Healthpeak Properties Inc (PEAK) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third-quarter 2015 HCP earnings conference call. My name is Denise, and I will be your coordinator today.

(Operator Instructions)

Please note that this event is being recorded. 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, Denise. Today's conference call will contain certain forward-looking statements, including those about our guidance and the financial position and operations of our tenants. These statements are made as of today's date, and reflect the Company's good faith beliefs and best judgment, based upon current information. These statements are subject to the risks, uncertainties, and assumptions that are described in our press releases and SEC filings, including our annual report on Form 10-K for the year ended 2014.

Forward-looking statements are not guarantees of future performance. Actual results and financial condition may differ materially from those indicated in these forward-looking statements. Future events 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 on this call. We have provided reconciliations of these measures to the comparable GAAP measures in our supplemental information package and earnings release, both of which have been furnished to the SEC today, and are available on our website at www.HCPI.com.

Also, during the call, we will discuss certain operating metrics including occupancy, cash flow coverage, and same-property performance. These metrics and other related terms are defined in our supplemental information package. I will now turn the call over to our CEO, Lauralee Martin.

Thank you, John and welcome to HCP's 2015 third-quarter earnings conference call. Joining me this morning are Tim Schoen, Chief Financial Officer; Justin Hutchins, Chief Investment Officer of Senior Housing and Care; and John Lu, Investor Relations.

I would like to start by highlighting our financial results in the quarter. Strong organic growth in four of our five property sectors, combined with the benefit from accretive acquisitions completed over the last year, resulted in year-over-year increases in our FFO as adjusted, and as a fee per share of 5% and 3% respectively. Year-to-date, we have completed $1.9 billion of investments, with a blended cash yield of 6.7%.

During the quarter, we looked at many potential investment opportunities. However, our closed investment activity was relatively quiet. We continued to see aggressive market pricing for assets and portfolios, with investment performance highly dependent on strong occupancy and revenue growth.

In response, we have stepped up our capital recycling activities to benefit from this market pricing, using proceeds to delever the balance sheet. We continue to focus on building new operator relationships to generate off-market investment opportunities. We also continued to selectively increase our development programs in medical office and life science, where returns can be optimized, and we are expanding our investment management platform.

Some highlights of these efforts: The Cove life science development is on track and now visibly coming to life. I encourage you to watch the live on-site webcam. We signed our first tenant for phase one with occupancy expected to begin in August of next year. We are in active discussions with several other prospects, and expect to make additional signing announcements very shortly.

Direct market vacancy in South San Francisco is currently at sub-1%. Demand since to be quite strong, and market rental rate and terms continue to set new records. With HCP being the largest owner and developer of life science on the West Coast, we believe the recently-announced acquisition of BioMed Realty confirms the high value of our portfolio. We established a new medical office joint venture partnership by selling a 49% non-controlling interest in our $225 million Memorial Hermann portfolio to an investment fund advised by Morgan Stanley Real Estate Advisors, and we generated $438 million in capital recycling and financing activities, enabling us to reduce leverage significantly, which Tim will speak to in a few minutes.

Now let me provide a few highlights for the quarter for our two largest partners. HCR ManorCare. HCR's normalized fixed charge coverage was 1.11 times for the trailing 12 months, ending September 30. This coverage is before any benefit from the non-strategic facility sales in process. Pro forma, reflecting the lease amendment and completion of the facility sales, HCR's fixed charge coverage would be approximately 1.25 times, with upside potential from growth activity. HCR ended the quarter with $151 million of cash on hand.

Operationally, HCR's third-quarter performance, despite maintaining strong market share, was impacted by the broader market declining trends in admissions from hospitals and continuing trends in mix and length of stay driven by Medicare Advantage and other managed care plans. As a result, we recorded a $27 million impairment of our 9% OpCo investment, bringing its carrying value to $21 million. Through today, we have received fee ownership in four of the HCR's nine recently-built post acute facilities, part of the consideration received for our lease amendment. These facilities are valued at $99 million, have a quality mix of 80%, and are 85% occupied.

The HCR facility sales are progressing above our expectations, with 12 properties sold to date. The remaining facilities are all under contract and scheduled to close over the next few months. We now expect total proceeds to exceed $350 million for all 50 facilities, representing the high end of our last guidance.

Finally, as part of HCR's growth initiatives, enabled by the increased financial flexibility of our lease, they just opened a new post acute facility near Toledo, Ohio, with their joint venture partner, ProMedica. The 120-bed facility features intensive rehabilitation services for short-term patients, and is designed to look and feel more like a hotel than a rehabilitation center. Later this month, HCR is also scheduled to open the next of its highly successful Arden Courts memory care facilities in Old Orchard, Pennsylvania, which is subject to HCP's forward purchase commitment for $15 million.

Brookdale. Let me start by congratulating Andy Smith on the exciting new additions to his management team. We look forward to meeting them soon. We became Brookdale's largest capital partner with their transformative acquisition of Emeritus.

We also increased our senior housing RIDEA investments, which now make up 13% of our overall portfolio income. Our investment philosophy with RIDEA has been to optimize investment performance through a financial alignment with our operating partners. For example, both Brookdale and MBK invest alongside us, owning between 10% and 50% of our real estate. Together, we plan and commit to invest CapEx to ensure our assets remain market competitive. These are decisions that are incredibly important in response to new supply, as it comes online in select markets.

We were pleased to see the occupancy increases in our Brookdale portfolio exceed the NIC average for the quarter. We now plan to take this financial alignment with our RIDEA partners to a higher level of coordination, through joint active asset management. We welcome Justin to HCP, who brings not only REIT experience but deep operating expertise, and relationships in both senior housing and long-term care.

Justin has already added operating professionals to complement our talented senior housing team. We believe our timing is appropriate, positioning us to manage and address the maturing operating cycle of today's senior housing industry. Justin's experience and leadership will not only bring more active and robust asset management to our RIDEA portfolios, but also a deeper dialogue with our operators around the performance of our triple net leased assets.

Before I turn the call over to Justin, I want to reinforce our commitment to sustainability. With the continuing drought on the West Coast and the increasing weather threats caused by climate change, we are proud of the energy savings and water conservation we are achieving in our real estate portfolio. In recognition of our efforts, we have been named to the Dow Jones World Index for the first time, and the Dow Jones Sustainability North America index for the third consecutive year.

Now, let me turn the call over to Justin.

Thank you, Lauralee.

