Welltower Inc (WELL) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Health Care REIT, Incorporated, first quarter 2006 earnings conference call.

Today's call is being recorded.

At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question-and-answer session. [OPERATOR INSTRUCTIONS] I would now like to remind everyone that the conference is being recorded, and would like to turn the conference over to Georganne Palffy of the Financial Relations Board.

Please go ahead.

Good morning, and thanks to everyone for joining us today for Health Care REIT's first quarter conference call.

You may have received a copy of the press release late yesterday afternoon, but in the event you have not, you may access it via the Company's website at www.hcreit.com.

And I would like to remind everyone that we are holding a live webcast of today's call which may be accessed through the Company's website, as well.

At this time, management would like me to inform that you that certain statements made during this conference call which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Health Care REIT believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.

Factor and risks that could cause actual results to differ materially from expectations are detailed in the press release, and from time to time in the Company's filings with the SEC.

And having said that, I would now like to turn the call over to George Chapman, Chairman and CEO of Health Care REIT, for his opening remarks.

Please go ahead, sir.

Thank you, Georganne.

We've already reported that had 2005 was a tremendously successful year.

We dramatically improved our portfolio by disposing of $147 million of non-core assets, significantly reducing -- reduced working capital and sub debt loans, and jump started our investment totals and pipeline late in the year.

All of this occurred at a time that the long-term care sector was strengthening through improved access to capital and consolidation within the sector.

Our portfolio coverage stood at 1.94 to 1 at the end of 2005, and our top 10 operators now include 3 public companies, Ameritas, Brookdale, and Kindred, and large regional operators, such as Life Care Centers and Merrill Gardens.

As we entered in 2006, we were focussed on the dramatic changes in senior housing and healthcare delivery system that we expect to continue to occur.

Care is being increasingly delivered in the least institutional, most cost-effective settings.

The customer is asserting himself, with significant impact on the system.

And noninvasive and minimally invasive procedures are becoming the norm as a result of technological and pharmaceutical, pharmacological breakthroughs.

Clearly the confluence of these factors is increasing demand for care in nontraditional outpatient and physician office settings, as well as demanding specialized inpatient and acute care services in modern, customer-focused facilities.

Consumer demands -- these consumer demands will only be accentuated by the baby boomers, and are spawning innovative senior housing and healthcare options that take a more integrated approach to social, wellness and healthcare needs.

So this is not a time for business as usual.

Health Care REIT has already taken significant steps to position itself to be in the forefront of change, and take advantage of a full spectrum of senior housing and healthcare investments that meet the changing requirements of the evolving senior housing and healthcare services sectors.

Let me take some time to discuss the ways in which we are investing in our infrastructure in anticipation of sustained growth in these rapidly changing sectors.

Since 2001, we have more than doubled our personnel.

And in 2006 we will complete our fifth-generation information system to permit us to measure more quickly the ever increasing volumes of information that will allow us to even more effectively manage every aspect of our business.

All of our personnel and systems additions and changes have been important, yet let me focus on a few of our moves.

In 2003, Scott Estes, who was then the senior healthcare analyst for Deutsche Banc joined us as our Vice President, Finance.

As most of you know, Scott was appointed CFO in March of this year.

We believe that this appointment benefits us in a number of ways. 1, it gave Scott the opportunity to elevate his game, and make us even more proactive in the capital markets.

It also allowed Ray Braun more time to pursue additional new investment opportunities.

In 2004, Jeff Miller joined us as general counsel from our primary outside law firm.

He has done an excellent job as general counsel, and was made head of the investment team last year.

In May, a new employee, Chuck [Hiller] will join us to shoulder much of the General Counsel load, so that Jeff has more time to drive the investment process.

Just this year, we hired Jay Morgan, who was a Vice President in the real estate investment banking team at Lehman Brothers, to serve as point man for acute care investing in our new Nashville office.

Jay has hit the ground running, and is expected to play a critical role in driving our acute care investment program.

Structurally, we reorganized into functional investment segments, with significant responsibilities given to Joe Weisenburger and Jay Morgan in the senior housing and acute care sectors respectively.

Scott [Brinker] assumed primary responsibility for underwriting and research, and Chris Simon took control of asset management.

All of them are expected to handle their responsibilities and drive results in their respective areas of responsibility.

Clearly, we are making the commitment to intellectual capital and infrastructure generally, to drive this Company to an all together new level.

And with that, I will turn the program over to Ray Braun, our President, and Scott Estes, Senior Vice President and CFO, to discuss portfolio and financial matters in more detail.

