Welltower Inc (WELL) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the first-quarter 2016 Welltower earnings conference call.

My name is Holly, and I will be your conference operator today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

Now I would like to turn the call over to Jeff Miller, Executive Vice President and Chief Operating Officer.

Please go ahead, sir.

Thank you, Holly.

Good morning, everyone, and thank you for joining us today for Welltower's first-quarter 2016 conference call.

If you did not receive a copy of the news release distributed this morning, you may access it via the Company's website at welltower.com.

We are holding a live webcast of today's call, which may be accessed through the Company's website.

Before we begin, let me remind you that certain statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Welltower believes results projected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its projected results will be attained.

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

I will now turn the call over to Tom DeRosa, CEO of Welltower.

Tom?

Thank you, Jeff.

This morning I want to talk to you about real estate: the power of owning class A real estate.

What do I mean by that?

I mean real estate that is in locations and markets that cannot be easily duplicated, real estate that is nimble and adaptive to changing consumer preferences, real estate that defies the conventional wisdom about supply and retains value across economic cycles.

Over time the REITs that own class A real estate have produced superior and resilient results as compared to REITs that have not followed this strategy.

Our quarter is yet another example of a phenomenon that began for us in 2010.

This, my friends, is why you own Welltower.

The headline number that supports our thesis is that our operating same-store NOI grew by 5.5% in the first quarter.

Now, this number does not come as a surprise to us.

In fact, it's totally consistent with the operating same-store NOI growth we have reported for our portfolio over the last five years.

Our total portfolio NOI grew 3.8%, and FFO has grown 9%.

All parts of our business produced good results, but we did have a phenomenal quarter in our senior housing operating portfolio.

While there have been real headwinds from increases in labor costs and other operating expenses, our class A real estate was able to pass this along to the consumer in strong rate growth while at the same time increasing occupancy by 60 basis points to 90.7%.

Now, in the last two earnings calls, we told you that we remain bullish about senior housing business -- and continue to believe that despite pockets of oversupply in the industry, our portfolio of high barrier-to-entry markets, premier operators, and modern assets will continue to create tremendous value for shareholders by generating attractive growth with minimal CapEx.

We see the market taking the data on new supply and applying it broadly across the entire senior housing market.

We think that is a mistake, and our performance supports that.

We had a long conversation about our strategy around postacute and Genesis last quarter.

Despite short-term challenges, we continue to believe you need to look beyond headlines and understand how the skilled nursing industry fits in the continuum of care.

I'm very pleased by the fact that CMS recommended a 2.1% rate growth last week, the biggest Medicare increase in seven years.

And I think this supports our thesis.

May I remind you that our Genesis portfolio remains concentrated in high-density East Coast markets with significant four-wall profitability.

On our last call we also discussed at length our capital allocation framework.

Our sustained relative outperformance in same-store NOI growth is a product of this strategy as well as a smart, highly targeted investment discipline.

Capital allocation is not just about when to buy, but also about what to buy and what not to buy.

You may have heard about our acquisition of a site on the corner of 56th Street and Lexington Avenue in New York City that, together with Hines, we will build The Welltower, a state-of-the-art, largely dementia/Alzheimer's care facility.

The supply of residential care options for the growing elderly population of Manhattan is, at best, pathetic.

For a population of over 1 million people, there are only 70, 7-0, marginal memory care beds in Manhattan.

And I can tell you that they are of marginal quality, because we used to own them.

The Welltower will be an anchor for an affluent, cognitively challenged population that has been forced to live in the shadows.

The Welltower will make them part of a larger community which includes Billionaires' Row one block away.

Now, we are limited by a nondisclosure agreement in what I can share with you today.

We hope to give you more color in the coming months.

But what I can tell you is that we didn't sacrifice our return expectations and underwriting criteria to be in Manhattan.

Frankly, I cannot think of a more class A real estate opportunity.

And with that, I'm going to turn the call over to Scott Brinker.

Okay.

Thank you, Tom.

A common question from investors the past few years was what would happen when the cycle turned.

The answer to date is very positive.

Today's more challenging environment is highlighting that not all properties are the same, not all markets are the same, and not all operators are the same.

Our portfolio outperformed in the up cycle, and today we are seeing that continue.

Each segment turned in a strong quarter with same-store results above guidance.

That being said, I want to repeat something we've said in the past: we don't overemphasize any one quarter -- good or bad.

We think about our results over time to reduce the noise that can occur over 90-day increments.

I'll start with the operating portfolio, where top-line fundamentals were incredibly strong.

We increased rates 4.2% without sacrificing census, as occupancy increased 60 basis points.

The result was 5.5% same-store NOI growth, well above expectations.

CapEx remains at modest levels.

The age of our properties is a material advantage.

It allows us to generate superior organic growth while retaining earnings to fund new investments.

Here's some color on each country.

Performance in the US was outstanding.

Same-store NOI grew 5.1%.

This is not a case of easy comps, as we reported 5.2% growth in 1Q 2015, not to mention an 8% CAGR in the first quarter of 2012, 2013, and 2014.

An important takeaway is that our core markets extended their long track record of outperformance.

And we will continue to prioritize these markets with our capital allocation.

Turning to Canada, our two partners, Revera and Chartwell, delivered strong results despite a sluggish economy.

Same-store NOI grew 7.2% last quarter.

Revenue increased nearly 5%, while expense growth was in the mid-3%s.

It's a reminder that seniors housing isn't perfectly correlated with the broader economy.

The UK bounced back with 6.1% same-store NOI growth.

We are seeing very strong demand for our properties.

Revenue grew by more than 5%, while expenses increased in the high 4%s.

By design, we are a private-pay, high-end business in the UK.

This gives us the ability to better offset cost pressures like the increase in minimum wage.

It is equally true in the US.

Next I want to share an observation on a broader topic.

Seniors housing is a private-pay business, and the laws of supply and demand apply.

That's why we chose to concentrate in markets with the ability and willingness to pay.

These also happen to be the markets where it is more difficult to bring new supply.

We know that location impacts performance, because we have been tracking the data inside our portfolio for years.

Our data is very powerful in a sector where the window into industry-level performance is limited to asking rents and occupancy.

As a result, seniors housing remains an inefficient market.

Cap rates hardly vary at all based on location.

We think that will change as operating data in the industry becomes more transparent.

When that happens, our unmatched scale in premier markets will be highly valuable.

Turning to outpatient medical, we extended our track record of consistent results with 2.6% same-store NOI growth.