I'm very excited to have joined HCP in my new role. My first impressions of HCP so far are even better than I was anticipating. I already had a favorable view of HCP's management team, and the Company's long successful track record as an industry-leading healthcare REIT.

But now that I've had the opportunity to work with people directly and get to know the portfolio, I have found that, first, HCP has an incredibly deep and talented team, beyond my expectations. Second, if we are going to have a significant operator concentration, it is to our advantage to have that concentration with national operators such as Brookdale and HCR ManorCare, who have the expertise, scale and efficiency to manage through business cycles. And third, while HCP is a well-established organization, the team here is committed to continuing the enhancement of systems and processes that support the Company's growth.

My top priorities coming into this role were to assess internal processes around underwriting and business development; establish relationships with industry-leading operators, primarily in the senior housing and post acute sectors; to position the Company for continued growth; gain familiarity with the leadership teams of our two largest partners, Brookdale and HCR ManorCare as well as our other significant relationships; and enhance our asset management and capital investment approach, particularly as it relates to our RIDEA portfolios.

Over the past two months, I've had the opportunity to visit several properties and meet with the senior management teams of both HCR ManorCare and Brookdale. I've also met with several top operators as potential new partners across the country. I'm confident that we are laying the groundwork to position ourselves to carry out more off-market transactions with more existing and new partners in the future.

Our senior housing same-store cash NOI grew 2.4% in the quarter and 3.8% year to date, primarily driven by triple net contractual rent increases. We are projecting full-year growth to range from 3.25% to 4.25%. Focusing on our RIDEA portfolio, which makes up about one-third of our senior housing portfolio and 13% of HCP's total portfolio income, we currently have 106 consolidated RIDEA properties with Brookdale.

Q3 occupancy growth in our total RIDEA portfolio outperformed the NIC average in our markets, both year over year and sequentially. Specifically, our occupancy was up 60 basis points over the prior year, which outperformed the NIC averages for our markets by 170 basis points, and on a sequential basis, we were up 90 basis points, which was 80 basis points better than the NIC averages for our markets. Occupancy for our 14 CCRC campuses was also up 30 basis points over the prior year.

It is encouraging to see the occupancy growth that Brookdale's team has achieved despite the integration efforts they have been focused on this year. There are several factors that we believe are contributing to this performance. Typically when new supply comes online, it enters at the top of the market. HCP's Brookdale properties offer a value proposition that should compete well against new higher-priced competition.

Additionally, we have been investing revenue-enhancing capital to achieve outsize growth. In 2015, we will have spent $57 million of revenue-enhancing capital expenditures in the majority of our communities. Our properties are in well-established locations, and have strong reputations within their respective markets.

Houston, our largest market, is a good example where all three of these factors work together. Houston has had one of the most significant infusions of new supply in the industry, but our assets have good in-fill locations, attractive rent levels, and we have invested revenue-enhancing capital together with Brookdale, to position the communities to take market share.

As a result, our Houston portfolio, which is predominantly independent living, gained 350 basis points in occupancy over the prior year, exceeding the NIC average growth for Houston independent living properties by over 680 basis points. Based on NIC construction and data, only 23% of our RIDEA and CCRC portfolio, or 2.6% of our total portfolio income will be impacted by new senior housing supply entering our existing markets within a five-mile radius, or a 25-mile radius in the case of our CCRCs.

In summary, we believe our RIDEA portfolio is well positioned to withstand new supply risk due to the solid occupancy performance of the portfolio, the substantial revenue enhancing capital expenditures, and the value proposition that we believe our communities offer versus new competitors, that enter the market at the top of the market. Our RIDEA same-store growth was up 5.2% year-to-date, primarily driven by occupancy gains. Full year growth is expected to range from 6.8% to 7.8%. As a reminder, our RIDEA same store portfolio consists of 20 communities that are primarily independent living.

Finally, a quick note on investments for the quarter. We are expanding our senior housing joint venture partnerships with Brookdale and MBK with $47 million of new investments at a blended cash yield of 7.8%, of which $26 million was completed during the quarter, and an additional $21 million is expected to close by the end of November.

With that, I'll turn the call over to Tim to discuss our financial results.

Thank you, Justin.

Let me first review our third-quarter results. We reported NAREIT FFO of $0.57 per share, which included the previously-announced Four Seasons debt impairment of $0.15 per share, a $0.06 per share charge related to our 9% equity ownership in HCR ManorCare OpCo that Lauralee just discussed and a foreign currency remeasurement loss of $0.01 per share.

Excluding these items, FFO as adjusted for the quarter was $0.79 per share, and FAD was $0.67 per share, representing growth rates of 5.3% and 3.1% respectively compared to the third quarter last year. The increases were driven by accretive acquisitions and performance outside of the HCR ManorCare portfolio, which continues to generate solid performance with same-store cash NOI growing 3.6% year over year, led by a 5.7% increase in life science, and 4.2% growth in medical office.

Our continued leasing success increased occupancy across our 24 million square foot office platform, with life science achieving its fifth consecutive quarterly all-time high occupancy at 98.1%. And MOB increasing to 91.5%, the highest level in two years. Our overall cash same-store performance for the quarter declined 0.8% compared to 2014, reflecting the impact from the amended HCR ManorCare lease completed in April.

Switching to our balance sheet, we improved our credit and liquidity profile, which benefited from our capital recycling efforts. We have been active in recycling capital by taking advantage of strong demand for our assets at attractive cap rates. As a result, from the end of the second quarter through November 2, our financial leverage improved 170 basis points to 43.7%, and our liquidity increased $300 million to $1.4 billion.

On the disposition front, we generated $365 million of proceeds, which included $130 million from sales of the HCR ManorCare non-strategic assets, representing more than a third of the total $350 million in anticipated proceeds. $110 million related to a new institutional joint venture with Morgan Stanley on our Memorial Hermann medical office portfolio acquired in June. $73 million from monetizing non-income producing assets including land in Carlsbad, California, and the repayment of the Delphis loan in our hospital segment. And $52 million from HC-One debt repayment under the sale of previously identified non-strategic assets.

In addition, we issued $73 million of equity under our ATM program at an average price of $40.14 per share. Combined with the asset sales, proceeds totaling $438 million were used primarily to pay down our revolver, and as such, finance a portion of our acquisitions completed earlier this year. We expect to generate additional asset sale proceeds of between $250 million and $350 million over the next couple quarters, which will further improve our credit profile, with leverage trending towards the low 40% range, and net debt to EBITDA to the mid 5 times range.

