Welltower Inc (WELL) 2007 Q1 法說會逐字稿

Good morning.

My name is [Sierra], and I will be your conference operator today.

At this time I would like to welcome everyone to the first quarter 2007 earnings conference call.

[OPERATORS INSTRUCTIONS]

Thank you.

It is now my pleasure to turn the floor over to your host [Stacey Feit] of the Financial Relations Board.

Ma'am, you may begin your conference.

Good morning, and than you for joining us today for Health Care REIT's first quarter 2007 conference call.

In the event that you did not receive a copy of the news release distributed late yesterday afternoon you may access it via the Company's website at www.hcreit.com.

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 you that certain statements made during this conference call which are non-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 the Company can give no assurance that its expectations will be attained.

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

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

Please go ahead, sir.

Thank you, Stacey.

As we entered 2007 we were quite optimistic regarding our future performance.

We had completed 3.8 billion of gross investments during the previous five years and had a shadow pipeline between $2 and $3 billion largely comprised of long-term care assets.

Of that a large percentage of the development pipeline related to CCRCs and other state-of-the-art combination projects.

So, in short, we had excellent deal flow momentum.

We also believe that the new broader platform created by the Windrose merger would produce strong stockholder value going forward.

And then in early 2007 we announced an agreement to purchase additional medical office buildings from Rendina as well as its property management company Paramount Real Estate Services.

This acquisition will add additional quality assets and complete our property management platform.

You should note that we're beginning to close the MOB and Paramount acquisitions this week after the usual prolonged period of obtaining lender and lessor consents.

I should point out too that Mike Noto, President of Paramount, and his team have been active and constructive participants in the ongoing integration efforts as we transfer property management and certain ancillary functions to Florida.

I would also like to thank Mike and his team and all of our people for their efforts in integrating our teams and our systems.

While these closings and integration efforts have been proceeding we have been quite successful on the deal side completing 244 million of gross new investments in the first quarter.

And, perhaps more importantly in the long run, we have been aggressively marketing our broadened platform and hope to expand our relationship investment programs into the acute care space over the next several years.

At this time, prior to turning to several of my colleagues for their comments I would like to take this opportunity to congratulate my longtime business partner Ray Braun on his election to our Board of Directors at our last week shareholders' meeting.

A well-deserved Ray.

I will now ask Ray and Fred Farrar and Scott Estes to comment on portfolio and financial matters.

Ray.

Thank you, George.

I'm very excited about joining our Board and appreciate your thoughts.

First I'd like to discuss acquisitions including the pending Rendina acquisition, our development initiatives and then give you some content on the portfolio.

The investments this quarter were primarily in the skilled nursing home area.

Our biggest nursing home investment was a portfolio of two-year-old nursing homes with a quality mix of 60% that's operated by a current operator on our portfolio that's a private regional.

We also acquired our first MOB in a Cleveland, Ohio suburb.

Property is located two blocks from the University Hospital Chagrin's Highland campus and is 100% occupied.

We added two new operators to the portfolio bringing our operator total to 65.

We continue to see opportunities to expand existing client relationships and benefit from the momentum of our expanded origination team and its activities in the market.

Despite significant competition we believe we are well positioned to achieve our investment guidance at attractive returns for our shareholders.

Last quarter we announced the purchase agreement for the medical office buildings owned by the Rendina Companies and also the purchase of the management company Paramount Real Estate Services.

We now anticipate a second quarter closing on 17 medical office buildings and the management company for approximately $285.1 million.

The transaction initially involved 18 properties, but one of the properties has dropped out due to seller considerations.

We're excited to complete our property management platform and further expand our expertise and relationships in the medical office and hospital sectors.

We'll share more information on the transaction details once we get closed.

The transaction is included in our 2007 guidance.

Moving on to development we have construction commitments of over $500 million, and we've invested almost $40 million in the first quarter.

Our unfunded commitments for active projects total $340 million.

We have a diverse construction pipeline and expect to continue to pursue opportunities in select markets with proven operators.

At the end of March the concentration for [Phillip] and construction represented 13% of our total investment balance.

You can see on exhibit 8 more information by property type.

Moving on to the portfolio.

Our current investment by property type is shown in exhibit 1 of our earnings release and payment coverage by property type is in exhibit 2.