We have excellent long-term visibility into this earnings stream, driven by a low rollover and our history of renewing the vast majority of maturing leases.

Next up is the triple-net portfolio.

Quarter after quarter, including 1Q, the blended growth rate in this segment is in the 3% range.

The lease structure gives us consistent and growing rental income, notwithstanding any volatility in the underlying operations.

That's especially true of skilled nursing, a business that has long been subject to cycles.

Public sentiment is even more volatile than the underlying business, and right now the pendulum has clearly swung toward the negative.

I will contrast this volatility with skilled nursing valuations in the private market, which have been remarkably consistent over time.

If there is a prolonged disconnect between public and private valuations, we may look to take advantage through selective asset sales.

Moving to investments, our activity in 1Q was intentionally low, given the environment.

We funded $350 million at a 7.7% initial cash yield.

As usual, these were done in private negotiations, not auctions, which helps explain the healthy yield.

We expanded relationships with leading health systems like Ascension and Adventist, and we grew with core partners including Sunrise, Silverado and Signature.

Each investment build on what makes Welltower unique: premier markets, leading operators, and modern buildings.

Our stock has come back a bit since our last earnings call, but this still feels like a time to be highly, highly selective with new investments.

Our strong balance sheet and unmatched relationships allow us to be flexible if conditions change.

As expected, we had $116 million of loan payoffs last quarter, including $68 million of Genesis mortgage loans.

We will receive continued repayments from Genesis throughout the year.

The bridge-to-HUD business plan is working as planned and will benefit Genesis' cash flow and enhance the credit that stands behind our master lease.

Now over to Scott Estes.

Thank you, Scott, and good morning, everyone.

We are off to a great start to the year, with strong quarterly earnings growth and an increase in our same-store NOI forecast, reflecting our confidence in the continued strength of our portfolio.

While significant stock market volatility occurred during the first quarter, we remained highly focused on capital allocation.

Our current earnings guidance continues to assume that we remain net sellers of assets for the full year.

We were also able to enhance our liquidity position during the quarter by opportunistically raising $700 million of 10-year unsecured debt.

Importantly, we were able to raise this debt in an overall leverage-neutral manner through offsetting debt payoffs and a small amount of equity raised through our DRIP and ATM programs.

As a result, we have no senior debt maturing until September of 2017 and have only $398 million of secured debt maturing over the remainder of the year.

With over $2 billion of current liquidity and a continued focus on capital allocation, our strong financial position allows us to remain both disciplined and opportunistic in regard to any incremental investments, dispositions, and capital raises throughout the remainder of the year.

I will again begin my detailed remarks with perspective on our first-quarter financial performance and a minor change we made to our supplement this quarter.

We started off the year with strong quarter-over-quarter earnings comparisons, generating normalized FFO of $1.13 per share, up 9% versus last year; and normalized FAD of $1.01 per share, increasing 10% versus last year.

Results were driven primarily by our same-store cash NOI growth and the $1.8 billion of net investments completed over the last four quarters.

I will comment briefly on several of the more noteworthy income statement items this quarter.

First, our G&A came in at $46 million for the first quarter.

This was in line with our expectations, as the first quarter is typically our highest of the year due to the timing of expensing stock compensation grants for certain employees and directors.

After a detailed review of our costs this year, we now expect to come in toward the low end of our initial guidance range of $160 million to $165 million for the full year.

We recognized impairments of slightly over $14 million in the first quarter.

These impairments were a result of slight reductions in the carrying value of two relatively small seniors housing portfolios currently held for sale, which are now expected to be sold for roughly $167 million in the aggregate.

And last, we recognized a tax benefit of $1.7 million in the first quarter.

Taxes came in slightly below our expectations for the quarter as a result of both tax planning initiatives and several revisions to our CRS taxable income forecasts.

Based on these revised expectations, we now anticipate incurring quarterly tax expense of approximately $1 million to $2 million per quarter for the remaining three quarters of the year.

In terms of dividends, we will pay our 180th consecutive quarterly cash dividend on May 20 of $0.86 per share, a rate of $3.44 annually.

This represents a 4.2% increase over the dividends paid last year and represent a current dividend yield of 4.9%.

In terms of our supplement, we made only one relatively minor adjustment this quarter, as we moved our UK-based private-pay outpatient facilities from our hospital category to our outpatient medical category.

This was done to reflect the fact that the vast majority of revenue comes from outpatient care and elective short-stay surgeries, just like our outpatient surgical facilities in the US.

I'll turn now to our liquidity picture and balance sheet.

I think the highlight of our first-quarter capital markets activity was the unsecured debt offering, which closed on March 1. We completed the sale of $700 million of 10-year senior unsecured notes priced to yield just over 4.3% and took advantage of strong investor demand to upsize the transaction from the originally announced size of $400 million.

This offering helped extend our weighted average senior note maturity to 9.2 years.

And as a reminder, this debt offering was not included in our initial earnings guidance for 2016.

In terms of equity, we issued over 1 million shares through our DRIP and ATM programs this quarter, raising $93 million in proceeds.

As Scott mentioned, we generated $116 million of proceeds through loan payoffs, which included the $68 million in Genesis mortgage loans repaid during the quarter.

In term of debt repayments, we repaid all $400 million of the five-year 3 5/8% senior unsecured debt that matured on March 15, 2016.

And last, we repaid approximately $130 million of secured debt at a blended rate of 4.5% while refinancing $75 million of secured debt at a blended 3.1% rate.

So as a result we continue to have significant liquidity, with over $2.2 billion available at quarter-end, with only $645 million of line borrowings and $356 million in cash on balance sheet.

Our balance sheet and financial metrics at the end of the first quarter remain strong.

As of March 31 our net debt to undepreciated book capitalization of 39.6% was consistent with last quarter, while our net debt to enterprise value improved 40 basis points to 32.3%.

Our net debt to adjusted EBITDA stood at 5.7 times, while our adjusted interest and fixed charge coverage for the quarter remained solid at 4.1 times and 3.2 times, respectively.

Our secured debt level remained at only 12.1% of total assets at quarter-end.

We were pleased to receive an affirmation of our BBB-plus ratings from Fitch last week.

And as a reminder, we sit at BAA2/BBB flat ratings with positive outlooks from both Moody's and S&P.

I'll conclude my comments today with an update on the key assumptions driving our 2016 guidance.

First, in terms of same-store cash NOI growth, based on our strong first-quarter result across our entire portfolio, we are comfortable raising our same-store cash NOI guidance for the full year by 25 basis points to 2.75% to 3.25%.