On the debt maturity front, looking ahead to 2016, we have $1.4 billion of debt coming due at a blended interest rate of 5%, providing opportunities to extend the average term and favorably lower the average interest rate on our already well-laddered debt maturity profile.

Finally, our updated 2015 guidance. Our real estate portfolio is performing consistent with forecast, and we continue to expect same-store cash NOI, excluding HCR ManorCare, to grow between 3.25% and 4.25% for the year. The midpoint of our 2015 cash same-store growth for the entire portfolio remains unchanged at 0.5%, inclusive of the amended HCR ManorCare lease. We are revising 2015 NAREIT FFO guidance to range between $1.74 to $1.80 per share, which is $0.05 per share below our last guidance in September, due to $0.06 per share impairment in Q3 related to our equity ownership in HCR ManorCare OpCo, partially offset by a positive $0.01 per share benefit in Q4 from our participation interest in a senior housing development project in Olney, Maryland. Excluding impairments and other items for the year, 2015 FFO as adjusted guidance has increased $0.01 per share to range from $3.12 to $3.18 per share. The midpoint represents a growth rate of 3.6% over 2014. Our 2015 FAD guidance is also increased by $0.01 per share to a range between $2.66 and $2.72 per share, representing 4.7% year-over-year growth at the midpoint.

With that summary of our financial results, I will now open the call for questions. Operator?

Thank you, Mr. Schoen.

(Operator Instructions)

Our first question will come from Smedes Rose of Citi. Please go ahead.

I wanted to ask you on your senior housing, it sounded like your commentary around supply, particularly where you have RIDEA exposures, you feel pretty comfortable with it, and it's not as much as maybe what we're seeing for other portfolios. Are you comfortable over time increasing your exposure to RIDEA there?

And I also just wanted to ask you on Houston, you mentioned taking market share with higher occupancy. Were you more aggressive on pricing in order to drive the occupancy? What were some of the strategies to make that happen?

This is Justin. Let me start with our comfort level with the RIDEA structure. We absolutely are committed to expanding that structure. As Lauralee mentioned in her prepared remarks, it gives us financial alignment, where our joint venture partners own part of the real estate, we own part of the operations. And we're seeing some really good results from that structure.

In terms of Houston, the primary driver of the performance was occupancy. There was some rate lift, I don't have the number offhand, but it was less significant than the occupancy increases that I pointed to. In terms of the overall market, I might also throw in that in my prepared remarks I was focused on our RIDEA portfolio, but also if you looked across our triple net portfolio, those have similar exposure. The numbers are very similar, and in the case of Brookdale, they've gone through a similar experience, where they've had integration that they faced over this past year.

They've had the capital expenditure infusion of $100 million, one-third of which is completed. They're going to benefit from a rent reduction at the beginning of the year based on a previously negotiated agreement with Brookdale. And overall, they have similar supply dynamics, so we feel comfortable with that portfolio, as well.

Okay. Thank you.

The next question will come from Nick Yulico of UBS. Please go ahead.

Thanks. I was hoping you could, Lauralee, could give us a little update on HCR ManorCare and the DOJ complaint, where that whole process stands right now?

There really is no update on the Department of Justice. We had actually anticipated that a calendar would be set around discovery, and that has not occurred. So at this point, there really is no new information.

Okay. And then just going back to the issue of impairing the equity at the OpCo and given now your new revised fixed charge pro forma estimate for ManorCare, I think you might have said that there might be some upside potential for coverage, and yet how do we reconcile that, though, with you impairing the equity, which would seem to imply that actually the business is a little bit tougher than you imagined?

Well, the comment on upside is relative to the lease coverage and what we're mostly focused on is the coverage of the lease. September had a lot -- the quarter ended September had a lot of new information, as you've all watched with hospital admissions and referrals that came out of that. I think that was unexpected and a little more volatility, so if we think about that, our coverage with HCR is current through September. A lot of the industry is still on a one-quarter lag, not reflecting that.

But as we think about HCR, they are adapting to changes in mix shift. The Medicare Advantage, I actually think they're doing that quite well. If we think about their results year to date, year over year, with revenues of just a little bit less than $3.1 billion, they have managed a Medicare to Medicare Advantage shift, which lowers rate, length of stay, and yet their comparable revenues year-over-year are only down 0.3%.

So clearly, they're responding to the marketplace, its market share and other actions. And with our lease amendment, we've given them more cash flow flexibility to start growing their business. It takes a while to do that. We were excited to see the two recent assets that I talked about, both in terms of Arden Court and ProMedica coming online, substantiating that there is significant growth potential as they have more flexibility.

Okay. That's helpful. Thanks. And then just one last one on -- you talked about adding, Justin, doing more active asset management within the overall senior housing portfolio. Is that -- could you talk a little bit more about, does that point to future revenue opportunities as you're looking at the triple net assets where you actually could be -- there's opportunities to be increasing revenues? Or is that more of sort of some of that defensive type of positioning just relative to some of the trends that are going on, which are perhaps weaker trends in the industry, like supply or issues in post acute being tough? Thanks.

Well, sure. Asset management from our standpoint really applies first and foremost to our RIDEA exposure, and stepping back and looking at it, we've approached asset management from a real estate perspective. We have operating risk. We're partnered with operators, and we need to view the world from the operator's perspective. One way to do that is to track performance with our operators in regards to their regional, divisional alignment, rather than by investment. For instance, RIDEA 1, RIDEA 2 and et cetera.

Because we know that the operators are overseeing our communities aren't really focused on ownership at the local and regional level. We want to align them and speak their language, and also to give us insights into their multi-site management performance. We like to track leading indicators of performance rather than just historical financial results, so we can get a view or have a view of where the communities are going, moving forward. We'll continue to do physical plant inspections, but we'll also spot check operating performance upon our visits.

And ultimately what it's going to lead to is a more meaningful dialogue, and I think this is the case both with RIDEA and with triple net relationships, where we can speak their language, take the conversation to a higher level, and align ourselves as a capital partner, and not just a property owner. And by the way, as Lauralee mentioned, we've already made a couple hires on our team that -- both of which came from national operators, that are going to help us to transform our asset management as noted.

Our next question will come from Jordan Sadler of KeyBanc Capital Markets. Please go ahead.

Thank you. I guess I wanted to come back to the write-down on the HCR equity and the timing. You mentioned, Lauralee, the new information coming to light, but I guess I'm struggling with that disconnect versus the operations. When do you normally review the valuation of that equity? Is it quarterly or is it annual? And just, I guess what was the catalyst?