We're pleased with the continued strong payment coverage of 1.94 times and stable occupancy.

I'll note that payment coverage has increased about 30 basis points since 2004.

We did compare our portfolio to the NIC MAP database this quarter and looked at how our facilities in the top 31 MSAs compared to the NIC MAP data.

In these MSAs HCN currently has 25 operators operating 105 properties with an investment balance of $745 million at the end of the year which is a period comparable to the NIC MAP data.

Generally our properties compare favorably for assisted and independent living.

Occupancy was slightly below the MAP median, but this was offset by higher rates.

Conversely for skilled nursing and dementia our occupancy was higher than the NIC MAP, but this also was offset by lower rates.

According to the NIC MAP data we have 33 properties with 3,000 units and an investment balance of $193 million with new construction in the primary market area and the top 75 MSAs.

We've reviewed the impact of the new competition and conclude that there should be no material impact on the performance of our assets.

And then moving on to integration.

As George mentioned things are proceeding very well.

[Inaudible] origination and marketing activities are producing a robust pipeline of new investment opportunities.

Our systems and processes are being completely integrated, and, as George alluded, property management will be headquartered in Florida following our closing.

With that I'll now turn it over to Fred Farrar and he can walk you through an update on our medical office portfolio.

Thanks.

Thanks, Ray.

Our MOB portfolio performed as we expected in the first quarter.

We experienced a slight occupancy decline from 93% to 92% as a result of anticipated lease expirations.

Through re-leasing to existing tenants and filling vacant space we continue to forecast occupancy at 93% to 94% by the end of the year.

As we think about renewals we have 412,000 square feet of leases expiring this year, and we remain comfortable with our full-year renewal forecast of approximately 70%.

We continue to forecast property level NOI in the range above $65 million before 2007 acquisitions.

Turning now to acquisitions.

As has been mentioned, we have finally received lender approvals and have begun the process of closing on the Rendina assets.

As George and Ray mentioned, the consolidation integration of property management activities into Paramount provides a stronger platform and eliminates the third-party management component in the existing owned property platform.

The savings associated with self-management and other expense energies should be seen in future quarters.

In addition, our development activities have picked up with a larger platform in the expansion of relationships similar to the HCN shadow pipeline that should begin to generate meaningful activity later this year and next year.

We have some truly exciting projects that lead to multiple unit activity in the acute care and MOB space.

That completes my update.

So I'll turn the call over to Scott Estes to discuss the financial results and guidance.

Thanks, Ray.

Good morning, everyone.

We're pleased with gross investments in the first quarter of $244 million.

We had dispositions and loan payoffs of approximately $25 million resulting in net new investments of 219 million.

The average initial cash yield on new investments for the quarter was 9.0%.

Our dispositions included two assisted living properties and several loans with an average yield of 8.9%.

Regarding the dividends, our Board recently approved a new quarterly divided rate of $0.66 per share or $2.64 annually commencing with the May 2007 dividend which represents a 3% increase above last year's rate.

We were also pleased with the success of our recent equity offering in April.

The over allotment was fully issued, and we sold a total of 6.325 million shares for net proceeds totaling $265 million.

We used the proceeds to pay down our line of credit.

Our line balance on a pro forma basis for March 31 post offering stands at $116 million, leaving capacity of $624 million which should be adequate to fund the Rendina closing and our future capital needs over the next several quarters.

Drip activity remains steady in the first quarter as we issued 339,000 shares generating net proceeds of $15.2 million.

Turning now to our earnings results.

We were pleased with first quarter performance and are off to a nice start to the year.

Our first quarter FFO fully diluted share increased 7% to $0.76 from $0.71 in the comparable quarter last year and $0.01 above Wall Street consensus forecasts.

Normalized FAD for fully diluted share increased 3% to $0.70 from $0.68 in the first quarter of 2006.

Now I would like to highlight a few income statement items of the quarter.

First, G&A expenses this quarter totaled $9.8 million compared to $6.0 million in the first quarter of 2006.

As a reminder, first quarter G&A was again higher due to $1.90 million of non-cash compensation expense due to accelerated vesting of stock and options.

Our overall non-cash stock-based comp expense was $3.2 million for the first quarter as detailed in exhibit 12.

We do remain comfortable with our annual G&A expense estimate of $33 to $35 million for the full year.

