Senior Housing Properties Trust SNH
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/29/2013

Operator: Good day, and welcome to the Senior Housing Properties Trust First Quarter Financial Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Timothy A. Bonang - VP, IR: Thank you, and good afternoon, everyone. Joining me on today's call are David Hegarty, President and Chief Operating Officer and Rick Doyle, Treasurer and Chief Financial Officer.

Today's call includes a presentation by management followed by a question-and-answer session. I would also note that the recording and retransmission of today's conference call is strictly prohibited without prior written consent of Senior Housing.

Before we begin, I would like to state that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon Senior Housing's present beliefs and expectations as of today, April 29, 2013.

The Company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission regarding this reporting period.

In addition, this call may contain non-GAAP numbers including normalized funds from operations or normalized FFO. A reconciliation of normalized FFO to net income and the components to calculate AFFO, CAD, or FAD are available in our Supplemental Operating and Financial Data package found on our website at www.snhreit.com.

Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Now I would like to turn the call over to Dave Hegarty.

David J. Hegarty - President and COO: Thank you, Tim, and good afternoon, everyone and thank you for joining us on today's call. Earlier this morning, we reported normalized funds from operations or normalized FFO of $0.43 per share for the first quarter of 2013 in line with our expectations. Rick will discuss our year-over-year quarterly results in further detail later on in this call, but to start off I'd like to review some of the important highlights from the first quarter and we continue to have an industry-leading 94% of our revenues derived from private pay tenants.

I think it's best to discuss the portfolio on three operating primary segments, approximately 49% of our net operating income or NOI is derived from triple net fee living investments, 32% for medical office buildings, and another 15% from managed senior living communities, which are leased to a taxable REIT subsidiary or TRS.

In addition, 4% of our NOI's derived from Wellness Centers. Occupancy and rental coverage in our triple net senior living communities was strong and essentially unchanged for the 12 months ended December 31, 2012 over the prior year period. Our managed senior living communities began to demonstrate internal growth and we believe these properties have the potential to add significant long-term growth to our overall portfolio.

Same-store occupancy at our managed communities was up 430 basis points from last year and same-store NOI increased by 3.2%. We're encouraged by signs of continued improvement here and by the general positive outlook for the industry as a whole. Our medical office building portfolio was well-occupied at 95% at March 31, 2013, and NOI was up 30%, since the first quarter last year.

We also executed over 300,000 square feet of leasing activity for 3.6% weighted average rollup in rent and a five-year weighted average lease term. On the acquisition front, during the first quarter, we completed $75 million of acquisitions and have approximately $44 million of additional investments under agreement.

On the capital markets front, we issued $11.5 million common shares in January and raised net proceeds of approximately $262 million. We use these proceeds to repay amounts outstanding under a revolving credit facility and to fund additional acquisitions. We still have surplus cash on hand, and our $750 million revolving credit facility is currently undrawn.

Our capital needs remain low for the foreseeable future as our debt to book capital is a conservative 39%. Last but not least, our Board declared a dividend earlier this month of $0.39 per share, representing a 5.5% dividend yield after Friday's close.

Looking now, at the details of our acquisition activity for the quarter, since January 1, we've acquired one private pay senior living community and three medical office buildings for a total of $75 million, including assumption of $12.3 million of mortgage debt. The senior living community located in Redmond, Washington has 150 units and is triple net leased to Stellar Senior Living, an independent operator.

Two of the medical office buildings are located in Bothell, Washington and contain 145,000 square feet of primarily state-of-the-art research and lab space. These properties are 100% leased to Seattle Genetics. The other medical office building is located in, Hattiesburg, Mississippi and has 72,000 square feet and is leased to six tenants with the primary tenant being Forrest General Hospital, an A rated hospital system. The weighted average GAAP cap rate for these acquisitions was 8.6%.