We are seeing strength across virtually all of our respective portfolio components.

And as Scott mentioned, I think it's appropriate to remain focused on the blended forecast for our entire portfolio for the full year.

In terms of our investment expectations, the only acquisitions in our forecast beyond those closed in the first quarter are an additional $98 million of investments expected through our Main Street partnership at an initial cash yield of approximately 7.5%.

In terms of development we expect to fund an additional $363 million on projects currently under construction and expect $283 million of additional development conversions at a blended projected yield of 7.9%.

Moving to dispositions, we continue to include a total of $1 billion in our forecast.

This is comprised of the $116 million of loan payoffs during the first quarter, our current projection of $303 million in proceeds from properties currently held for sale at a blended yield-on-sale of 6.5%, with the remainder representing loan payoffs and other potential property sales over the rest of the year.

Our capital expenditure forecast remains $83 million for 2016, which is comprised of approximately $55 million associated with the seniors housing operating portfolio, with the remaining $28 million coming from our outpatient medical portfolio.

We typically see lower CapEx spending during the first quarter, so we do expect the remaining CapEx will be higher during the last three quarters of the year.

As previously mentioned, our G&A forecast is tracking around $160 million for the year at this point.

And as I also discussed earlier, our tax expenses are likely to be about $1 million to $2 million per quarter for the remaining three quarters of the year.

So finally, as a result of these assumptions, we are maintaining our FFO guidance of $4.50 to $4.60 per diluted share and FAD guidance of $3.95 to $4.05 per diluted share, both of which represent 3% to 5% growth over normalized 2015 results.

I think it's important to note that our decision to maintain both our FFO and FAD guidance ranges today was related to the fact that our $700 million bond offering was not in our original forecast and that there is also still considerable variability around the timing of the approximate $900 million of dispositions that have yet to occur.

Most importantly, we continue to focus on making prudent capital allocation decisions to strengthen our balance sheet and maintain significant liquidity in the current environment.

So in conclusion, our continued focus on capital allocation this year will continue to prioritize enhancing the quality of our portfolio in private payments, maintaining a strong balance sheet and low leverage, and retaining ample liquidity until there is greater stability in the broader capital markets environment.

So at that point, I'll turn it back to Tom for some closing comments.

Thanks, Scott.

So, as you've heard, we are quite pleased by our Q1 results.

It's all about the real estate and how we are driving better performance and value from our industry-leading healthcare real estate platform.

Our optimism in our ability to sustain this performance is reflected in our decision to raise our 2016 guidance for same-store NOI growth to 2.75% to 3.25%.

And with that, I'd like to ask Holly to open up the lines so we can take your questions about RAC audits.

(Operator Instructions) Paul Morgan, Canaccord.

You can talk a little bit about what came in above your expectations in the quarter and in terms of RIDEA portfolio?

You talked about being able to pass through the labor costs that you have been talking about over the past few quarters.

Is there anything at the market level or -- that gave you the confidence early in the year to boost the guidance?

Sort of any color there?

Well, we will all have something to say about this.

But I would say, again, not to beat a dead horse: it's about having the best-located senior housing assets in their markets, with the quality operators.

So there's demand to be in these buildings.

And as the operators are sustaining real increases in expenses, largely due to labor, they can pass it along because there is demand to be in those buildings.

I think that's one of the simple -- that's probably the most simple answer I can give you.

Scott, any other thing you want to say?

Yes.

Paul, on the outperformance really three drivers of the business -- operating expenses, and those were up in the low to mid 4s, sort of where we expected.

And the other two drivers are occupancy and rate.

And we outperformed on both.

So we were expecting occupancy to be roughly flat to up slightly for the year.

Instead, we were up 60 basis points.

And great growth at 4.2% was quite a bit above where we were projecting.

Is there any kind of color?

You'd say it's not really kind of a regional thing?

Or in terms of maybe the parts of your portfolio that are exposed to supply hanging in there better?

Or -- more than just kind of a macro perspective?

Yes, the color is the majority of our portfolio is located, at least in the US, in six core markets.

And those markets continue to outperform by a very meaningful factor.

So from quarter to quarter it might be two times, and it might be five times -- which was what we saw in the first quarter.

And those are the markets that we've prioritized for years, and we will continue to prioritize.

So that doesn't mean you'll see us be 100% concentrated in six US markets.

We like some level of diversification.

But frankly, we just see much better supply-demand over long periods of time in these core markets.

And we have established partnerships with the operators that essentially control the markets.

So a company like Sunrise that has 30-plus buildings in Southern California -- that's tough to replicate when it takes 4 to 5 years just to get approval just to build a new project.

So we are very selective, going back years, in who we chose to do business with and which markets they had a concentration in.

You know, you are seeing the benefit of the discipline we have had to sell out of those marginal markets over time.

That is paying a dividend today.

You know for a REIT, that's a difficult thing to do.

But our shareholders have been on that ride with us now for a number of years.

We have sold a lot of assets.

We've acquired a lot of assets.

And it's all about having the data and the discipline to allocate capital into the best markets and deemphasize the markets that just will not perform over time.

That's what we do.

I think it's one of the keys to this Company's strategy and its success.

And one final point I think it's important to add, too; and your question was, I guess, largely based on seniors housing, but I think it's important to note that the outperformance this quarter was beyond just the seniors housing portfolio, at least in relation to our initial guidance.

Our MOB performance was above our initial guidance for the full year as well as the postacute same-store NOI.

So we saw it really across the board this quarter.

So you think those were kind of equal contributors to the boost in the guidance?

We are not quantifying it in particular.

Again, we think about it as the whole portfolio for the whole year.

Okay.

Great, thanks.

John Kim, BMO Capital Markets.

I had a couple questions on your same-store numbers on page 29 of your supplemental.

Are the Canadian and UK figures on a constant currency basis?

Yes.

Yes.

So when I look at the same-store NOI per unit in pounds in the UK, it was GBP21,000 per unit this year.

Last year at this time it was about GBP27,000 per unit.

So it was a big decline on a per-unit basis, but you had a 6% increase in same-store NOI in the region.

I know some of this is probably mix, but just wanted to know why that big discrepancy.

It's Scott Brinker.

We did a big acquisition in August of 2014 called Gracewell, and those are very nice private-pay properties, but at a much lower price point than the legacy Sunrise portfolio that comprised the prior year's numbers.

So that's what you're seeing.

Okay.