Another item I'd highlight is the provision for loan losses on the income statement.

We did not increase the reserve for loan losses this quarter.

The improvement in portfolio fundamentals over the last few years has resulted in consolidation, stronger operator balance sheets, and financial flexibility that enabled many of our operators to payoff or pay down corporate loans.

To give you some perspective on the improvement in our loan portfolio, back in the fourth quarter of 2004 our loans on non-accrual totaled over $35 million while this quarter the amount of loans on non-accrual is only about $800,000.

And at this time we believe our current loan loss reserve of $7.4 million is adequate.

Now taking a look at our balance sheet we ended the quarter with gross real estate investments totaling $4.7 billion.

As of March 31 our debt to undepreciated book capitalization was 50%, and our debt to market capitalization stood at 40%.

Pro forma for the $265 million received through our recent equity transaction, debt to undepreciated book capitalization was 44%.

I mentioned our line of credit balance earlier, but turning to our credit metrics, we do remain committed to maintaining our investment grade ratings and continue to target a debt to undepreciated book cap level of approximately 45%.

We were also very pleased with Moody's recent upgrade of our credit rating to Baa2 in the first quarter which should benefit our overall cost of capital.

Secured debt at March 31 totaled $377 million representing approximately 8% of total assets.

As outlined in our earnings release we are increasing our 2007 guidance for net income available to common stockholders to a range of $1.18 to $1.26 per share due to gains on sales of real property in the first quarter.

We affirm 2007 FFO guidance in the range of $3.06 to $3.14 per diluted share and are increasing our 2007 FAD guidance to a range of $2.82 to $2.90 per diluted share due to cash receipts during the quarter of $2.1 million.

As always, our FAD guidance excludes any additional cash receipts which we may receive during the rest of 2007.

With that I'll conclude my report and turn it back to you, George.

Thank you, Scott.

We're now open for questions.

[OPERATOR INSTRUCTIONS] Your first question is coming from Karin Ford from Keybanc Capital.

Good morning.

First question, I know you reiterated your G&A guidance for the year.

I was just wondering does the Paramount closing and the Florida operations, does that affect G&A at all?

Hi, Karin.

It's Scott.

How are you?

Good, thank you.

Good.

Our G&A guidance does include the full integration of Paramount, Windrose, HADC, etcetera, in our initial guidance this year.

So that is included in that number.

Okay.

And can you give me an estimate as to how much Paramount affects G&A?

Sure.

I guess if I had to go through our overall G&A quickly, I don't think we've done that before, but I would say Health Care REIT last year had $21 million on a stand-alone basis in G&A.

Windrose we would have had about $5 million in G&A net of the $1 to $2 million in savings.

Paramount would be approximately $1 to $2 million, and HADC would be approximately $1 million.

Okay, great.

Then we also had an increase in non-cash comp that affected that number I think as we detailed in the past.

Right.

Okay.

Second question is it looks like based on sort of your first quarter run rate on dispositions you're coming in towards the low end of your guidance range.

It looks like you're getting better than -- better cap rates than you had expected originally.

Is that a trend that we should expect to see going forward?

This is Scott again.

I think we're obviously happy with I think the initial yields on the new investments at 9%, and I think I would still say dispositions we tended to be a little bit conservative with our guidance of $100 to $200 million.

Obviously we're coming in at a run rate toward the lower end there, but I still think for the full year that somewhere in that range is obviously our assumption.

Okay.

Last question, your 2007 debt maturities what's the plan for refunding there, what type of refinance rates do you think you're going to get?

I think we have -- obviously have capacity on our line and are pretty happy overall with the numbers.

I'll have to get the schedule, but I believe 2007/2008 it is less than $100 million in aggregate at least of senior note maturities.

And just, as you know, on that schedule we do show our lines of credit at the full drawing capacity as opposed to what our lines outstanding are.

So those numbers are also a lot lower.

Right, after the equity.

Do you expect that the rates -- I mean, obviously the line rate is just sort of temporary.

Do you expect on a permanent refinance you're going to get lower -- lower debt rates given the rating upgrade?

Yeah.

I think right now I looked -- last I looked I think we could do 10-year notes at about 6.1% based on current markets.

So I think that's a pretty good rate for us.

Great.

Thank you.

Thank you.