In April, we entered an agreement to acquire a 54,000 square foot medical office building for $21.5 million. This property is located in New Jersey and leased to an A rated hospital system. We also entered into an agreement to acquire private pay assisted living community with 93 units located in Georgia for $22 million, which we expect to lease to TRS. The closing of these acquisitions are contingent upon completion of our diligence and other customary closing conditions.

Towards the end of 2012, we saw a flurry of acquisition activity as sellers were trying to complete transactions before a new tax year and potential tax increases.

As we have experienced in the past, we saw a slowdown and opportunity to consider at the beginning of 2013, but we're now seeing an increase in acquisition opportunities. We will continue to seek acquisition opportunities through both the senior living and medical office spaces and feel comfortable in our ability to invest between $300 million and $400 million this year.

Turning to the performance of our existing portfolio for the quarter, our leased senior living property whose results were reported on revolving 12 month basis as of December 31st 2012, continue to perform well. Overall occupancy were up slightly from the previous year and coverage ratios were essentially unchanged at 1.4 times and remained strong.

Looking at the performance of our individual operators; Five Stars 190 leased communities had combined occupancy of 84.5% and rental coverage of 1.3 times. The core properties released to Sunrise senior living had occupancy of 93.4% and rental coverage of 1.9 times. The 18 properties released to Brookdale senior living had occupancy of 94.8% and rental coverage of 2.4 times.

Our other triple net leased properties leased to private regional operators had occupancy of 83.1% and strong rental coverage of 2.3 times. The decline in statistics at these communities over the prior year is attributable to recent acquisitions we made with the private operator, who represents a majority of the investment value and about half of the NOI of our private regional operator category.

These new communities have relatively lower occupancies and were brought on at 1.2 times coverage which is typical coverage for a new triple net lease.

Moving onto our managed senior living communities, we have 39 communities with approximately 6,700 units, generating $70 million of NOI. Starting this quarter, we are reporting same-store data on this portfolio in a supplemental data package. Occupancy at the 22 same-store communities during the first quarter was an impressive 91.5% up 430 basis points, although the average monthly rates were essentially the same for the two comparable quarters.

We have an opportunity to increase rates at these communities in 2013 given that occupancy is now over 90%. Overall, same-store NOI was up 3.2% over last year and same-store margins held steady at over 28%. Last quarter, we told you that the managed senior living community NOI margin excluding the 10 Sunrise properties was 27.5%. This quarter NOI margins at the same communities moved up to 30.5%. We also saw an increase in the margin at the 10 Sunrise communities.

So, things are moving in the right direction and overall we're pleased with the performance of this portfolio. One particular item of note on expenses was that our maintenance and utilities were higher in 2013 versus 2012 due to 2012 being milder winter than the current year.

Moving onto the medical office building component of our portfolio, we have 122 medical office buildings with over 8.5 million square feet, generating NOI of $36.5 million, and that represents 32% of our total Company NOI. NOI was up 12.6% from last year due to growth from acquisitions. Our occupancy at March 31, 2013 with 95% up 80 basis points from last year.

Looking at the 106 same-store communities, occupancy was 94.6%, up 40 basis points and NOI was $31 million. Same-store NOI declined by 3.8% or approximately $1.2 million. Revenues declined by $700,000, primarily driven by the fact that prior year revenues included nonrecurring retroactive escalation income adjustments and expenses increased by $500,000 primarily due to our maintenance and utility expenses, being higher this quarter, compared to last year, again due to the mild winter we had last year versus this year.

During the quarter, we renewed 280,000 square feet of leases and signed new leases for 45,000 square feet for a weighted average roll up ion rent of 3.6% and weighted average lease term of approximately 5 years. Our tenant improvement and leasing commissions for the quarter were $544,000.

Now, I'll turn it over to Rick, our Chief Financial Officer to discuss our financial results in more detail.