Do you know what that same-store per unit was, if you like, on a comparable basis this year versus last year?

Can you repeat the question?

I'm not sure what you are asking me, John.

Just the same-store pull from last year to this year on a per-unit basis.

I could follow up later.

Yes.

Are you asking about NOI per unit?

Yes.

Yes, let us follow up with you.

I don't have that handy.

Yes, and in the US dollars it's going to be impacted by the change in currency rates from then to now, too.

So let us follow up with you later.

Sure.

No problem.

And Scott Estes, I just had a question on your balance sheet.

There's a fairly large receivables balance this quarter of $693 million.

What is this in relation to?

That number has actually been pretty consistent over time.

It has -- boy, there's a lot of different items in there: value of derivatives, receivables, intangibles are all in there.

And it has actually been in that $600 million to $700 million area pretty consistently for the last couple years.

Got it.

Okay, thank you.

Chad Vanacore, Stifel.

So just thinking about your shop portfolio, can you actually go into the buildup of that?

I assume you are at your 2.25% to 3.25% right now for the full year?

Is that mostly going to be on rate, too, assuming not much occupancy change?

Or are you assuming some occupancy decline as well?

It's Scott Brinker.

We are not really changing the guidance that we gave for the RIDEA portfolio.

We have increased the Company's overall same-store growth projection for the year.

And that's, of course, driven in part by the outperformance on the operating portfolio.

But we are trying to keep people away from being overly focused on every single segment quarter to quarter.

This is a portfolio.

And it outperformed in the first quarter, and that's why we raised the guidance.

Your question is: do we feel good about the operating portfolio at the end of the day?

The answer is yes.

We have much better revenue growth driven by occupancy and rate than we were expecting at the beginning of the year.

We don't see that changing overnight, but we also don't see a need to continue to update every quarter what the guidance is going to be.

All right, Scott.

And I would have expected the leap year expenses to eat into shop margins a bit.

How should we think about that OpEx growth in second quarter compared to the first quarter?

Yes, it did increase operating expenses -- compensation, in particular, because a lot of the employees are hourly.

So our rough guess is that compensation was up about 100 basis points more than it otherwise would have been because of the extra day.

That being said, some of our operators charge by the day rather than by the month.

So we did get some benefit on revenue.

All right.

And then you had some commentary on the bridge loans to Genesis.

Could you just remind me how much was repaid and how much remains outstanding?

Sure.

So we have two fully secured first mortgage loans with Genesis that they used to complete two mergers last year.

In total they had about $500 million of original principal balance, and they have now repaid roughly $120 million.

So their balance today is around $370 million to $380 million.

All right.

And then, just staying with Genesis for a second, it looked like coverage just improved marginally, although if I recall, Genesis had kind of a weak fourth quarter.

What do you suppose is driving that sequential improvement?

Well, remember, we report, first of all, on a trailing 12-month basis, but also one quarter in arrears.

Yes.

That's what we are talking about, fourth-quarter --.

Yes, exactly.

So they had a weak fourth quarter of 2014 as well.

And at least some of the issues that they referred to in their fourth-quarter earnings release did not impact our portfolio, like all the bad debt adjustments they booked for skilled health -- that doesn't impact us.

And the reality is we own their best assets.

And I think we are maybe at least a bit less impacted by some of the headwinds that they are feeling elsewhere.

But there is no question that the operating environment is a bit challenging.

So I wouldn't be surprised if coverage was under at least a bit of pressure over the next couple of quarters.

All right.

That will be it for me for now.

I'll hop back in the queue.

Thanks.

Kevin Tyler, Green Street Advisors.

Scott, you had mentioned earlier that senior housing cap rates had been consistent or roughly the same for high and low-barrier markets.

But are you seeing them up more broadly?

And then is there maybe a little bit of a faster creep higher in the lower-barrier versus the higher-barrier markets?

We haven't really seen senior housing cap rates move at all.

It feels like it's been almost a year now where a lot of buyers, including us, have been trying to push for higher cap rates -- but for the most part, especially in auctions, without much success.

And at least the packages we see, the sellers and brokers don't seem to reduce their expectations if they are trying to sell product that's outside of our core market.

So you have not seen us prioritize or allocate our capital for those types of investments, because we just don't feel like historically or even today you really get the yield premium that you should to make an investment in those markets.

Okay.

That makes sense.

And then maybe following on that point, on the disposition side, it certainly seems like senior housing would be good place, if cap rates have held firm, to potentially take some chips off the table.

But outside of that I know there's some debt repayment that's coming through.

But where do you see the best value today on the sales side?

It's probably in skilled nursing.

I mentioned in the prepared remarks that despite the sometimes wild volatility in the public market, private-market valuations in skilled nursing have been remarkably consistent.

I've been doing this for 15 years now, and it feels like cap rates in the skilled nursing space have hardly moved at all, maybe inside of a 50 basis point band, plus or minus, year after year after year -- notwithstanding what's happening in the reimbursement environment or with publicly traded stocks.

And today, look, skilled nursing is only 15% or so of our overall Company.

So it's hard to say how much it impacts our stock price.

But based on the number of questions we get about it, I would say it has a very big and very large negative impact.

And we see transactions in the private marketplace, including very recently, at prices that are quite attractive -- really no different than a year ago or two years ago, when the public markets loved skilled nursing.

So I could see us taking advantage of that if these conditions persist.

There are more inbound calls regarding our interest in selling skilled nursing today than in seniors housing.

So I think there are a lot of investors out there in the private markets, as Scott has said, that are seeing the headlines, seeing how some of the misinformation that has been put out there has created some tremendous volatility.

And they are looking to take advantage of that, or at least it has given them -- it has raised the idea of buying skilled nursing to a higher position in the queue for how they might deploy capital.

So it's an interesting time, a bit of a paradox about how the public market is viewing the sector and how the private market is viewing it.

Kevin, I agree on senior housing as well.

Two of the assets that are in the held-for-sale bucket are in very much secondary, if not rural markets.

And if the sales proceed as planned, we will be selling those for less than a 6 cap on our rent.

So we do still feel like this is maybe a good time to exit some non-core senior housing assets as well.

The same applies to medical office, where we have got about $100 million of assets held for sale on the balance sheet today.

Again, at least in our mind, very attractive cap rates relative to the markets and asset quality.

Okay.

I appreciate the thorough color there, guys.

It's helpful.

And then last one for me -- on the development side, definitely an interesting project in New York and looking forward to hearing more there.