Your next question is coming from Ross Nussbaum from Banc of America.

Hey, good morning.

It's actually Dustin Pizzo here with Ross.

Hey, Dustin.

Hey, guys.

Scott, could you break down that 9% average yield on the new acquisitions across the different facility types?

One second.

Sure.

Ray, do you want to take it since you have the numbers in front of you?

Sure.

It's pretty much -- it's very tightly centered around 9% across all asset classes.

So you're plus or minus 25 basis points.

It is more dependent upon asset than it is asset class.

Okay.

And I guess, I mean, following up on that.

What sort of spreads are you guys seeing in cap rates relative -- you know, on the assisted living side versus the SNF side?

Have you seen that widen more, or are you still seeing a pretty tight spread on the assets that you're looking at?

I wouldn't say -- you used the term 'widen.' Cap rates generally in assisted living have been compressing, and cap rates in assisted living are compressing more -- or have compressed more rapidly than cap rates in the skilled nursing sector.

Right.

But we're seeing compression in both.

We're starting to see I think a flattening out of that in the assisted living side.

Although larger, newer portfolios are still being priced very aggressively and continue to be surprised at how low some of the cap rates are on some of those.

Skilled nursing side they've compressed a little bit, seem to be holding up pretty well.

So then -- I mean, from the volume you guys did in the first quarter, just looking at the $100 million of SNFs, should we infer sort of that at these levels you think that SNFs may be presenting the better relative value assuming you're aligned with the right operator and that reimbursement remains pretty stable?

We continue to see solid opportunities in the skilled nursing market and continue to believe that there are better risk adjusted opportunities there then competing for some of the large portfolios of assisted living.

And then, Scott, just looking at the operating margin on the MOB side of the business do you know what that is off the top of your head -- the NOI operating margin?

Scott Estes Hey, Fred Farrar, why don't you --

Sure.

In the portfolio Windrose had we were at 69% last year.

It's just under 70% for the quarter, and we think that is a consistent run rate between 69% and 70%.

All right.

Good.

Thanks, guys.

Thank you.

Your next question is coming from Kristin Brown from Deutsche Bank.

Good morning, guys.

Good morning, Kristin.

Good morning.

I just wanted to ask, in evaluating new development opportunities is there a certain profile that you're looking for, or is it more of a project-by-project analysis?

Well, as I indicated, we have a good cross section of development.

We do look at it market by market, operator by operator, and project by project; and I know that's not a very satisfying answer.

So to give you a little bit more color we tend to like facilities that have multiple levels of services in them.

So we're actively pursuing some continuing care retirement communities that have independent living, assisted living and skilled nursing options, and we're also building a number of buildings that have independent living and assisted without the skilled component.

Having said that, we're still doing several stand-alone assisted living buildings in markets where we think it's appropriate.

And with operators who we've had a great experience with in the past.

Right.

And I just wanted to ask about other income.

Is there anything unusual or one-time in nature in other income this quarter?

I think the one item that is new this quarter -- I mean, going through that line it's generally our interest income on our cash balances, things like site inspection fee.

One thing that's new this quarter is our development fees in our HADC development company subsidiary.

So I think generally speaking that number tends to bounce around between about $0.5 million to $1.5 million per quarter.

Okay.

And I don't know if you'll disclose this.

And $150 million in debt related to Rendina, what's the average rate on that?

I think, Kristin -- and George and Ray correct me if I'm wrong -- we were going to -- we intend to issue a more detailed press release upon closing that will give a lot more color to everybody hopefully here within a few weeks once we get the transaction closed.

But as we said before, we're going to refrain at least until we get the deal closed.

Okay.

Well, thanks.

Thanks.

Thank you.

Your next question is coming from Daniel Bernstein from Stifel Nicolaus.

Hi, this is Dan.

Good morning.

Morning.

Actually, most of my questions have been answered.

My only question right now really is what was the total non-cash comp?

This quarter?

Yeah.

$3.2 million.

It was 3.2?

Yes.

That's all I really had.

Thank you.

Sure.

Thank you.

Your next question is coming from Philip Martin from Cantor Fitzgerald.

Good morning.

Good morning, Philip.

Hey, Philip.

A couple questions here.

The first one on operating margins at the property level.

Where has the improvement been the greatest?