Richard A. Doyle, Jr. - Treasurer and CFO: Thank you, Dave and good afternoon everyone. I will now review our first quarter year-over-year financial results. For the first quarter of 2013, we generated normalized FFO of $78.9 million, up 9% from last year. On a per share basis, normalized FFO for the quarter was $0.43 per share, compared to $0.45 per share for the same period last year.

The year-over-year quarterly decline in normalized FFO is attributable to two main items. Starting this quarter, and as I alluded to on last quarter's call, our quarterly NOI declined by approximately $1 million due to the transfer of 10 previously triple net leased Sunrise communities to our TRS.

We expect the NOI to recover over the next four to six quarters, as we invest the appropriate amount of capital that we believe will bring operations back to stabilization and eventually the NOI of these 10 communities will be better than historical performance.

In addition, we experienced short-term dilution from our January equity offering arising from the difference between the timing of the offering and until we invested the proceeds. Earlier this month our Board declared a quarterly dividend of $0.39 per share, which represents a 91% payout ratio of the first quarters normalized FFO.

Looking first at the income statement; rental income for the quarter was $140 million, up 4.4%. This increase was due to external growth from acquisitions since January 1, 2012, which included five leased senior living communities in 18 medical office buildings. Approximately $57 million of rental income was derived from our leased senior living communities and approximately $53 million was derived from our medical office buildings.

Percentage rent from our leased senior living communities was $2.2 million for the quarter, down from $2.9 million for the same period last year due to the transition of 10 communities formerly leased to Sunrise through our TRs. Revenue from residence fees and services at our managed senior living communities grew to $75.1 million during the quarter due to the acquisition of seven managed senior living communities in the transfer of the 10 formerly leased Sunrise communities to managed communities since January 1, 2012.

Property operating expenses for the quarter increased to $74.6 million due also to external growth from acquisitions. Approximately $70 million of property operating expenses were derived from our medical office buildings and approximately $58 million were derived from our managed senior living communities.

General and administrative expenses for the quarter were $8.6 million compared to $7.7 million for the same period last year. The primary increase in G&A is a result of external growth. As a percentage of revenues G&A was down to 4.6% compared to 5.3% last year. Interest expense increased 2.3% to $29.6 million this quarter compared to last year, due to several factors.

During 2012, we assumed a total of $121.8 million of mortgage debt at a weighted average interest rate of 5.9% and we'll be paid $252 million of mortgage debt at a weighted average rate of 6.5%. Also in January of this year, we assumed $12.3 million of mortgage debt at an interest rate of 6.25%. Looking back and reviewing our year-over-year results of revenues and expenses we believe that first quarter's results are a good run rate moving into the second quarter.

During the first quarter, we recorded an impairment of asset charge of $1.3 million related to a vacant medical office building located in Pennsylvania, which is scheduled to be demolished for possible built to suit or sale. We remove this property from our medical office building statistics for 2013 in the same-store results of operations for the first quarter of 2012 and 2013.

Moving to the balance sheet, we closed on approximately $75 million on investments during the quarter, comprised of one senior living community and three medical office buildings. The weighted average cap rate for these acquisitions was 8.6% based on estimated annual NOI. In connection with the acquisition of the senior living community we assumed $12.3 million of mortgage debt at an interest rate of 6.25%. We also have to properties under agreement to acquire for a total of $44 million that we expect to fund with cash on hand.

During the first quarter, we invested $8.2 million into revenue-producing capital improvements at our leased senior living communities. We also spent approximately $5 million of capital improvements at our managed senior living communities. Our managed senior living capital improvements this quarter included both major products as well as recurring capital expenditures. We expect that $5 million will be a good quarterly run rate over the next four to six quarters for this portfolio.

After we complete our major projects, we expect our recurring capital expenditures for the managed senior living properties will be between $1,000 and $1,500 per unit annually. Regarding our medical office portfolio, we spent $1 million in capital improvements during the quarter. Medical office capital improvements are typically lower in the first quarter and ramp up as we move through the year, and normal quarterly capital expenditures would be approximately $2 million.