It sounds like there's not a whole lot you can share.

But looking for a second at development in senior housing in the UK -- and I know it dates largely back to some prior arrangements.

But as those properties get delivered, how are they performing?

Are yields consistent with prior underwriting?

And for the newly built purpose-built product there -- is that performing well in today's market?

Yes, Kevin.

There are really three buckets.

We have triple-net leases with Avery, who is now one of our top 10 operators.

And they have far outperformed expectations on everything they've done, whether it's the acquisitions or all the new development we've funded.

We've also got a large development pipeline and arrangement with Signature, which is Tom Newell, the ex-President of Sunrise.

And they have far outperformed all expectations.

We have a mortgage loan program with them where we put roughly 60% of the capital into the development, and they fund the balance with equity.

And then we have a fixed price purchase option on the building after it opens.

And those have been remarkably successful.

We have quite a few more underway, all of those in the greater London market.

And then the third bucket is with Gracewell, which was essentially taken over by Sunrise, and those have been a bit below the underwriting expectations.

I think Sunrise, who is -- to my point earlier, to John's question -- just a lower price point than Sunrise is accustomed to operating in the UK.

And I think they are still trying to figure out what the right cost structure is for that lower-revenue building.

It's still mostly private pay, but it is a bit of a different building.

So the NOI on those, Kevin, has been a bit lower than we had expected.

Okay, thanks.

Jordan Sadler, KeyBanc Capital Markets.

First question just is more of a clarification.

On page 8 of the SEF, there's -- in the quality indicators, the quality mix days on the postacute portfolio: is that just a typo?

It says 37.4%.

Is that -- because I think it was at 57.4% last quarter and the year before.

Or is there something else going on there?

Yes.

We changed it from being based on revenue to being based on days so that we could get a better industry comparable.

Okay, okay.

And then, separately, regarding New York City, is there anything that you guys can elaborate on in terms of size of the investment, or maybe future opportunity, structure of the JV?

Or is that all --?

Not at this time, no.

We are not at liberty to tell you, really, anything more than what I said or what you have been able to get out of the press.

Okay.

Can you maybe also just then give us a little bit of color on the acquisition market and the opportunities?

You were able to successfully source a couple hundred million this year so far, and I'm just curious about what you are seeing in terms of the landscape opportunities on the senior housing side or otherwise.

We are seeing very good opportunities from our existing family of operators, who still have assets that are very attractive in very attractive markets.

Yes.

For the most part in the first quarter those were not only privately negotiated with existing clients, but in most cases they were purchase options exercised on newly developed assets -- for example, Signature building in London, the Silverado building in Austin, Texas.

These are properties that we did not put all of the development capital into the project, in some cases very little.

And then we, alongside with our JV partner, have the right to buy those either when they open or, in this case, when they stabilize.

So it's an example of how we, I think, build an attractive acquisition pipeline at favorable prices but also create modern real estate in good markets rather than relying on the next auction of assets in Houston.

Is it conceivable that that's repeatable at that pace?

It would be hard for us not to do $200 million or so of acquisitions.

We certainly could, if the circumstances required us to; because for the most part, these are purchase options, not purchase obligations.

But at these types of yields, we thought these made sense, given the quality of markets and assets, even with our stock in the low $60s.

Now that we are back to high $70s, they clearly are hugely profitable.

Okay, thank you.

Rich Anderson, Mizuho Securities.

Good morning and good quarter, for sure.

And, Tom, you said misinformation.

What would you say were the one, two, or three top components of this misinformation you referred to?

Because these things are happening, right?

There are changes going on.

There is bundling happening.

There is some question marks about how postacute will be utilized in the future.

So where do you think people have gotten it wrong in your communications with both the sell side and the buy side?

I'd say in a couple of places.

I'd say that -- I mean, you may have seen that there was some wholesale dumping of our stock, based on maybe misunderstandings about things like RAC audits.

And these are -- if you'd like us to go through a discussion about that, we are happy to do it.

We can do it on here or we can do it off-line.

But I think there's been a lot of misinformation -- it was misinformation earlier in the year about Genesis that was out there.

There was a research report that, frankly, was just plain-out wrong that caused a lot of activity in our shares.

I think the supply issue in senior housing, which has been a huge overhang on our stock, I think has been overplayed.

So I think there's wrong information out there, Rich.

We disagree.

We have opportunities.

You know, if people call us, we can -- are happy to discuss anything.

We show up at lots of conferences.

We are there; we are telling our story.

We're trying to be as clear as possible.

We are a very transparent company, Rich.

We don't play hide the ball.

And we are happy to address any questions people have about the skilled nursing industry, about RAC audits, about supply in seniors housing, about where we think health care is going.

And I don't know what else to tell you.

As far as the RAC audits go, isn't it true there is a treasure chest map or whatever by which they can work off of with some of the things that have happened at other firms not in your network?

But isn't there at least some risk there that this revitalization of RAC audits might actually be a little bit more of a risk this time around than in the past years?

Okay, let's take a couple of points here.

The concept has been around for 10 years.

They were implemented under the Tax Relief and Health Care Act of 2006.

And there is some notion out there that the SNF sector has not been impacted by RAC audits.

But if you look at CMS data, almost $86 million of overpayment was collected in 2014.

The CMS has limited the recovery audit or look-back period to six months from the date of service for patient status reviews as of May 15, 2015.

And I think most importantly is that our operators are prepared for this.

They have rigorous compliance and documentation procedures.

Medical necessity is established with the physician at admission.

Our care plan is established with the patient and therapy team.

And therapy encounters are thoroughly documented.

So this is not a random process on the part of our operators.

It's one of the reasons why we are very concentrated with Genesis, because Genesis has the scale and resources to invest in compliance procedures that help them operate in an environment where they are principally being paid by Medicare and Medicaid.

Okay.

So don't be mad at me; I'm not an auditor.

I'm always mad at you, Rich.

This is nothing new.

(laughter)

So maybe -- yes?

Rich, just some additional context on the RAC audits, because it's -- I don't know, maybe it's the menacing name that has everybody all worked up.

We are not trying to suggest that it's not an issue.

It's just -- we're trying to put some context around it because, today, as Tom mentioned, roughly $100 million of overpayments were essentially given back to the Medicare program for skilled nursing.

Right?

That's on a $30 billion denominator.

So it's 0.3% -- 0.3%.

Even if that number increases by 7 times, right, 7 times, it's still just the equivalent of the Medicare inflation update that CMS is proposing for next year.

