are going to be very attractive.

Okay, great. Thanks.

Your next question comes from the line of Suzanne Kim, Credit Suisse.

Hi. Question about leases. How are they structured? I mean, at what ratio are you starting to get worried about a tenant, and have you ever done a reset with an operator before?

Suzanne, what sector are you talking about?

We can look at the skilled nursing. At what ratio are you starting to get a bit worried about?

I don't know. Probably something around 1.1, 1.15, 1.2 would be a concern. You've got to look at the geography, you've got to look at the operator, you've got to look at the quality of real estate, you've got to look at the amount of CapEx that needs. I think you and your peers sometimes get overly focused on coverage ratio, which is without a doubt important. But I think what sometimes that analysis misses is the structure.

So I would -- let's say we had a portfolio that we wrote at 1.5, and we had master lease corporate guarantee, various pools that fall out on a staggered basis. And then we had a similar portfolio that was also 1.5 coverage, but that was comprised of five assets at a two-times coverage, and then five separate assets at a one-times coverage. In those two scenarios, the operator is likely to present you with the keys on the five properties that are at a one-times coverage, and keep you in what effectively is a below-market rent return to the landlord in the two-times coverage. Obviously if you're in the first scenario I evidenced, the 1.5 coverage where you've got bulletproof structure, there's not the possibility to do that.

So I do think it's important to look at coverage. I think you've got to look at coverage over a period of time and see if it's going up, going down, staying the same, but I think structure -- we have a mantra in our Company that structure matters. Structure oftentimes trumps economics, Suzanne.

Sure, but the bigger question is, have you ever worked with an operator to reset their rent?

I can't, I'm sure at some point back in the Company's history, but certainly not in the last several years, no.

Okay. Thank you.

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

Okay everyone, thanks for your time, have a good and enjoyable rest of the summer, and we'll see you post-Labor Day. Take care, thank you very much.

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