At March 31, we had $39 million of cash on hand, $1.1 billion of unsecured senior notes and $734 million of secured debt and capital leases, making our debt to book capitalization ratio 39%. Our targeted leverage using debt to total book capital is in the range of 40% to 45%, and we may offer it slightly above or below that at certain times.

In January, we sold 11.5 million common shares raising net proceeds or approximately $262 million. For the second quarter of 2013, our total outstanding common share count will be 188 million shares. We used a portion of the net proceeds to repay the entire outstanding balance on our $750 million revolving credit facility. As of today, we have no borrowings outstanding on our life of credit and approximately $40 million of cash on hand.

Given our cash balance and ample capacity to borrow under our revolving credit facility we do not anticipate any near term capital needs. Our credit statistics remain extremely strong with EBITDA over interest expense of 3.7 times and debt our annualized EBITDA of 4.2 times.

As you can tell from our presentation today, we are happy with the significant progress being made at our managed senior living communities. Our triple net leased senior living communities and medical office properties also continued to perform well. During 2013, we will continue to focus on opportunities to grow cash flow, pay a consistent and growing dividend, while maintaining a conservative balance sheet.

With that Dave and I are now happy to take your questions.

Transcript Call Date 04/29/2013

Operator: James Milam, Sandler O'Neill.

James Milam - Sandler O'Neill: My first question is on the MOB portfolio. So the same-store number if I heard you correctly does no longer includes the Philadelphia Life Science building correct?

David J. Hegarty - President and COO: Yes, we took that out of the statistics, results of operations.

James Milam - Sandler O'Neill: So, I guess my question is the same-store NOI was down, but it looks like you guys had some pretty good leasing velocity. Can you just I guess may be tell us how much of that include or is impacted by leases that have been signed but haven't commenced paying rent and what your outlook is maybe as those tenants take occupancy further kind of through the rest of the year?

David J. Hegarty - President and COO: Sure, with the new leases that have been signed as you said, one thing that's unique about office statistics is that the occupancies that are stated here are as of quarter end and do include leases that are for future occupancy. I would expect that nearly merely is probably only about a 0.5% of the say 95% that's in place as of quarter end. The leasing is looking pretty good for renewals and so on going forward. I'd say in a couple of properties we have situations where we've extended the leases, but had to reduce the rents a bit to keep them in place, but most of the typical doctors' offices and so on, we're seeing modest increases, a couple of percent, so net-net probably the growth will be more or less flat though, I'd say for this year.

James Milam - Sandler O'Neill: So, maybe slightly positive into the second half to kind of offset the diff in the first quarter?

David J. Hegarty - President and COO: Right, and also we expect some and improvement on the expense side too.

James Milam - Sandler O'Neill: Then just moving to the managed communities, it sounds like the work is progressing there kind of in line with expectations, is there, I guess when you guys are going through some of the major projects is that kind of evenly spaced over the next four to six quarters or are there any quarters where there may be more disruption in terms of what's going on at the resident level on your ability to keep the units full?

Richard A. Doyle, Jr. - Treasurer and CFO: We're budgeting that it's going to be consistent, quarter-over-quarter. We don't have any real uptick to take on any specific one quarter over the next four to six quarters.

David J. Hegarty - President and COO: Right, what you're seeing right now is actually a lot of the Vi and early Bell transactions, a lot of the CapEx being fully implemented now and some of the projects are wrapping up. So, Sunrise projects are – some of it's just commencing right now. So, it should say pretty much, more or less consistent over the rest of the year.

James Milam - Sandler O'Neill: Then Dave, just my last question, you mentioned the margin last quarter was 27.5% and now it's 30.5%. Is that for everything except the former Sunrise assets?

David J. Hegarty - President and COO: That is correct.

Operator: Jorel Guilloty, Morgan Stanley.