On the skilled nursing side I'd like your thoughts on what has happened within your own portfolio in terms of resident mix over the last year or two and how that has impacted margins?

Yeah.

Hey, it's Ray, Philip.

Well, if you look at the [Com] line over the last few years on the assisted living portfolio we've continued to see expansion of the margin even though our occupancies remain relatively stable, and that's primarily due to pricing power.

As we've indicated in the past, once you get people moved into the building if you keep them happy they're not real sensitive to larger than CPI rate increases.

So we've been seeing our operators increase rates 5% to 10% in the assisted living portfolio.

On the skilled nursing side, margins have been relatively flat for the last few years.

We obviously prefer portfolios with higher quality mix, more Medicare.

But when you look across our entire portfolio the mix has been pretty consistent as well so we've not seen a lot of margin expansion.

With some of the new -- well, with the new property that you -- skilled nursing property that you bought here at roughly $100,000 a bed, where are margins in that asset versus the average in your portfolio, if that's a good comparison, which it may not be?

Want me to take that one?

Yeah.

I was just going to comment that I think we continue to really focus more on an underwriting perspective on a coverage basis, and that's underwriting skilled nursing to cover average management fees of 1.5 times remains the norm.

Okay.

So even though you may see a higher per bed number in a given period, if it's a higher quality asset and we're still getting good coverage we're happy doing that investment.

An asset that's running with sort of a normal mix is going to have margins of 12% to 15%, Philip?

Uh-hmm.

These assets are in the 20% to 25% range.

Okay.

Okay.

Okay, that's -- okay.

That's that question.

And then, Fred, just to get your thoughts on on-campus versus off-campus medical office buildings.

Number one, when you look at the pipeline going forward what is that mix approximately if you can give us that, and what is the cap rate differential between -- and, again, I know it's market by market and it's health care system by health care system, but can you give us some general ideas there?

Good morning, Phil.

How are you?

Good morning.

Real good.

Great.

Listen, in the Rendina portfolio 12 of the 17 buildings are on a hospital campus.

That's pretty consistent with the rest of our portfolio with about two-thirds on campus.

We're not seeing a meaningful cap rate difference depending upon the lease structure and the supportive assets between on-campus and off-campus.

And, as you know from the Windrose days, we've always said that the sponsor of the building is more important than it being on campus.

So I think that answered your questions.

Yeah.

I think on-campus tend to get viewed as better assets I think unfairly sometimes.

I guess another way to maybe ask this is are you seeing -- is the rent growth potential or the initial rent much greater on-campus than off-campus?

Again, I know that you're dealing with different doctor groups, family practices might prefer off-campus versus let's say a surgeon who wants to be on-campus.

We've got to start with the premise, Phil, that not all campuses are equal.

Exactly.

So clearly in the vibrant and -- campuses with systems that are leaders in the market, there is a little bit greater demand and therefore the ability to push prices on both renewals and new tenants.

But it's a market-by-market decision.

You can't use a blanket conclusion.

Okay.

Understood.

Understood.

The last question, the pipeline and/or additional opportunities that may come with Rendina?

I missed the very first part of the -- I missed your comments George.

I will -- but I wanted to know in terms of pipeline or additional opportunities with Rendina.

I don't know if that was mentioned.

I don't know if you can mention it, but I'll ask it.

Philip, implicit in some of my comments was part of the answer at least.

One, I said that our $2 to $3 billion pipeline, shadow pipeline if you will, was largely comprised of long-term care assets, some state of the art [al-techs] for that matter too.

What that suggests is that we're growing -- we're beginning the process, continuing the process of growing, hopefully, a very significant pipeline in the acute care space.

And that's our job this year and next.

In terms of relationships with companies like Rendina, I mean, I think that's terribly important in terms of forming relationships with hospital systems and health care providers.

Hopefully the good relationship with Rendina as well as some other people we do business with around the country will be very important in establishing our relationship programs in the acute care space.

Thank you all very much.

Thank you.

Thanks.

Thank you.

Your next question comes from Rob Mains from Morgan Keegan.

Good morning.

Hey, Rob.

Hey, Rob.

How are you?

A question on the MOB portfolio, the Windrose portfolio, just refresh my memory.

How much of that is triple net?

Fred, why don't you take it.

Yeah.

I would again say that probably 80% of the portfolio is triple net.

Okay.