Jordan, let me take that. We look at -- that's an equity method investment. Obviously the OpCo's a highly levered entity. Smaller changes or changes in the growth outlook have a significant impact on that.

I think the two things that Lauralee mentioned is obviously the accelerating admissions across the acute care space. I think you've seen that reflected in the stock prices of the operators here, in the last several months. And then we continued to see a shift from Medicare or shift to Medicare Advantage, which has impacted length of stay and reimbursement rates.

All of that has an impact on the growth trajectory going forward, so that's the biggest thing. Now, I know that flies in the face of improving coverage with regards to the lease, but it really is a change in --

I guess I also would have thought that the lease amendment earlier this year would have been an enhancement to the equity value of the entity.

Yes, and if you follow that --

Obviously you didn't write it down at that time.

That investment has moved around. That was -- the value of that investment was increased when we did do the lease amendment, back at the end of March.

Okay. Just moving on, I guess, one for you, Justin. Welcome aboard. But I'm curious, you made the comment surrounding the value proposition offered by HCP's senior housing portfolio. Could you maybe frame that up for us?

Sure.

A little bit?

Sure. Really when you look at our properties that we have under RIDEA, it's primarily Brookdale. Weighted average across the portfolio, we generally operate around mid price point. And so there's -- and these are also communities that are around 87%, 88% occupancy.

So if you look at -- if you combine the capital infusion with the fact that we're around average in terms of pricing in the markets, and you consider new supply that's going to come in at a higher price point, the consumer will have a choice. They can choose a refreshed property that is affiliated with a well-established national operator, or a newer, higher priced property. And we think that we're well positioned in that regard to handle the new supply which by the way is fairly limited, as I mentioned in my prepared remarks.

Okay. Last one, just on the life science portfolio. Lauralee, you touched on the print, a favorable one to sort of look to during the quarter with BioMed. Any thoughts on your long-term investment in life science? Is there an opportunity here to reduce exposure?

Listen, we like our exposure. I think as the largest landlord on the West Coast, and having a deep concentrated portfolio in key markets, that's created a lot of value for us. You can see that in the same store growth we've had this year, where we continue to lease up the portfolio with positive mark-to-market leases and increases in occupancy. That's a portfolio that's been a good earner for us, I guess I would say, and something that we'll look to increase our investment in.

We're going to do that I think primarily, Jordan, on the development front on our land bank. That seems to present the best risk-adjusted return and value proposition at the moment, as we continue to expand our footprint, both in San Diego and in San Francisco.

If I could just pile on in terms of thinking about us as being diversified, in terms of what we bring, in terms of growth, to have a mix of sectors that are growing at different paces, we love the growth in life science right now. We like the fact that markets are so tight, that development returns can be significantly higher than acquisition returns. And we like the land parcels that we have, that have extremely well-positioned at the right time to take advantage of all of that. So in a diversified healthcare portfolio, this is a big contributor to the growth dynamic.

Thanks for the time.

Our next question will come from Vikram Malhotra of Morgan Stanley. Please go ahead.

Thank you. Justin, just wanted to clarify on the RIDEA analysis that you did, in terms of new supply, you mentioned, I think there was one radius you looked at was five miles. Then there was a 25-mile radius. Could you clarify what that difference is, and why there's such a large difference between the two pieces of analysis.

The industry is looking recently at three, five and seven miles. Five miles has been a reliable metric that we've used, and I've used over the years. And we've always really referred to assisted living and independent living as a five mile radius business. We first and foremost looked at our 106 RIDEA property portfolio and looked at the five mile radius.

But then when you consider the CCRC marketplace, that's a campus that attracts from a broader market. And so we reached out 25 miles, and in that case, and that's an entrance fee model for a community. It's a little bit more of a niche in that regard, and it differentiates within the market, and tends to attract from a broader market. That's why we chose the two radiuses.

Just turning to the investments in the UK, any update maybe in your conversations with Four Seasons on recent trends there. Sounds like there may have been some improvement in occupancy, but I'm just wondering how you're thinking of your investments at Four Seasons, HC-One, et cetera, just in light of ongoing challenges and then potentially rising costs next year as the UK government plans to kind of increase minimum wages over there?

Vikram, we've got three relationships over there. Looking at those three relationships, they all have different dynamics. We look at Maria Mallaband, which is primarily a private pay portfolio. That's performing extremely well.

We continued to expand this year our HC-One investment and that continues to meet our expectations. And then obviously with Four Seasons, they do remain challenged, particularly from a liquidity standpoint, but I think that's more an issue related to that operator. But we're committed to that care home space in the UK, and you've got to -- when you look at our investments over there, it really is a different story with each of our operators.

I do think it's incredibly important to differentiate Four Seasons from the other two operators. Four Seasons is not performing indicative with the rest of the industry. There clearly is a private equity firm, that is a financial private equity firm versus an operating equity firm, and if we look at their results, whether they have made management changes that resulted in embargoes, et cetera, the two operators that we have, Maria Mallaband being in that private pay sector, they are able to navigate if there are cost increases, because the revenue sources are private pay, and they can very much focus on matching those.

And if we look at HC-One, we've been converting that debt into real estate, and the conversions have been focused on that same private pay marketplace. Again, why we have very good coverage and performance.

And if we look at the balance of HC-One, Chai Patel, who's the CEO of there is a very proven operator, highly respected in the industry, who is in ongoing talks about what can be done in terms of care models, staffing models to address some of the higher factors in the UK that are challenged, and that meaning a nurse shortage, or just care shortages in general. And again, to have those kind of operators focused on the majority of our portfolio, makes us very long-term committed to the care industry in the UK.

And just remind me you said in HC-One, the conversions are focused more on the private pay. In general, what is the split? Is it mostly private pay or is there more local authority funding?

Theirs is still mostly local authority, or what they call top-ups over there, which is an ability to enhance some of the revenue sources with the mix. But we did do some new investments with HC-One that have more of a private pay focus.

Okay. And then just last one on the MOB side, your same store occupancy, I believe, went down 50 basis points. Your same-store revenues went up 3.6%. Can you just maybe walk me through what the annual rent bumps, and maybe the rest of the increase was?

Yes. Actually, on a same store basis Vikram, we actually -- contractual rent steps the largest. We did have a pick-up in occupancy. Those were the two biggest things, and then we did have some bad debt from last year. But the biggest pickup is really rent steps and increases in occupancy in that portfolio.

Your same store went down.