Jorel Guilloty - Morgan Stanley: I had a question on acquisition. So, you said on the last call that you've envisioned $300 million to $400 million of acquisitions for the year. You mentioned earlier on this call that acquisitions pace has been slower if you will, especially if I compare what you've announced closest is $120 million versus $340 million at this point last year. So, what I wanted to get is a little bit more color as to timing, as to when you expect the acquisitions pace to quicken and a little bit more color as to what exactly is driving this slowness if you will so far this year?

David J. Hegarty - President and COO: Well, I think it's fair to say that most, but not all of the large portfolios of senior living properties out there have already probably been acquired. So now it's this handful of major of large portfolios that still could be acquired, but generally we're seeing the one-off in small portfolios and those typically are a developer has developed a property or two or somebody is trying to turnaround over the last couple of years and is bringing it to market, now that it's stabilized and probably going to get some very good value for the pricing. So, I think we had people who were rushing to get what they could get done before year end last year to take advantage of what if you recall back in December nobody was quite sure of what the tax increases were going to be but they know they were going to be going up. So, there are a lot of closings that occurred in December. Then January just first couple of weeks started off really quite slow, but we're seeing I would probably say a half dozen opportunities a week to consider. So, I think it's starting to pick up to pretty much a steady pace where it was in the middle of last year and I think there is also considerable amount of capital chasing senior living and medical office buildings. So, it clearly probably will affect pricing and drive down cap rates a bit more. But a truly Class A product that's coming out one at a time typically and now it's probably going to be fives and sixes for cap rates. I would say the A minus B properties will still be in the 7th, and I guess we see a pretty steady amount of individual assets in that category. In medical office it's probably similar, where I expect more of our growth to come from medical office this year than from Senior Housing and it's because we are seeing a lot more opportunity there and again it's in our $10 million to $25 million per transaction type sweet spot, where we can compete very effectively. (Indiscernible) give you some color on it.

Jorel Guilloty - Morgan Stanley: When you say 5 and 6s are you talking about individual assets or small portfolios?

David J. Hegarty - President and COO: Individual Class A or A plus assets. There are some that are just hit their stride this year and have been coming to market about once every other week and those tend to be trophies and its lot of money chasing them so.

Jorel Guilloty - Morgan Stanley: Then on their call this morning and as a corollary to the cap rate compression comment, Five Star mentioned that they are actually looking more into redevelopment to drive returns just because of where pricing is right now. It this an area of more interest to you and if so how would you to intend to participate, would you do investments on -- direct equity investments yourself, would you provide loans to our your tenants. Is it something that's been more considered now given where cap rates are at?

David J. Hegarty - President and COO: Right. It is something we are actively considering and I know we already have a mechanism in our Five Star leases, where they will do the improvements and then look for us to reimburse them, basically, and when we do reimburse them, the rent will go up at typically 8% on the dollars invested and during the quarter, we did a bit over $8 million in the first quarter, that type of expenditure, a revenue producing expansion let's say. So, I would expect that number to pick up as they expand certain properties that are under our leases. I'm trying to think – there are a few locations too where it may even make sense for them to do a whole new facility catering to all time care or assisted living and we may or may not because, some of those standalones and we also have done it for other tenants, some of our private operators, we've funded expansions there too and every case we get a return on investment and we structure it as additional rent.

Operator: Michael Carroll, RBC Capital Markets.

Michael Carroll - RBC Capital Markets: Could you give us an idea of how much you would spend this year or annually on those redevelopment projects that you're mentioning?

David J. Hegarty - President and COO: Let's see, well, we think we're running at say $10 million anyways – per quarter. So, I would envision there would be an uptick from that. So it could be probably be say, $50 million or $60 million this year of expansions, improvements and so on.

Michael Carroll - RBC Capital Markets: Is that just with Five Star or do you have other tenants you're doing that with too?