Ray?

Thanks, George.

First I'll talk about the portfolio, and provide an update on reimbursement, as well as our new development initiative.

The portfolio is generally in excellent shape, with high payment coverages and strong credit tenants..

Payment coverage continued to improve during the most recent quarter to 1.94 times, before management fees, up 2 basis points from the prior quarter.

We own 94% of our properties, with 88% in master leases.

Approximately 83% of our leases now have an internal organic growth component to annual rent increases.

This should begin to pay off by generating internal earnings growth of approximately 1% to 2% per year over time.

Loans now represent only 5.5% of gross real estate assets, with loans on nonaccrual down to $15.7 million at the end of March.

Driven in part by the recent consolidation trend we see in the long term care industry, we are excited about the overall tenant and credit quality of our portfolio.

Approximately 30% of our portfolio will now be with public operators, and almost 70% is concentrated with our top 10 operators, including larger private companies like Life Care Centers of America and Merrill Gardens.

Our independent living and CCRC portfolio have an investment balance of approximately $427 million, representing 15% of the portfolio.

Payment coverage before management fees was 1.45 times, up 2 basis points from the prior quarter.

Our assisted living portfolio had an investment balance of approximately $1 billion, representing 33% of the portfolio.

Payment coverage was 1.52 times, which was flat compared with prior quarter.

Our skilled nursing portfolio investment balance was $1.3 million, representing 45% of the portfolio.

Payment coverage was 2.21 times, up 3 basis points from the prior period.

Lastly, our specialty care portfolio [inaudible] balance of approximately $195 million, representing 7% of the portfolio.

Payment coverage was strong, at 3.19 times.

In terms of reimbursement, the 3 most pertinent issues are the impact of the Medicare RUG refinements on skilled nursing operators, MedPAC's recommendation to provide no market basket increase to skilled nursing providers in fiscal year 2007, and the recent issuance of the final rule for the LTAC PPS.

In terms of RUG refinement, CMS refined the Resource Utilization Group, or RUG system, effective January 1, 2006, by adding 9 new RUG categories for medically complex rehab patients.

We had originally projected up to a $20 per diem decrease, with a corresponding 20 basis-point decline in payment coverage.

However, responses over the past several weeks from our operators suggest that the actual impact will be much less than the $20 per day we initially predicted.

Some operators have even seen an increase in overall reimbursement from Medicare as a result of successful training programs, educating workers about the new classifications, and how to properly assess patients into the most appropriate RUG category.

Operators are reporting that most high QV patients fit into the 9 new RUG categories, which also have the highest reimbursement.

In terms of the fiscal year 2007 SNF rate outlook, in March, Medicare payment policy report to Congress, MedPAC recommended the elimination of the market basket increase for all post-acute providers for fiscal year 2007.

Historically, Congress has not followed MedPAC's recommendation regarding the market basket update for nursing homes.

We expect CMS to provide its recommendation regarding the market basket update by mid May.

Now to provide a brief update on the LTAC PPS.

Back in January, CMS issued a proposed rule for LTAC reimbursement for fiscal 2007.

The proposed rule would have eliminated the inflation update for fiscal 2007, and reduced Medicare payments by approximately 11.1%.

We estimated our LTAC coverage would have declined by approximately 80 basis points under the proposed rule.

The final rule was issued this Tuesday, May 2nd, and the average cut in fiscal year 2007 is effective -- is 3.7%, effective in July of this year.

The DRG reweighting will result in an additional 1.4% cut in October of this year.

We estimate the impact on our LTACs payment coverage of roughly 25 to 30 basis points for the July change, and an additional 10 to 15 basis point decline in October.

With payment coverage for our 9 LTACs over 3 times, we do not anticipate any material increase in payment risk as a result of this change.

Next I'd like to spend a few minutes discussing our development initiatives.

We continue to forecast a range of $150 million to $250 million of funded development in 2006.

We have included new Exhibit 8 in this release to outline our development activity.

The first table shows projects currently under construction by asset type. $3.9 million was our opening balance in 2005 on development projects, and $32.2 million was funded in the first quarter of '06, for a total of $36.1 million to date.

The total commitment amount is $203.6 million, leaving $167.5 million for future disbursement. 78% of the committed dollars relate to development of assisted living facilities.

The second table, Development Funding Projections, breaks down the $165.5 million unfunded commitment.

We expect to fund an additional $98.4 million on these projects in 2006, and $69.1 million in future years.