The same store went down just a touch, insignificant. The total occupancy went up. But we continue to have very favorable mark-to-market rents of over 2% in the quarter.

It's mainly rent steps, Vikram.

The rent steps are about 2%, you're saying?

A little bit higher.

A little bit higher than that.

Okay. Okay. I can follow up with you offline. Thank you.

The next question will come from Juan Sanabria of Bank of America. Please go ahead.

I was just hoping you could expand a little bit on the revenue-enhancing CapEx you're putting into the RIDEA business, and what impact that's had on rate growth, what your expectations were pre, and what that has gone to now that you've invested some of the money?

Sure. This is Justin. First of all, it's been typical over the years upon the recapitalization or the acquisition of assets to infuse capital to refurbish properties. REITs have been a major source of capital for this source -- for this purpose.

In the case of Brookdale, we have agreed on investment to infuse capital, and the capital's being used to reposition properties with full major refurbs. We're doing major refreshes. We're doing expansions. We have conversions of assisted living to memory care, all of which support their ability to ultimately compete and attract market share.

So far what we're seeing is some impact on occupancy. There's a little bit of -- because we're not referring to same store, there's some muddiness when we look backwards in our RIDEA portfolios, really both in terms of revenue and expense because Emeritus and Brookdale were classifying things differently, both in revenue and expenses.

We don't have total clarity yet on rate impact, but we do know revenues are going up and occupancy is going up. And we have a lot more CapEx to infuse over the rest of this year and into next year. So, the program continues.

What are the targeted returns for the revenue enhancing CapEx? You how should we think about that? Or are you treating this more as maintenance CapEx?

We generally target north of 10%. You'll hear Brookdale with their program max targets 15%, so we can achieve above that.

Okay. And then just going back to ManorCare. Have you thought about and looked at the potential implications of bundling for the single joint replacements, a study that CMS has done, and kind of what percentage of ManorCare's volume is potentially at risk?

Sure. Well, first of all, ManorCare generally is in the higher acuity category, but if we were to apply the hips and knee as presented in the study, or the study that's going on which is 75 MSAs, only 15% of their markets fall into those MSAs. If we were to use what we've seen as analyst projections that there could be a 7% impact on occupancy, it would mean that ManorCare would have less than 1%. Combination of where they fall in the acuity and where they fall in those tests, very minimal.

But I do think there's a more important question to be asked. There are a lot of bundled payment tests that are going to go on.

HCR is two years into a relationship test with United HealthCare, which is going very well, which is again testing how to get things to the lowest cost setting with the highest level of care, and the fact that HCR continues to invest in the technology that can report that, that is delivering those care results at a very high level, is one of the reasons they continue to become more and more of a preferred provider into important systems. That's really the case with ProMedica, an important system in Ohio and Michigan, but has made HCR their preferred provider in the Toledo area, as a result of their joint venture.

So you're saying when you gave the stats about the 7% impact to occupancy, that ManorCare would be roughly in line with the industry, or is it --

I was just saying if you were to provide what we have seen as analyst prints of that activity, I'm not saying that I can support that, but just there's been prints out there that it could be 7%, it would be insignificant to HCR, at less than 1%.

Okay. And then on the labor front, just looking at the small sample set of the RIDEA 20 asset pool, it seems like expenses were up pretty significantly. What are you seeing there? Is your expectation that the expense growth will be above or below what you are hoping for, for rate growth as we look forward?

I think expense growth will be in line. I think there's just lumpiness in the quarter. Justin said in his remarks, for the year, we still expect RIDEA to grow over 7%, although, like you said, it's a small sample size. We still expect it to grow over 7% this year. Don't really expect to have an outlier in terms of anything on the cost side.

In terms of labor management, I don't want to get ahead of Brookdale but they have some programs in place to try to manage through wage pressures that they're facing, and we're comfortable that they're on top of that.

I think for the RIDEA portfolio we have seen increases in occupancy, increases in the margin, and increases in rate. There's a little lumpiness this quarter, but it's all positive trends across the board in that RIDEA 1 portfolio.

Thank you.

The next question will come from Josh Raskin of Barclays. Please go ahead.

Thanks. Just wanted to start again with the RIDEA portfolio. You gave some helpful statistics on your Brookdale investment. I'm curious, you didn't mention average rates. So are you seeing promotions or other things in that book that are helping drive that occupancy above NIC data, especially in markets where you're seeing new supply?

We're a little -- I mentioned earlier, from the standpoint of comparing the accounting of Brookdale to Emeritus, we're a little fuzzy on rate impact so far. The occupancy was a clean metric that we could pull, and obviously very easy to compare to the NIC data.

We do know that the industry does use pricing toolboxes, certainly Brookdale is an operator that uses those as well, to deflect, stay competitive within their local markets. But we'll comment in the future.

By the way, I want to mention that we're in the process right now of doing our annual review of our supplemental materials, and in light of our RIDEA exposure, moving into next year, we'll have an opportunity to enhance the disclosure around our RIDEA and our operating metrics.

To get to your exact question, really, we're seeing -- very clearly seeing lift in occupancy and revenue, and I'm definitely comfortable saying less so from rate but I don't have the exact figure.

Sequentially we've seen increases -- Josh, we've seen increases in occupancy across all of the RIDEA portfolios that Justin mentioned, the 13% of our portfolio that's in RIDEA, and we've actually seen rate increases in everything except the assets that we put into RIDEA last year, our RIDEA 2 portfolio that's undergoing the transition from Emeritus to Brookdale. But again, occupancy gains across the board in the portfolios, and rate increases, with the exception of RIDEA 2 that's -- 2015 is the transition year. We would expect RIDEA 2 though, to regain its growth profile next year, after we get through the transition.

I guess we just see the RIDEA NOI number. We see occupancy as going well. Then you talk about being a value product potentially, and so the rate is just as important as the occupancy. So definitely looking forward to those you new disclosures as the RIDEA portfolio grows.

Lauralee, you had mentioned investments, aggressive pricing on investments and that's causing you to recycle some capital and I'm just curious, any more specific commentary on, is that a really new phenomenon, or has that been building in any specific asset classes you'd point to?

I think pricing has been aggressive all year. There still is lots of capital out there, with not a lot of good alternatives for yield. And healthcare assets still offer a great yield opportunity for investment.

I think the big difference is that pricing has held, not necessarily reflecting that there's been some changes in the maturity of the industry. And that's where we get a little bit more concerned, as we think about where we want to invest our money going forward.