Scott, are you willing to talk about the characteristic of the Rendina portfolio in terms of whether that's going to be a similar proportion or a lower?

Not at this time.

Again, I --

The Rendina assets are exclusively triple net.

Okay.

All right.

That's all I needed.

Thank you.

Thank you.

Your next question comes from Omotayo Okusanya from UBS.

Good morning, gentlemen.

Hey.

Hey.

Ray, congratulations on begin appointed to the Board of Directors.

Thank you, Tayo, and thank you for mentioning it in your note.

No problem.

I guess what I'm still -- I'm just trying to look for a little bit more clarity in regards to what that means for succession planning as a company.

George just recently signed a new contract as well.

I'm just curious if you can give any insight as how you're thinking about this going forward?

I think that we've been thinking that we had a succession -- an informal succession plan in place for several years, and I think we're sneaking up on a more formal one.

And, of course, that's a Board decision, but I would think that you're exactly right.

Ray's elevation to the Board is a pretty clear signal.

And I'd also say that right now we're all running pretty hard and we need a whole lot of bodies to make this thing work and we're really pleased that we have a great, young team in their 30's and 40's and 50's coming along to continue growing this Company for many years to come.

Great.

Thank you.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from Jerry Doctrow of Stifel Nicolaus.

Thanks, and, again, I missed some of the beginning.

So I apologize if some of this was covered.

There were two items I think the skilled nursing acquisitions was already discussed, but you also had a fairly high percentage of loans in terms of the new investments versus acquisitions.

So I want to get just a little bit more color on the thinking behind that and whether it's [inaudible] or just sort of straight property loans, that kind of thing.

Yeah.

Hey, Jerry, it's Ray.

We did have a higher number of loans.

As you know, that's something that we've moved away from.

We prefer to do the sale-leasebacks, but we also prefer to work with our customers to help them execute their business plan.

And we happened -- a large portion of those loans were tied to a specific operator who needed a short-term loan to get a deal done which will then covert to a sale leaseback.

Okay.

So it'll convert over.

I would view it as aberrational.

Okay.

All right.

That's fine.

And just I think Rendina has been asked about and asked about, but in terms of the HADC portion of Windrose I guess I wanted to also see -- get a little more color on that in terms of -- I didn't see in your development pipeline in sort of the MOB.

There's a little bit of specialty stuff.

So is that piece of the operation starting to create sort of a development pipeline?

If we can just get a little more color there.

Yeah.

I'm very pleased with the efforts so far, Jerry.

We've been out marketing to health care systems and providers, and a key component in much of that marketing has been involvement of the folks from HADC.

So we think, frankly, our platform involving development as well as property management means that we can offer full, complete solutions for systems and providers.

So I think they're just critical.

We're very pleased with the integration efforts at HADC and their enthusiasm for being part of our team.

Okay.

The stuff that you've got coming I think you mentioned some high and [L-tax] or state-of-the-art L-tax.

That's not HADC pipeline.

That's just other relationships that preceded that?

At this point that's the case, but we will certainly benefit from and are pursuing some of HADC's relationships.

Jerry Doctrow Okay.

Thanks.

That's all I had.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question is a follow-up question form Omotayo Okusanya from UBS.

Just a quick follow-up.

Revenues from the MOD platform from the first quarter of '07 was what amount?

It's an exhibit in the back.

I believe it's $23.8 million.

It is.

That's the number.

Okay.

Great.

I'm just trying -- I guess I'm trying to do the back of the envelope math.

The Company operating expenses was $7.2 million, but 80% of the portfolio is triple net lease?

Right?

And the NOI margins you said were about -- okay.

So that's -- what am I missing here?

So it's 23.8, 7.1 -- so the NOI margin is about $0.70.

I guess with all triple net leases why is the property operating expenses so high?

I'm assuming this is all related to the MODs; right?

Am I missing something?

No.

Tayo, if you look at it on a consistent basis we charge for reimbursement of expenses.

So in the 23.8 is $5.2 million, and $5.2 million divided by the $7.3 million of expenses is a little over 70%.

Okay.

Got it.

Thank you.

Thanks.

Thank you.

There are no further questions at this time.

Okay.

We thank you all for participating in this quarter's conference call.

This concludes today's first quarter conference call.

You may now disconnect and have a wonderful day.