Add the $32.3 million funded in the first quarter, and the total contribution of $130.7 million of our expected $150 million to $250 million of funded development this year.

There are a total of 18 projects with 1,384 beds or units.

The final section details our project completion estimates.

Typically, a freestanding property has a construction period of 12 to 18 months.

Larger CCRC projects can take up to 24 to 36 months, if constructed in phases.

Importantly, the projected timing of conversions in the annual projections table, reflect the mandatory completion date in our construction disbursing agreements.

These dates are somewhat conservative, as we would expect most projects to be completed before these dates.

To the extent we get better visibility on conversion times, we will update the chart accordingly.

With that, I'll now turn it over to Scott to walk you through the quarterly financial results and guidance.

Thanks, Ray, and good morning.

We were pleased with our success in the first quarter on the new investment front, which kept us on pace to meet our annual net investment guidance this year of $300 million to $450 million.

During the quarter, we completed gross investments of $123.1 million, including $80.4 million of acquisitions.

Excluding a small parcel of land, the average initial cash yield on first quarter acquisitions was 8.6%.

Our acquisitions this quarter contained above average expected increases of 27 basis points per year, resulting in expected average yields of 10.6%.

Importantly, we believe our recent investments are consistent with our philosophy that we only want to do deals that have both adequate initial yields, but also reasonable rent coverage at the property level, as well.

In addition, I'd point out that the vast majority of this quarter's investments did occur during the last month of the quarter.

I would say generally that an assumption that future deals continue to close at, or around the end of a quarter, is the safest assumption for modeling and earnings impact purposes.

Next, to provide everyone with some color on the type of deals we're doing, the most notable transaction in the first quarter was the purchase of an approximately $63 million portfolio of 7 skilled nursing properties, with 766 beds located here in Ohio.

These properties are being completely renovated as a part of the transaction, and upon completion of the renovations, should be the premier facilities in their markets.

These properties contributed to our $85,000 per bed average purchase price on our SNFs this quarter, which we believe is reasonable, given the quality of the finished product, as well as the low replacement cost.

Also of note, I'd point out that the 2 assisted living facilities we purchased during the quarter, with only 35 cumulative units, are part of larger projects where additional AL units will be added on the same campus as a part of future expansion.

As detailed in our new Exhibit 8, our development advances during the first quarter were $32.2 million, comprised of $24.3 million for 15 assisted living facilities, $4.9 million for 2 skilled nursing facilities, and $3 million for 1 independent living facility.

We currently have outstanding unfunded commitments related to our projects underway totaling an additional $167.5 million.

On the disposition front, we sold $36.6 million of assets during the quarter.

The average yield on first quarter dispositions was 11.7%, with more than half of the asset sales as a result of the repayment of our $21 million working capital loan to Commonwealth.

Dividends paid in the first quarter were $0.62 per share, and our FFO and FAD payout ratios were 87% and 74% respectively.

The Board did approve our 140th consecutive dividend to be paid on May 19th in the amount of $0.64 per share, which represents 3.2% increase above the previous quarterly rate.

As most of you know, we did complete an equity offering for 3 million shares in early April.

And then on Tuesday, April 25th, the underwriters exercised the overallotment option for the purchase of an additional 223,000 shares.

As a result, based on the net offering price of 34.20 we received net proceeds of approximately $110 million.

Proceeds are intended to invest in additional properties, but were initially used to pay down our line balance, which stood at $191 million just prior to the offering.

So this currently leaves us now with over $450 million of dry powder, which gives us the option to fund our entire 2006 investment pipeline through the remainder of the year, based on our current net investment guidance without having to raise additional capital.

In addition, our DRIP program generated nice interest in the first quarter, as we issued 474,000 shares generating net proceeds of $16.8 million.

I'll turn now to our earnings results.

We recognized first quarter net income available to common stockholders of $0.34 per share versus $0.33 in the comparable period last year.

First quarter FFO was $0.71 per share, which did include a $0.03 per share negative impact of accelerated expensing of stock and options, versus $0.72 in the first quarter of last year.

First quarter reported FAD was $0.84 per share, which included $0.18 from 1-time cash payments, and a $0.03 negative impact of accelerated expensing.

This compares to $0.66 in the first quarter last year, which included $0.02 per share of 1-time cash payments.

So importantly, excluding the 1-time cash payments and accelerated expensing of stock and options, first quarter FAD increased approximately 7% to 8% quarter-over-quarter.