Okay. And then just lastly, the 38 ManorCare properties, the 12 that you sold, looks like those will yield higher proceeds than the remaining assets. And I'm just curious, were those larger facilities just better positioned, higher EBITDAR numbers, or what differentiated the first 12 out-the-door versus what's remaining?

The choice of assets that were selected were a combination, do you want to exit a state that's particularly GLPL unfriendly to an operator? You might have a fairly decent or healthy operating profile, but it basically gets washed away with GLPL claims. Some of that was early in that process, because of a desire to exit as soon as possible against those claims.

The balance of the portfolio is probably pretty consistent, and, again, it's been a portfolio that is a lower Q mix, probably in the mid-50s, versus ManorCare is mid-60s. A lower occupancy, probably by 10%, if we think about where they are, it would be in the mid-70s. So it's definitely assets that are not indicative of their broader portfolio.

And Josh, it's 12 assets across eight states, so it's fairly dispersed. At the end of the process, you'll have a much more streamlined portfolio, in certain states like, I'll pick West Virginia, for example.

Okay. Thanks.

The next question will come from John Kim of BMO Capital Markets. Please go ahead.

Had a couple questions on ManorCare. So you now you're valuing the Company's total equity at $233 million and the Company has $6 billion of debt. This quarter EBITDA, barely covered are interest cost of $124 million versus $120 million. So the question is, is this company going bankrupt?

Well, first of all, you can't look at a quarter in this business, because it has a great deal of seasonality. So I think, again, if we look at -- started the year very strong, benefiting from the flu season, contrary to the senior housing space. We're going into the end of the year, where we come back into a high level of seasonality. So I think you're taking their performance out of context.

And again, we've been moving through increasing their flexibility with the asset sales. So we just started the asset sales. We know that's been a distraction and a disruption to their performance. We thank ManorCare very much for how attentive they've been to this process, because it's absolutely optimized price, but there's no question that was an impact in the third quarter as well.

I think in the pro forma number that Lauralee mentioned, John, you take that mid one, two range, that represents $100 million of free cash flow when you take into account the rent restructure we did, along with the asset sales. So we feel that $100 million of free cash flow, that's a good place to start to build on.

And again, that coverage is looking at their performance through the end of September. I think the broader stats out in the industry are a quarter lagged. So we've given you kind of a real-time look at them with the results here in the quarter, and we're now moving into a time of the year where operations improve, just because of the volumes in the industry.

When you talk about seasonality with this business but also, you did take the impairment this quarter. It seems like there is this disconnect, I think Jordan said earlier there's a disconnect between the improvement that you may see and the impairment you took this quarter.

Yes, but that's obviously some of the broader industry trends we're seeing as well, John. You've got to take that into consideration. Obviously, you've got, like we said a fairly highly levered investment with the lease, and changes in the growth.

I think you need to look at how the market has priced other operators in this space, which obviously, they've been down dramatically. So when you just think about performance and what they think that performance is worth, the market has made a big shift in valuations, and that needs to be a consideration.

Have you been in discussions with ManorCare on a rent cut or equity injection?

No.

On medical office, was the intention to JV the assets when you acquired the portfolio in June, and can you discuss you how you sourced the partner?

There was a lot of institutional interest in that portfolio. As we mentioned last quarter, given the opportunity to expand with a leading operator in one of the largest MSAs in the United States, we thought that was a great opportunity. We had a lot of institutional interest to come in and JV with us.

We've obviously had a long track record of being a successful partner to institutional capital, dating back almost 12 or 13 years now. So it was a combination of a lot of incoming, and in terms of sourcing, we didn't have to go too far, make too many phone calls to find people that were interested in that portfolio.

And what kind of fees will you be getting from Morgan Stanley as far as asset management fees, leasing fees, property management, and so forth?

Acquisition fee and ongoing administration fees.

Thank you.

The next question will come from Rich Anderson of Mizuho Securities. Please go ahead.

Thanks. Lauralee, for the first question, you mentioned HCR ManorCare and their different geographical footprint which -- and plus their acuity business, puts them at a lesser impact from the hip and joint issue. Is that what you said?

Correct.

Okay. But what happens should the 79 markets expand more broadly then just an acuity issue. They would certainly see more impact if that were to happen; is that correct?

I think there's -- I would say the changes in healthcare are going to be evolutionary, not revolutionary. There's a lot of tests going on.

Fair.

But one of the reasons I mentioned United HealthCare is HCR's been early in this process. What they do know is that the shifts that are going on are going to put the patient needing care into the lowest cost setting with the highest outcomes, and clearly they compete well there.

One of the questions we've been asked is around the home health business, and is that a competitive factor? And actually I would call the home health as a solution to the resident, around the fact that the managed care companies are sending them home early, and somehow they need that level of care when they get home.

But relative to HCR, they're dealing very well with taking market share to get more admissions, and then managing to get best results against that lower length of stay to again complete the circle that they get more admissions, and are the preferred provider. But I think it's really early to call that 75 markets is going to turn into something permanent. There's going to be a lot of results and measurements that come out of that, as judgments are made.

Fair enough. Okay. So one of the things that occurs to me when I listen to calls like yours and others is companies have to show themselves in the best possible light, and that's what you're commissioned to do, and I get that. But when you say things like we saw the other REITs might say we're going to continue to invest billions of dollars a year, and when you say something like we're going to continue to expand our RIDEA platform in the face of all this supply, just makes me nervous that REITs don't want to show their weakness, or whatever.

But there are real problems going on. This supply issue's a real problem. This bundling issue could become a real problem.

Why would you want to talk about expanding RIDEA at this point, when there is absolutely no clarity at all about how bad supply is going to get when you have 2000, 2001 and what happened to the assisted living sector back then, not in the too distant past?

Rich, it's Justin. Wanted to address your question. So in regards to our approach to entering the RIDEA market, one area we focused on is primarily in the value-add category. And we continue to look at opportunities where you might have a lower occupancy, an opportunity to infuse capital, and position the property to push occupancy and rate in the face of new supply, which enters markets at a higher price point.

There's no question that we need to be diligent, need to be selective about the markets we're entering, the operators that we partner with. It is a competitive period. And we're very mindful of that. But we do anticipate growing in the sector, but we'll do it selectively.

Okay. I mean, I guess I would --

Any investment, Rich, it's a risk adjusted return discussion. Supply is something that's become a big piece of the risk part of the equation. And something we keep an eye on when we're looking to make a new investment in a facility. We think about that, whether it's ground-up development where we have in our senior housing development loans, or in portfolios we're looking to you acquire.