David J. Hegarty - President and COO: At the moment, I would envision that just to be with Five Star. We have like I say done a few million dollar expansions at other tenants particularly the private ones, so I think they are open to it, but at the moment we don't have any on the plate.

Michael Carroll - RBC Capital Markets: Then with the transitioning Sunrise communities, do you expect incremental evolution going into the second quarter or did we already receive that initial drop and it should be going up from here on?

David J. Hegarty - President and COO: Well, we received that drop and we -- the rents now where we're getting there and the operations now should be flat to slightly better as we move forward, you won't see any more dilution from where we stand in the first quarter of 2013.

Michael Carroll - RBC Capital Markets: Does the asset should be stabilized by year end is that correct?

David J. Hegarty - President and COO: We would hope that most of those 10 properties will be stabilized by the year end and as we've been saying it make take four to six quarters to get the capital needs completed and the major projects completed. So, a couple of properties may take until mid-2014.

Michael Carroll - RBC Capital Markets: Then with the Senior Housing assets that you currently have under a contract, is that a triple net acquisition or will that be put into the RIDEA structure?

David J. Hegarty - President and COO: That will be put in through the RIDEA structure.

Michael Carroll - RBC Capital Markets: Then my final question is related to the asset you're marking for sale in Pittsburgh how big is that asset and what's the reason for the sale?

David J. Hegarty - President and COO: Well, that was an asset that was acquired part of a portfolio years ago and it was to be honest with you converted school and it made it difficult to operate and so we decided to empty it out and just sell it. So, right now, I mean probably only received a million or so on sales proceeds of it and right now, we're talking about triple net leased assets, so we're getting rent on it, but we would not get any negative impact from the sale of that.

Michael Carroll - RBC Capital Markets: Who's the tenant?

David J. Hegarty - President and COO: It's one of Five Star properties.

Operator: Daniel Bernstein, Stifel.

Daniel Bernstein - Stifel: I just want to go into the acquisition pipeline, first, on the Seniors Housing side, again both you and Five Star kind of alluded to cap rate compression. Are you seeing more Class B assets or lower quality assets come to market trying to take advantage of the cap rates, so are you not seeing as attractive acquisitions out there, just trying to understand kind of the mix of quality that's come into market?

David J. Hegarty - President and COO: Well, we are seeing Class A and Class B prop coming to market fairly steadily, but the Class A is drawing all the attention particularly if it's of size, and therefore driving the cap rates down on those particular assets. The other ones are attracting attention because as I mentioned there is a lot of private equity, private REITs, and just other smaller REITs that are public, all chasing this product. So, I think even the Class B product type is getting the benefit of pricing. I don't think – I'm not seeing any of those really trade below 7, let's say or even below 7.5, but we are seeing a decent amount of product to consider, and our pricing clearly would be between 7.5 and 8, I guess right now.

Daniel Bernstein - Stifel: So, would you characterize that some of the pricing's getting out of your comfort zone and that's why you're looking at MOB's a little bit harder?

David J. Hegarty - President and COO: Yeah, in some cases, again either an individual Class A or a portfolio of Class A product is getting pretty frothy and we're just – it's going to trade in the 5s and 6s which is not going to chase that product at that pricing.

Daniel Bernstein - Stifel: When you say 5s, you're thinking more independent living right, not assisted?

David J. Hegarty - President and COO: Yeah, and it's high 5s.

Daniel Bernstein - Stifel: Then also given that, are you looking at any other alternative investments like mortgages or development funding where you can get a higher yield, you really don't have much of that in your portfolio or not at all, are some of those other real estate related investments on the – are you looking at those at all?

David J. Hegarty - President and COO: As you mentioned, we don't do development generally and we're not providing development financing. I think that there's quite a bit of demand for that out there, but fortunately the banks are still not lending that easily for development. So, right now, there's nothing in those categories that I envision us investing in. I wouldn't rule it out entirely but, at the moment there's nothing.