So it's not like this is going to bankrupt the industry.

And for operators that have great documentation, it will have absolutely no impact other than an occasional headache.

And it's at the facility level, Rich.

This is not something that is levied.

There is no -- again, we don't have a crystal ball.

But it's not our understanding that they will pick an operator and saying, we are doing a RAC audit!

Batten down the hatches!

We are coming through!

I get it.

(laughter)

This is on a facility basis.

Okay.

I don't want to take up too much time here.

It's hard for us to conceive -- you know, our crystal ball is not as good as yours, but it's hard for us to conceive that the entire value of our SNF portfolio is subject to the dramatic decline in value because of RAC audits.

I'm just saying -- if something at Genesis happens that pivots from a preliminary situation to something more defined, that's a headline risk that people at least should be underwriting in their line of thinking.

That's all I'm saying.

Now, can I just quickly pivot, because I know I'm taking too much time here --.

No, we want to talk more about this.

No, no, no.

Ask me something else about RAC audits.

I'm going to ask you something about Genesis.

Is it true that coverage this year, at least to some degree, is getting a boost from some of the events in their own recent history in terms of investment activity, and that some of that will wane down over future years as skilled gets merged in and everything else?

Is that a fair statement about Genesis and the coverage this year?

Well, they are definitely benefiting from some of the synergies from the acquisitions.

They are benefiting from the refinancing of the bridge loans.

Ours are at roughly 10%.

HUD is in the low 4%s.

That's a big difference for them.

But longer-term we actually think the story is very positive.

Our master lease is 187 properties, and it matures in 16 years.

They have a lot of individual leases or smaller leases that mature either next year or in the next five years that, frankly, have very low coverage.

And either they will reject them, or they will substantially renegotiate the rents downward.

So I think there's a lot of those types of opportunities.

They could certainly exit some of the lower-quality buildings that they have acquired, and we would support them in that effort.

There are optimization opportunities in the assets that they acquired, because they are a premier operator.

And if you think long-term, with bundling the challenge right now is that hospitals and managed care payors are already starting to reduce admissions to skilled nursing.

But I don't think they have really started the process of targeting the best-in-class properties in each market.

And when that happens, I think there actually is an opportunity for Genesis to outperform and take market share.

But we are just not in that phase of the bundling rollout yet.

Okay.

And let me just ask on -- thanks for that, Scott.

And for a final question for me on hospitals: are you seeing them smalling down their playing field with regard to their relationships with SNFs?

Are they cutting back and isolating their relationships postacute-wise?

Do you have evidence of that?

And how do you avoid being involved in that side of the business at maybe some of the failed situations on the skilled side?

Rich, at least in our world, see no evidence of that.

And let me give you an example of something that we recently saw.

The Cleveland Clinic is building a new hospital in Avon, Ohio, about 40 miles -- that's west of Cleveland.

And this hospital -- which, actually, the project looks a lot like what we did in Voorhees, New Jersey.

It's actually going to have a skilled nursing facility attached to the hospital.

And Cleveland Clinic isn't running that facility.

There's another operator going to be running that facility.

I believe it's Select Medical.

That, to me, is a good indication of where the future might be going.

And it validates the fact that the sector is not going away, when you have one of the finest hospital systems in the world now putting skilled nursing not only on their campus but actually attached to the building.

So I think that more and more, from our conversations with the leading health systems -- we don't spend a lot of time with the non-leading health systems.

So all I can tell you is the view from talking to the major players who will survive in the hospital sector that they want to see a strong skilled nursing industry.

They know it is part of the future and part of their ability to manage profitably under an ever-changing reimbursement environment.

Okay.

I'll yield the floor.

Thanks very much for the color.

Karin Ford, MUFG.

Just going back to your comments on the quality of the real estate and the performance of the senior housing portfolio, are you seeing any divergence in the performance between the shop portfolio and the underlying fundamentals you are seeing in the triple-net portfolio?

I think we've said everything is pretty strong across the board.

Yes, Karin, we studied this data for what feels like years before we make the decision to go into the RIDEA structure six years ago, because we do see differences in performance by operator, by market.

And I think that's a big reason why you see certain operators in the RIDEA portfolio and certain operators in the triple-net portfolio -- because our typical increase here in triple-net is around 3%.

And if anything, you have seen payment coverages, unfortunately, decline a bit or, at best, stay flat, which suggests the underlying NOI at the property is only growing 3%.

And clearly, we've done a lot better than that in our RIDEA portfolio.

So there is a divergence.

It gets to the point I was making earlier about there is variation in performance by market, by operator.

And I don't think the market fully appreciates that yet.

We are trying to tell the story.

I think a longer time history will be helpful.

But we have seen that in our data.

The industry data just isn't there for people to see.

There isn't even a reliable source of NOI in the industry.

I hate to say it; NIC is doing a great job of trying to change that.

But as of today, the best you can get is occupancy and asking rent at the national level.

I mean, man, you talk about a lot of room to go.

You compare that with 15 to 20 years of data in our portfolio that is in excruciating detail for us to look at and help make investment decisions.

We feel like it's a huge proprietary advantage that we have.

Thanks.

And then coverage in the triple-net senior housing portfolio notched down just a couple basis points here for the last few quarters.

It's down to 1.1.

Any concern with the 3% escalators and the supply pressures that that could -- that coverage could go materially lower from the 1.1 level?

Triple-net coverage is a bit lower than we'd like.

It frankly is, for the most part, driven by one operator.

So it was 1.15 two years ago; now it's 1.10, all of that driven by a particular operator, unfortunately.

So the rest of the portfolio has held up pretty well.

But the reality is it's the main reason you haven't seen us do a lot of triple-net lease acquisitions in recent years, because I think there was some mindset by some -- and this is going back a couple of years -- that if you could put something in the triple-net lease it was a low-risk investment.

Right?

So 1.0 coverage, high escalators, and life was great.

Press release looks fantastic.

And it only took sometimes a year or two for people to realize that if the asset quality isn't very good, notwithstanding that lease structure which on the surface seems to provide protection for the landlord, it at the end of the day is a very risky investment.

And our view had always been that the higher-risk investment is actually those triple-net leases with low asset coverage and low asset quality in comparison doing RIDEA, which, granted, has some quarter-to-quarter volatility in NOI.

But over time, if you own the great assets in the right markets, think that's the lowest-risk investment.

Thanks for that color.

And then just last question for me -- did you guys push through a 3.5% rent escalator on Genesis in April?

Yes, yes.