Justin, did you say that year-to-date RIDEA growth was 5.2% and it's going to be 6.8% for the year? Did I get that number right?

For our same store RIDEA portfolio it's going to be over 7%, and that's a function of the investment we've made in that portfolio over the last year, and what Justin's just said which was occupancy that was non-stabilized. It was in the low 80s. We put a fair amount of capital into that, and we're benefiting from that over the last four years.

Go ahead.

Let me -- can I hit the second part of your question which I think was aimed at the post acute sector.

Sure.

In that regard, you've heard a lot of talk about it on the call, we're mostly focused on partnering with HCR ManorCare to help them improve the credit quality of the Company, and obviously the dispositions have played a key role. Some acquisitions and developments that we've both been a part of. They're the developer and we're an acquirer in some cases. And that helps improve the credit quality of HCR ManorCare.

What we're pleased about is the fact that we're partnering with an operator that has weathered these storms before. This is one of the few companies that's made it through a major reimbursement change when the reimbursement change first affected Payment Systems.

They're experienced. They're very focused on the daily basis, on improving their competitiveness in markets, and they're going after market share, and adjusting and adapting to the change in mix and length of stay. So I'd say priority one is to continue to work with HCR ManorCare, improve their credit quality, position -- help to position their Company for -- to be strong in the long run.

In terms of near market opportunities with other operators, we're much more selective. We're very focused on operating track record. We're very focused on the credit quality of those operators, as well. And we have heightened selectivity any time that there's government reimbursement in play.

One big difference today, Rich, than the last time the industry was significantly over built, and that is, there is an unbelievable amount of transparency of data. So as you make an investment, you can look at the -- you know what's already in line, what's coming in line in terms of new product and supply, and you know how the product that you're looking at investing in is able to compete, and you also can enhance that competition by making sure there's CapEx, right from the beginning. So I think there is a difference with the maturity of the industry, and hopefully that will bring discipline across the board. But there's definitely ways to underwrite your new investments, and do it safely and carefully, and get returns.

Thank you very much. Justin, when you were over at NHI you had this preferred return model. I'm just curious, to what degree does the team there like that, as it relates to RIDEA, which is really a hybrid, it will get you the operation upside eventually, but also protects you on the down side. Any thought about that model as a way to expand RIDEA?

One thing that impressed me coming to HCP is that almost every model that could ever be considered has been tried here over many, many years. And I think what I'm most comfortable with, in terms of what's been done here and what we're comfortable with as a team moving forward, is just making sure that we have alignment of interests.

We can underwrite a lower performance as part of a sensitivity, but the expectations, we have alignment of interest. We have ownership and operations. It gives us the opportunity for outsize returns. And so I'd say the underwriting's very similar, whether you're from a credit and operating track record standpoint, whether you're underwriting triple net or RIDEA, but there's a growth profile throughout the business cycle that we'd like to be a part of, and the RIDEA platform gives us that opportunity.

Can you hazard a guess how big RIDEA can become then in the next couple of years from the 13 that it is now?

We don't have a guess, but I can tell you that we're interested in expanding that exposure, and as I mentioned to you, we're going to be selective in doing so.

Risk adjusted.

And Tim, just a quick one. You talked about the leverage profile and HCM usage recently. There's a perception that you need to delever. Do you feel a time pressure to do that, and maybe a need for equity more through the ATM program, or are you comfortable doing it through asset sales, combination of asset sales and a little bit on the ATM?

Like I said, we'll continue to recycle capital, and we'll continue to judge the capital markets when there's opportunities. We'll continue to recycle capital at the moment.

Okay. Sounds good. Thank you.

The next question will come from Kevin Tyler of Green Street Advisors. Please go ahead.

Following on that point on capital recycling, I may have missed it, but what's the updated guidance, Tim, outside of ManorCare for fourth quarter and next year, early next year?

I'll take it all in total, Kevin. It's about $700 million, $650 million to $700 million in total, and --

Total for 2015?

Total just total from the second half of 2015 through the first quarter of 2016.

Got it.

And we've done about, as I said, about $365 million of that so far.

Okay. And then on the ManorCare asset sales, can you -- have you provided a price per bed, or can you provide more color, price per bed? And then ultimately does it make sense for you to add to the for-sale list given the outcomes you've achieved on the 50 that you have in process here?

And Lauralee, you mentioned it's a distraction for ManorCare, so I guess I'm just wonder if it's a distraction, maybe it means you don't add to the list. Any more color you could provide on that would be helpful.

We've averaged about 70,000 -- will average about 70,000 a bed over the 50 assets. So if that's helpful to you. With a couple higher, given the choice to exit a state, and obviously others that are not nearly as strategic as the average.

At this point, we do not have any definitive plans to do more. We stay very close to HCR, encourage them as we look at the operations, would be flexible to consider more. But none are planned at this time.

Okay. Thanks. And then on the senior housing, Brookdale coverages, I know, ticked down a bit and there's a one-quarter lag in those numbers. Seems like coverage might be a bit lower next quarter, given what we know about Brookdale currently. What can you be doing, Justin, to potentially mitigate any of these risks, and do you ultimately think Brookdale's EBITDA snaps back over the next few quarters?

I don't -- I'll answer your question. I don't want to get ahead of Brookdale. I know they have an earnings call tomorrow, and they can speak on their behalf.

With regards to our portfolio, and I mentioned this earlier, the triple net portfolio actually has similar supply dynamics to our RIDEA portfolio. So relatively limited impact. There is a rent reduction that will have an impact. It's going to add 2 basis points to the coverage.

That was part of the whole restructure with them. So nothing new. It's just what's been built into the transaction.

We've also been infusing capital which should in time play a role in helping them to stay competitive. And I think most importantly we're talking about a Company that's gone through a major merger integration and again, I'm not going to speak on behalf of Brookdale, but from our point of view and our properties and based on even property tours that I've made, the bulk of it is in the rear view mirror.

It seems that all the back office integration is done. That can be very distracting, when you're focused on some of the basics during an integration that during regular course you don't have to think about, or focus on. They're moving into the strategic side which includes their resident assessment platform which should be a value add over time. So in summary, I'm reasonably comfortable with the triple net portfolio, and also, we continue to be comfortable with the overall credit that Brookdale provides.

Thank you.

The next question will come from Daniel Bernstein of Stifel Nicolaus. Please go ahead.