Daniel Bernstein - Stifel: Then, one other question I have here on the managed asset same-store NOI was up 3%. That portfolio's really starting to push 92% occupancy. So, what are your kind of definitive expectations for the same-store stabilized assets that are being managed by Five Star in terms of rate growth, margin expansion NOI, I would think the NOI growth should be over 5% given that occupancy, but I kind of want to hear it from you?

David J. Hegarty - President and COO: Yeah, I mean a couple of thoughts on that. One is, I mean we still have a relatively small portfolio and if you noticed if you were to take the 3% growth that we had – 3.2% it's only a couple hundred thousand dollars that brings up to 5% growth. So, it won't take much too hit 5% or do better than 5%. I think our occupancy has moved up considerably without rate increases. So I expect that – we should be able to push rates. Typically 3% to 5% would be the range I know that at these properties we're currently seeing 4% and 5% rates being requested of new residents. So, again it's a portfolio of 22 I'd say some of the properties maybe still have to offer some incentive to people come in while others are pushing to 100% occupancy and they can push that 4% or 5% rate growth. I don't know if any of our properties are charging in excess of 5%, but 4$ and 5% typically I would say.

Daniel Bernstein - Stifel: You expect significant margin increase as well also so that 5% to 7% NOI growth seems pretty reasonable?

David J. Hegarty - President and COO: For that?

Daniel Bernstein - Stifel: For that particular part of…

David J. Hegarty - President and COO: Yeah.

Operator: Todd Stender, Wells Fargo.

Todd Stender - Wells Fargo: Was the (isle) investment in Redmond a sale lease-back with Stellar?

David J. Hegarty - President and COO: Yeah, triple net lease, and that property is literally at the entrance of Microsoft and they – and I think it was featured in one of the recent magazines on senior living business. It's a property that we see significant potential in of which -- I'm follow that would be to the benefit of the operator, but we would see increasing rents as performance improves.

Todd Stender - Wells Fargo: What was the occupancy and what are the emplace rates look like versus the market?

David J. Hegarty - President and COO: The occupancies were in the -- about 83% or so at that property and historically have been operating in the low to mid-90s. So, rate wise I believe we're in the low $3000 per month, and it's about 75% independent living and the rest of it is some memory care and a little bit of assisted living. So, I think it has a good amount of potential.

Todd Stender - Wells Fargo: Does that mean you get -- did you get above average rent escalators in relation to the occupancy upside?

David J. Hegarty - President and COO: Right, we get modified minimal bumps in the rents that are fixed and we get percentage of the revenue growth at the property on top of that. So, as they fill up and raise revenues we get 4% of the growth in revenues there.

Todd Stender - Wells Fargo: And Stellar is an existing tenants isn't that right?

David J. Hegarty - President and COO: Right, we currently have four properties with Stellar and we've added to the master lease.

Todd Stender - Wells Fargo: There is assumed debt on this, when does that come due?

Richard A. Doyle, Jr. - Treasurer and CFO: 2015.

Todd Stender - Wells Fargo: Just lastly with the Cherry Hill, New Jersey MOB, any other specifics on that deal, if it was single tenant or her hospital affiliate and any other details you can share?

David J. Hegarty - President and COO: Sure, obviously we'll talk about it more on our next call or as soon as the deal closes, but it's an A rated healthcare system and it's triple net leased, they manage it themselves, and so, this bumps in the lease over and it's a long-term lease.

Operator: We have no further questions at this time. So, now I'd like to turn the conference back over to Dave Hegarty for closing remarks.

David J. Hegarty - President and COO: Thank you all for joining us today. We intend to take part in several upcoming conferences this spring, Bank of America Merrill Lynch Conference in Las Vegas in May, the Jefferies Global Healthcare Conference in New York City and the Annual NAREIT Conference in Chicago, both occurring in June and we hope to see many of you at those conferences and we're more than happy to meet with you and talk to you in further detail at those conferences. Have a good day. Thank you.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.