So this is the last of the 3.5% escalators.

Next April it goes down to 3%.

Got it.

Thank you very much.

Vikram Malhotra, Morgan Stanley.

Congrats, guys, on a strong quarter.

Just on the RIDEA side, so one of your peers reported that in some of their markets they saw single-digit declines in their same-store NOI, while in markets like New York and LA it was quite positive, not surprisingly.

Just wondering if you can give us some color as to what the range was within your US portfolio?

Yes, I'd be happy to, Vik.

We saw particular strength in Southern California, New York, New Jersey, Washington DC.

These are core markets with NOI growth in the high single digits.

And I will contrast that with markets like in Chicago or in Atlanta, where fortunately we don't have a big presence, but we do have some assets.

And in large part because of either weak economies or a lot of new supply, the NOI growth was a bit negative.

We have just always tried to sell out of the markets that -- where it's easy to bring new supply.

As Scott said, we do have some exposure, Vik.

But in our portfolio it was because of the disposition program that is not exposing us as much to those non-core markets.

Yes.

The new supply is a -- it's an interesting data point, Vik.

Almost half of the new supply in the US is in six specific markets.

That's astounding, right?

Almost half the new supply is in six markets, when you really think about it.

And only 8% of our NOI in the operating portfolio is in those six markets.

So that means 92% of our NOI is in all of the other markets where, frankly, in a lot of them, there is either no new supply or not much.

So it really is a market-specific issue.

We keep saying it, and now you are starting to see it in the results, I think.

Yes, no, that makes sense.

In the UK or maybe even the US, is there a timing difference between when these minimum wages take effect or the increases take effect versus when you get the rent bumps?

I'm just trying to see if there is a difference in the UK, where we have seen minimum wages go up 10%.

Vik, it's hard to say with a lot of specificity.

But for the most part, you increase wages on January 1; so you have to recognize that higher expense on day one of the year.

And with rental rates, at least with existing residents, you try to increase rates on January 1, but half of our portfolio, the operators increase rates on the anniversary date.

So they bleed in over the year.

So we -- look, again, this isn't black or white.

But in general you have to suffer the higher wage growth immediately, while the rate growth would blend in more over the course of the year.

Okay, and then just last one for me.

On the nursing side, I'm wondering if you looked at the recent data CMS released on readmissions to hospitals?

In talking to different stakeholders, it seems like that's going to be an important metric in determining who may be preferred vendors or who may see more volume.

It's interesting; when you look at the star ratings, which -- I know there are several components -- Genesis being average versus the US, but they actually screen very well on the readmission side.

Just wondering if you have dug into it or have any thoughts around that as to how that could be a future differentiator.

We do think that the quality operators in the skilled sector will, again, have the strategy and program built to minimize readmissions.

I think that if you have a random portfolio of mom-and-pop operators who may be very good at what they do -- it's just from our perspective, it would be difficult to understand, if they do have the structure in place, to be a more viable partner to the acute care hospitals.

And we just think that, again, because of its scale, because of its program strategy, because of technology, we think Genesis is in a pretty good position.

Okay, thanks, guys.

Tayo Okusanya, Jefferies.

Let me also add my congratulations on a really good quarter.

Two quick ones from me.

First one, Mr. Estes: when I take a look at guidance, I understand that the debt raise wasn't there.

Could you just give me a sense of how much dilution that is causing to your guidance numbers, so we can get a better sense of just how better operating results are really kind of driving growth?

Yes.

The shortest answer would probably be about $0.03.

We had $400 million of the March debt being repaid in our forecast, so the $700 million we raised was $300 million in excess of that.

And you think about that for the 10 months of the year that it was out there, is roughly $0.03.

So I think that roughly matched some of the benefits we see from the strength of the same-store NOI growth and the performance of the rest of the portfolio.

Okay, that's helpful.

And then, Tom, or the other Scott: I think earlier on in the conversation there was a comment around Genesis -- that you felt comfortable where things were heading.

There was probably some misunderstanding about the Company's fourth-quarter results.

But you also added the statement that you do expect some pressure on coverage going forward.

Could you just talk a little bit about that, and where you assume that's going to be coming from?

Yes, it's Scott, Tayo.

The skilled nursing business goes up and down.

It's the most cyclical investment that we invest in; that's why we use the triple-net lease structure.

Genesis has been able to maintain payment coverage the last four years, despite the 3.5% escalator, which is a testament to their quality.

But the environment is probably getting more difficult, not easier, at least for the foreseeable future.

Certainly nice to have the 2.1% Medicare increase, but there are well-documented headwinds on the skilled side of the business as well as occupancy with length of stay.

So it wouldn't surprise us if coverage ticked down, but keep in mind where we are starting from.

Right?

The corporate coverage is around 1.3; the facility level coverage is around 1.6 before management fee or in the high 1.2s after management fee.

So there's a lot of cushion there.

We are not talking about, will they pay the rent?

We are talking about will coverage be 1.24 or 1.28?

And at the end of the day, 4 basis points doesn't really impact Welltower a whole lot other than a lot of questions.

You know, they pay the rent.

If it was substantially lower payment coverage, then I would be really worried about 1 or 2 basis points.

Okay.

That's helpful.

And if I could just indulge you with one more, just staying on the skilled nursing side of things: do you know if any of these bundling programs have actually reached a conclusion yet, and if there is anything that can be gleaned from any of them in regards to where SNF reimbursement may be heading?

I don't think we know a lot about that yet.

And it's early days.

Okay.

Just thought I would ask in case something had come through.

Thank you very much, gentlemen.

Todd Stender, Wells Fargo.

Scott Estes, just to go back to the earnings impact this year, how are your loan payoffs impacting guidance?

And any loan payoffs coming in -- are they in general coming in as expected?

Or are they being repaid, would you say, a little early?

No, we -- you know, Genesis is going through the HUD process throughout the year.

So we had a pretty balanced repayment expectation.

And I think they would probably say the same.

So I would characterize that, Todd, as in line, relatively balanced throughout the year, where they should make pretty good headway on what's still remaining outstanding.

As Scott Brinker mentioned, I think it's $372 million currently still outstanding.

Are there broader initiatives to call in loans, just to clean up any of the credit issues you have in your portfolio?

Any expectations that the loan book will actually decline as a percentage of assets?

Well, it definitely will, mostly because of the Genesis mortgage loans, which is almost half the outstanding balance.

We had at least $50 million of loan payments in the first quarter beyond Genesis.