To elaborate a bit further on the 2 special items this quarter, we did receive $10.3 million or $0.18 per share in 1-time cash payments.

That was primarily a result of an approximate $7.5 million pay-down of our straight line receivable balance associated with the Kindred/Commonwealth transition, with the remaining amount generally from prepaid rents during the quarter.

The second notable item this quarter, accelerated expensing of restricted stock and options, had an impact of an additional $1.6 million or $0.03 per share as compared to last year's amortization methodology.

And really in the simplest sense, the provisions in our grants effectively mean that if you are of certain age and experience, or are a director of the Company and you left your position today, stock and options would not have to be forfeited.

So as a result, they're expensed immediately at the time of grant.

There was a couple income statement items this quarter which I believe are worth highlighting.

The first relates to interest income, which came in at $4.3 million for the quarter, but represented a sequential decline of about $4.5 million from $8.7 million in the previous quarter.

This was anticipated, because as a reminder, we did collect an additional $4.2 million of previously unrecognized interest during the fourth quarter last year, as part of various asset sales.

The remaining component of the sequential decline was a result of the payoff of the approximate $21 million Commonwealth loan on February 28th, which was yielding approximately 12%.

So as we look forward, this line item should again decline slightly in subsequent quarters, as the full quarterly impact of the Commonwealth loan payoff runs through.

Next item is first quarter transaction fee and other income of $366,000.

This is down about $1.7 million -- excuse me, this is down from the $1.7 million in the prior fourth quarter.

As a reminder here, we received a little over $800,000 in the fourth quarter as a reimbursement for a debt extinguishment charge we paid for an operator, that we recorded as part of other income in the last quarter.

First quarter G&A expenses totaled $6.2 million versus $4.0 million last year.

But as we previously mentioned, first quarter of 2006 G&A did include the additional $1.6 million as a result of the accelerated expensing, when compared to prior amortization methodology.

We do remain comfortable with the 2006 G&A forecast of approximately $22 million for the full year, which does include the entire $6.2 million first quarter amount.

Moving next to the balance sheet, which is in very good shape at this point.

We ended the quarter with gross real estate investments of approximately $3.2 billion.

As of March 31st, our debt-to-book capitalization stood at 52%, and debt to undepreciated book was 47%.

But adjusting for the completion of our recent equity offerings, debt-to-book cap would declined to 48%, and debt to undepreciated book cap declined to 43%.

Our loans receivable of $178 million now represent only 5.5% of gross real estate assets, while our loans on nonaccrual has declined to $15.7 million as of March 31st, which again is down from $16.8 million at the end of 2005, and $35.9 million at the end of 2004.

I'll now wrap up with an update on our 2006 guidance.

The Company is increasing its net income available to common stockholders forecast to a range of $1.33 to $1.41 per diluted share, from the previous range of $1.28 to $1.36.

This increase is in part related to the gain on sale of $1.6 million we recognized in the first quarter.

Our FFO guidance for the year remains unchanged, in a range of $2.88 to $2.96 per share, while we are increasing our 2006 FAD guidance by $0.14 per share, to a new range of $2.91 to $2.99 per share, from the previous $2.77 to $2.85.

Our FAD guidance excludes any additional 1-time cash items which we may receive throughout the remainder of year.

And again, our increased guidance is primarily a result of the $10.3 million in cash received during the first quarter, offset in part by an approximate $1.3 million increase in our gross straight line rent projection, which represents the $0.14 per share annually based on our fully diluted share guidance of 62 million shares for the full year.

So with that, that concludes my report, and I'll turn it back to George.

Thank you, Scott.

With all activity, you should note that asset management remains the touchstone at Health Care REIT.

And through active portfolio management, we intend to take advantage of the dynamic nature of the healthcare delivery system in the United States, by allocating and reallocating resources as appropriate, with a commitment to the strongest operators and assets in each sector.

Our portfolio, as we've indicated today, is currently the healthiest in our history, with improving facility payment coverages of almost 2 to 1, and strong tenant quality. 30% of our operators are public companies, and an additional 45% are large private companies.

We have also added a very significant development program this year, that leverages our management experience in developing over $750 million in assisted living construction in the past.

And we've focussed these investment dollars on long-term higher yielding opportunities in a competitive marketplace.

We clearly believe that development offers an excellent risk adjusted return to us and our shareholders.

We believe our 6 person origination team, 8 people, if Ray and I are included, is the strongest in the sector.

Despite increased competition for healthcare real estate, our team continues to build relationships with new, high-quality operators.