I guess the one question I had is, can you talk a little bit more about JV opportunities? Obviously I think a pretty good strategic move to do more joint ventures with Morgan Stanley here on the MOB. So if you could talk about opportunities, not just in MOBs but across the different asset classes, how much interest are you getting in JVs beyond medical office?

Well, there's very strong interest in medical office, but you said you want it beyond that. Clearly, Morgan Stanley would like to do more. We had several others that were very interested, and it's an asset class that I think performs through cycles, with just an enormous amount of consistency, which is why it's desired.

We've looked from time to time at our life science portfolio, particularly around development, and would consider that, if there was development opportunities that might be appropriate. I would say that in terms of senior housing, we basically have our relationships with our operators. If we look at the RIDEA portfolio, where we've got 50/50 with Brookdale and the CCRCs and a percentage in the others. So that's probably the way we would focus most, as we look at senior housing business.

Okay. I guess the other question I would have here actually goes back to ManorCare, HCR ManorCare. If we look at the -- if we bifurcate the property lease coverage and the fixed charge coverage, it's pretty clear the other ancillary services and businesses at ManorCare are helping support the fixed charge. I don't know if you're at liberty to talk about those other businesses, but how are those businesses doing?

It seems like there may be some challenges again from the hospital volumes and maybe labor cost. How are those other businesses performing? I'm trying to think about the upside to that one, two, five fixed charge coverage, and the downside as well, from other ManorCare businesses.

Well, their primary ancillary is hospice. They have an industry-leading hospice business. The pressures you're referencing are principally coming in home health, with some of the changes in labor laws. Generally speaking, we think that the hospice will survive quite nicely through that. But that's their primary ancillary business.

I might just add that their Arden Courts memory care portfolio continues to perform strong. We also checked the supply risk within that portfolio, and it's just also very minimal. I think we identified three properties that would impact their 50.

Okay. That was actually going to be my next question. One final question. The CapEx you're putting into the RIDEA portfolio, is that at the behest of Brookdale, or is that -- you went out to the properties, took a look at them, assessed them and decided that more CapEx needed to be put in, to help those properties perform?

This was a joint decision upon investment, where of course Brookdale's playing a huge role in determining priority for the capital expenditures. HCP concurs, and so it falls into several categories. But I think the most impactful categories are the conversions, the expansions, the total complete repositioning through a refurbishment, and the refreshes, which all position the property, and should position them to be more competitive in their respective markets.

Okay. That's all from me. Thank you.

Our next question will come from Michael Carroll of RBC Capital Markets. Please go ahead.

Thanks. I just wanted to touch on your comments about Medicare Advantage and how this continues to impact HCR ManorCare. When do you think this trend will stabilize, if at all?

There's lots of different thoughts on that topic. I think that there is -- well, let me back up. There's been a shift, but we also now are seeing that rate increases are coming into Medicare Advantage, so I think that's important. There's some trends that, in terms of market share, that make it more constructive that there will be growth.

There continues to be very significant growth in Medicare and Medicare Advantage overall, just because the population dynamics of who's now turning 65 and eligible. So an overall population going up. There's still reasons that some choose one over the other. And I think the industry is still trying to figure out what is the stabilizing factor in that. But ManorCare's just sort of getting on with it and realized that they've got to win market share, deliver best outcomes, and move forward with their business.

I'd just add --

what exactly can they --

I was going to add a point to that regarding HCR. They have an advantage of being in some mature markets, as well. For instance, there's a Southern California market that -- where they -- the typical ManorCare property, located next to a main artery hospital, where they attract their Medicare business primarily. They also attract significant managed care business, out to a 10-mile radius from several hospitals, with I believe 40 different payers and admission and discharge volume of 140 to 160 a month.

So very sophisticated managed care driven market, where they've experienced to maturity the impact of a shorter length of stay, but also, which we anticipate over time has increased volume where the lower cost setting can position themselves to be the preferred provider in a marketplace, such as the example I gave. They can be a winner, and HCR has some background in some of those mature markets, which I believe is helpful as they're navigating the changing markets across the rest of their portfolio.

Great. Thank you.

The next question will come from Tayo Okusanya of Jefferies. Please go ahead.

Yes, good afternoon. Most of my questions have been answered, so I just have a quick one. The asset sales at ManorCare, I know the cap rate credit you had given them on the rents, but could you actually talk about the cap rates you actually sold the assets at, if that number is actually meaningful?

It's not meaningful. It's not a meaningful number.

Given the NOI associated with those assets, is that what the issue is?

The EBITDA associated with the operations, yes.

That's what I suspected. That's helpful. Thank you.

The next question will come from Mike Mueller of JPMorgan. Please go ahead.

I guess looking at the ManorCare asset sales, putting aside your 7 3/4 rent credit that you're getting, was sort of cap rates are these assets clearing the market at?

For our entire program, Mike?

Sure.

Capital recycling efforts. Those are -- the $365 million we talked about to date, it's in the high 5. I think the $700 million I've talked about with regards to our recycling initiatives, those will be in the low 6 cap rate.

Okay. Low 6. So that -- and that has -- that's --

That has HCR in there as well.

At that 7 3/4 for you? Okay. If you just look at HCR and thinking about market comps and ignoring the benefit you get, what sort of cap rates are they being sold into the market at?

They wouldn't be on a cap rate basis. They really are on a bed basis, with the buyers anticipating the amount of revenue and return they can make off of each one of those beds.

And operating them under a different operating model.

So they have really no coverage. So it's hard to say that they have an NOI for a cap rate.

We sort of revert back to our previous answer. It's just not meaningful.

Got it. Okay. And then Tim, when you were talking about same-store NOI guidance, I think you mentioned with the benefit of capital, I think specifically you were talking about senior housing. Can just talk about what sort of capital goes into these properties where you are getting a benefit? And do you have some sort of a same store number that doesn't have capital being put in for expansion of properties, et cetera? So a little bit more of a not to use the word clean, but pure same store?

Yes, I think the same store for the senior housing's not that much different. It is enhanced a little bit by the capital we put into the properties as a result of our transaction and lease amendment with Brookdale, where we agreed to put in $100 million at a 7% rate. They're about a third of the way through that money, through that capital. But it doesn't really have a meaningful difference, Mike, to the guidance that we provided. It's just a slight enhancement.

Got it. Okay. That was it. Thanks.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Lauralee Martin, President and Chief Executive Officer, for her closing remarks.

Thank you. And thank you all for your interest and attendance on this morning's call, and most importantly, thank you for your support of HCP. We look forward to joining you at next conference.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.