And I can think of a couple of others that are in process in the balance of the year.

But it's not because of credit issues or because we are calling the loans.

They're just being repaid as expected.

That's helpful.

And just to stick with you, Scott Brinker, you touched briefly on the Silverado asset you purchased in the quarter.

Can you talk about what the lease-up expectations were, what they actually were?

It looks like the facility opened in 2014.

Just want to see -- get a sense of what the stabilization period was and any anecdotal evidence you can talk about of how their strategy is performing in the Texas markets.

Yes, that's a property that they built with mostly third-party capital.

So we didn't invest any money into that project.

But Silverado had a purchase option that included what hopefully was a very large promoted interest as well that -- collectively we purchased that property.

The typical Sunrise community is around 70 units, and it would typically take around two years to fill.

But they were able to lease that building much quicker than the expectation.

So we exercised our purchase option early.

And because of the promoted interest, the cap rate would have been even more attractive than what we reflected in the earnings release, which just sort of ignores the benefit of that.

Great, thank you.

(Operator Instructions) Juan Sanabria, Bank of America.

Just hoping to talk a little bit about the senior housing triple-net portfolio.

You talked about Atlanta and Chicago being at risk from supply or just softer markets in general.

Can you help us frame how your triple-net portfolio is exposed to new supply?

Is there a certain percentage of the portfolio that maybe is generating that negative NOI that is a very small amount in the RIDEA portfolio?

Juan, we haven't done the level of analysis on the triple-net portfolio that you see in the supplemental for the operating portfolio.

As a general comment, the triple-net assets tend to be in the secondary markets; so we don't have the same emphasis on really the prime, premier metro markets.

And as a result, they probably are a bit more impacted by new supply.

Now, we don't have a huge presence in the six markets I mentioned, even in the triple-net portfolio.

Okay?

So we just don't have a huge presence in Houston, or Dallas, or Chicago, or Atlanta.

We have assets; it's just not a big concentration.

But most of the performance decline that you have seen in that portfolio is really driven by one operator who unfortunately is a pretty big percentage of our pool who has gone through some integration issues.

And hopefully that situation is now rightsized, and their coverages can start to pick up again.

I notice you have, it looks like, three different master leases with EBITDAR coverage below 0.95 times.

They are pretty small, but I noticed they are not necessarily targeted for dispositions.

Any reason why?

Yes.

That really just means they are not actively for sale.

Fair to say that anything on that page could be a candidate for disposition.

These are not big portfolios, by any means.

Looks like the biggest one is around $10 million, plus or minus, in annual rent, and only about $25 million in the aggregate.

So these are in very small portfolios.

I don't think they will move the needle much one way or the other.

Okay, and just a last question for me: on the RIDEA portfolio, how should we think about the year-over-year growth as you go throughout the year?

I know you wanted to get away from the quarterly discussion, but is the second quarter a tougher comp?

Or is it set up as well as the first quarter ended up to be?

Our best guess is that the second quarter may be the weakest of the four quarters this year.

In February we said as a general statement that we expected growth to pick up throughout the balance of the year.

Now, the first quarter surprised us in a positive way, but at least for now we will maintain our expectation that the second half of the year should be a bit better, which means that 2Q may slow down a bit.

And it's also important to know that the first quarter was not an easy comp.

You know, I think there's some perception out there that because of a more severe flu and weather last year that that was an easy comp.

And that was not the case, actually.

Thank you.

Michael Carroll, RBC Capital Markets.

With regard to the potential asset sale, Scott, you mentioned in your comments, would this be over the $1 billion guidance?

And with regard to those sales, I guess, of the skilled nursing facilities, are there any focus on operators?

Would it be with Genesis or Main Street, or do you have different operators you would look at selling?

On the last question, I'd say all options are on the table.

You know, we are in a favorable position in that we don't have to sell anything.

If, again, the private market ascribes a value to something that is much higher than what we feel the public market is valuing it at, we would be happy to sell it.

And because of our landlord position, we've got a ton of flexibility to do what we want with these assets.

So we're looking at everything.

But we haven't targeted one specific operator to say that they're first on the list.

Let's see what the market bears and see how the stock performs.

We want to be as flexible as possible here.

Okay.

And would those sales be over the $1 billion guidance that was provided?

It could be.

Again, depends on what happens over the next couple of months.

We are looking at a lot of things to hopefully create shareholder value.

Okay.

And then, Tom or Scott, with regard to the RAC audits, how cumbersome are those audits for the operators?

Does it take a lot of their time?

And will it cause them to focus on the audits versus operations?

Well, it's hard to answer that, because we don't think there's a lot of evidence that our operators have sustained a lot of RAC audits.

And don't think -- you know, I think if you are thinking there are buses driving around the country with RAC auditors that are descending on skilled nursing facilities, well, then it might be cumbersome.

But that's not what we are aware of.

You know, who knows?

I mean, Michael, they also have documentation that's off the charts.

It's not like they need to increase the level of internal audit or documentation that they do.

They live in a regulated world.

And it's really no change in practice.

So I don't think it's going to have any material impact on what they actually do day to day in terms of at the property level.

They may have to start providing information to these RAC auditors, and maybe that's a bit more time-consuming and has some added cost.

But the real issue is: are you properly documenting the service?

Do you have a physician order that supports the services being provided?

And their documentation on those important topics is, at least in our estimation, best-in-class.

Okay.

And I know there's not a lot of information on the RAC audits out there right now.

Do we know when they actually started, or if they are ramping up, or if they are just preparing?

Or do we have any information on that?

The only information we have is what you have heard publicly, and information that we do have is that our operators provide these services within the guidelines established.

So now, we have no idea if on a property-specific -- on the property-specific level, if one of our operators is doing something that would raise suspicions by a RAC audit.

But we will have to wait and see.

It is something -- again, we want to remind you, this has been around for a while.

Whenever you are in a regulated business, there's always the additional oversight to make sure that there's no funny business.

So again, we don't know specifically, but we don't expect that this is going to be a major problem.

Anything can happen.

But again, this is -- on the property-specific basis, we have no knowledge that this is -- that, you know, thousands of people have been retained to go out and audit nursing homes now.

That would be very costly at a time when there isn't money for that.

But please, if you hear something, I'd ask you to give us a call, because we might be able to help you out to understand it better.

Okay, great.

Thanks, guys.

I appreciate it.

At this time we have no further questions.

I'd like to thank everyone for participating on today's first-quarter 2016 Welltower earnings conference call.

You may now disconnect.