We have added 33 clients, customers, since 2002, and have an excellent investment pipeline for 2006.

Our purpose built assets, as we've indicated, are 94% owned, and 83% of our existing leases have an internal growth component, further enhancing our earnings growth profile.

On May 19th, we will pay our 140th consecutive dividend, which is at $0.64 per share.

And our dividend has been increased 3% in each of the last 3 years.

Given our strong portfolio, significant investment pipeline, and current valuation, we believe Health Care REIT offers a superior risk-adjusted return to investors in the sector.

And with that, at this time I'll open for questions.

Thank you. [OPERATOR INSTRUCTIONS] Kristin Brown, Deutsche Banc.

I was just hoping you could walk me through really quickly, when you fund development from start to finish, how it impacts your financials?

Generally what happens is our operators submit construction draws to us, and we have a construction manager at the Company, PJ Johnson, who reviews them from accuracy, verifies that the draw requests are within budget.

We then make disbursements to the operators, who go and pay the contractors who are doing the construction.

And what we basically do, is we capitalize interest at our average cost of debt based on when the draws were made each month.

And what we do is we calculate our average cost of debt based on our interest-bearing liabilities at the end of the previous quarter.

So if a draw was made in April, we'd look at our March balance sheet, calculate our average cost of debt, and that's what we would capitalize the interest at, which has been running right around 6.5% each of the last 2 quarters.

And I guess I would say that initial rents start at time of certificate of occupancy, basically when the building opens, and they are generally set at a spread to comparable treasury at that point.

That's how we try to structure the deal.

Okay.

And are you still comfortable with your guidance for G&A for the year?

Yes, $22 million as I said, is where we think we're at on the G&A line this year.

Okay, thanks.

Rob Mains, Ryan Beck.

A couple questions.

To continue on the development track, then if I'm looking at Schedule 8, and I see that there's -- it's fourth quarter '06 you have projected $2.9 million coming online with an average initial yield of 9%.

Is it as simple as multiplying the 2.9 times 9%, or is there a ramp-up period for the rents?

That's correct, there's no ramp-up period.

Okay, so it's [inaudible].

Once it converts, we start [inaudible] 9%.

Okay, great.

The 123R item, Scott?

Is that -- it sounds to me like that truly is a nonrecurring thing, this isn't something we're going to see in future quarters?

It will happen essentially every year, though.

So you'll probably see a similar dynamic in the first quarter next year, as well.

Okay.

So is a way of looking at it, kind of you take the hit in 1 quarter, rather than sort of spreading it through the year?

That's absolutely correct.

And since this is the first time versus last year, we have more of an impact this quarter.

But in subsequent years, we will continue to have that impact in the first quarter.

Okay.

So there's some catch-up.

This isn't just for '06 grants, right?

It is just for '06 grants, the amounts that were granted during the first quarter.

The amounts that are expensed immediately, is what you see in that line item, the $1.6 million.

So wouldn't it be about the same amount in future years, as well?

It depends on what performance, what pay is, et cetera.

But conceptually, yes.

Okay.

And I just want to make sure I understand, interest expense was up sequentially.

Is that the impact of the note issuance at the end of last year mostly?

Yes, the November note deal.

Okay.

There's nothing else funny going on there?

No.

Okay.

All right, I think that's everything I had.

Thank you.

Jerry Doctrow, Stifel Nicolaus.

I actually wanted to come back, George, to some of your big picture stuff at the beginning.

And you're talking a lot about sort of this client-driven or customer-driven sort of healthcare.

And I just wanted to maybe explore a little bit more, or understand a little bit better sort of property types and what's happening.

It seems to me that you're sort of talking about full gambit there, both kind of health facilities, wellness centers, that kind of stuff, as well as maybe changes in sort of the more traditional AL, IL, SNF business.

And could just describe a little bit more, or give me an example of a couple specific projects you're doing that are kind of different than we've seen?

Well, first of all, Jerry, this is going to be evolutionary.

It's going to take us some time to implement it.

But we really think we have to be in this position by the time the baby boomers hit early-stage housing, which will be 5 or 6 years from now.

And already consumers, even those that aren't as spoiled as we baby boomers, are affecting how healthcare is delivered.

Doctors are being told to treat the patient as a customer.

It is really changing.

As you know, I'm Chairman of the local teaching hospital, and I've even seen a state institution trying to treat people like consumers.

So, we clearly know it's here.

Now, in terms of what we're going to do, we have just put our toe in the water on the acute care side, but what we are seeing are some very interest combinations, such as wellness centers with athletic facilities, together with primary doctors, together with clinics, together with PT, OT, and some of these types of facilities perhaps, are connected to hospitals.

In the space that is our primary focus still, we are doing, for example, a large CCRC in the Midwest that has IL, AL, SNF, and is part of a community.

So that retail and doctors offices, and community activities and intergenerational activities are available to people.

So we're doing many more combinations of IL, AL, and sometimes SNF, and they're being done in more innovative ways to get people more involved.

Larger bedrooms, 1 and 2 bedrooms, rather than studios.

We expect that kitchens in some facilities will be much more compatible with the life styles of people.

In other words, so much of the innovation that has been driven by a company such as John Erickson, Erickson Group, are playing out throughout the whole country.

And we want to be there.

We see it happening, and we're going to be in the forefront of change, as we have been in the past, being a leader in the assisted living development.

Okay.

No, that's helpful.

Thanks.

And I guess the other thing, I was just curious if you can maybe reflect a little bit on the offering that you did, which was ended up being I guess a 1-day marketed deal.

And I think there was maybe a little frustration, because you kind of did it before you announced sort of what are now stronger investment levels, and that sort of thing.

Thinking back, are you happy with kind of execution?

Would you have have done it maybe a bit differently?

Well, you know Jerry, the deal we did before that one, which we did through only 1 house, we had a complete discount to market, and for services of 3.5% or something like that.

So clearly, we can get 3.5 to 4% if we just use 1 or 2 folks.

So it's cheaper, and you don't take the market risk, at least during that day.

Now, whether there's some sloppy trading later, we always have to worry about that.

When we did this deal, we have a lot of investment banking groups that have helped us in the past, and have supported us with ideas, et cetera.

And we decided that we were willing to pay up, to some degree, to feed more mouths.

I guess I am, within our group, to be candid, I think that it has been a little sloppy after the fact.

I wasn't pleased with the trading in the last couple weeks after that offering.

But I think we're stabilized now, and starting to move up.

I think our earnings are good, our pipeline is very good.

So, we did what we had to do.

We got a pretty good price, the highest price we've had in stock offerings net.

So generally, we're pleased.

But we did see some sloppiness afterwards.

And Jerry, it's Scott.

Just as a point of clarification, our $300 million to %450 million net investment guidance is unchanged from what we put out last quarter.

Okay.

Yes, I guess you came out with -- obviously the numbers, in terms of what you've actually delivered in the quarter, I think, is solid.

You released some of that, but the development and stuff, I think it's firmed up and a little bit more bullish, from at least the way I look at the numbers, than what we had before.

Okay.

All right, thanks guys.

[OPERATOR INSTRUCTIONS] Greg Andrews, Green Street Advisors.

I just wanted to follow-up a little bit on development.

Could you just give us a little bit of flavor for what types of properties these are, and where they're located?

I guess most of them are assisted living, but what's kind of driving the demand side for these?

Is it in new suburbs, or is it this [inaudible] in the market, where the existing facilities are just chock full with waiting lists?

Just help me understand a little bit more the demand side.

Sure.

If you look at industry sources, like the [Nick] map data or the reports, American Senior Housing Issues, as well as our portfolio, we're seeing very solid opportunities for developments.

Some of the stuff we're doing is combination facilities, if you will, some independent living, as well as some assisted living on campuses.

Some of it's specialized stuff, Alzheimer's properties.

And some are smaller buildings in rural markets where there's a need.

And it's not really concentrated in any 1 area, and you can't answer the question that simplistically, because it's market opportunities with operators that have proven themselves.

Okay.

And just in terms of the mechanism, Scott, that you described, that once the project gets the certificate of occupancy, that's when the lease rate will kick in.

Obviously the facility wouldn't be full that day, so how are you going to report coverages when you reach that point?

Won't that a have a negative impact on your coverage ratios?

The coverages we report are on our stabilized properties.

Okay.

And what we've done historically is, when we've had projects and fill-ups, is report the status of their fill-ups, so that you can get some transparency on what's going on with the fill-up properties.

So you'll probably see us presenting some of that material as these things open up.

Okay, great.

Thank you.

[OPERATOR INSTRUCTIONS] At this time, we have no further questions.

I would like to turn the conference back over to management for any closing or final remarks.

Well, we'd all like to thank the participants.

And if there are follow-up questions, feel free to give us a call.

Thank you very much.

That does conclude today's conference.

We thank you for your participation, and you may disconnect at this time.