Diversified Healthcare Trust
Q1 2013 Earnings Call Transcript

Published: 29 Apr 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 Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

[Tim Bonang:]

Thank you and good afternoon, everyone. Joining me today in this call are David Hegarty, President and Chief Operating Office, 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 the 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 revisions to the forward-looking statements made in today’s conference call other than through filings with the Securities and Exchange Commission or SEC 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 on 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 Hegarty:]

Thank you Tim and good afternoon everyone. 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. To start off, I’d like to review some of the important highlights from the first quarter. We continued to have an industry leading 94% of our revenues through private pay tenants. I think it’s best to discuss the portfolio of the three operating primary segments. Approximately 49% of our net operating income or NOI is derived from triple-net senior living investments, 32% from Medical Office Buildings and another 15% from managed senior living communities which are leased through our Taxable REIT Subsidiary or TRS. In addition, 4% of our NOI is 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 or 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 13% since the first quarter last year. We also executed over 300,000 square feet of leasing activity for 3.6% weighted average roll up 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 11,500,000 common shares in January and raised net proceeds of approximately $262 million. We used these proceeds to repay amounts outstanding under our 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 conserved at 39%. Last, but not least, our Board declared a dividend earlier this month of $0.39 per share, representing a $0.055 yield after Friday’s close. Looking now at the details of our acquisition activity for the quarter, since January 1 we have 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 buddings 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 cap rate for these acquisitions was 8.6%. In April, we entered an agreement to acquire a 54,000 square feet 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 a private pay senior living community with 93 units located in Georgia for $22 million, which we expect to lease to our TRS. The closings 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 and sellers are trying to complete transactions before our new tax year and potential tax increases. As we’ve experienced in the past, we saw a slowdown in opportunities to consider at the beginning of 2013 but we’re now seeing an increase in acquisition opportunities. We’ll continue to seek acquisition opportunities in both the senior living and medical office spaces and feel comfortable in our ability to invest between $300 and $400 million this year. Turning to the performance of our existing portfolio for the quarter, leased senior living properties whose results we reported on revolving 12 months basis, as of December 31, 2012 counted to perform well. Overall our occupancies were up slightly from the previous year. The coverage ratios were essentially unchanged at 1.4 times and remain strong. Looking at the performance of our individual operators, Five Star’s 190 leased communities had combined occupancy of 84.5% and rental coverage of 1.3 times. The four properties we lease to Sunrise Senior Living had occupancy of 93.4% and rental coverage of 1.9 times. The 18 properties we lease 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 a private operator who represents the majority of the investment value and about half of the NOI our private regional properties 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 on to 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 in 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 these same communities moved up to 30.5%. We also saw an increase in the margins 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 in the expenses was that our maintenance and utilities were higher than 2013 versus 2012 due to 2012 being a milder winter than the current year. Moving on to 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. Occupancy at March 31, 2013 was 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 non-recurring 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 288,000 square feet of leases and signed new leases for 45,000 square feet for a weighted average roll up in rent of 3.6% and weighted average lease term of approximately five years. Our tenant improvement and leasing commissions for the quarter were $544,000. And now I'll turn it over to Rick, our Chief Financial Officer, to discuss our financial results in detail.

[Richard Doyle:]

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 quarter’s 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 and 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 to 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 and 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 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 the 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 repaid $252 million of mortgage debt 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 the 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 operate 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 line 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.

[Operator:]

(Operator Instructions). Our first question goes to the line of James Milam from Sandler O'Neill. Please go ahead.

[James Milam:]

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 Hegarty:]

Yes, we took that out of the statistics, results of operations.

[James Milam:]

Okay. 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 through the rest of the year?

[David Hegarty:]

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 really is probably only about a 0.5% because 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 growth will be more or less flat though, I'd say for this year.

[James Milam:]

So maybe slightly positive into the second half to offset the dip in the first quarter?

[David Hegarty:]

Right and then also we expect some and improvement on the expense side too.

[James Milam:]

Okay, great. And then just moving to the managed communities, it sounds like the work is progressing there in line with expectations, is there -- I guess when you guys are going through some of the major projects, is that 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 and your ability to keep the units full?

[Richard Doyle:]

We're budgeting that it's going to be consistent quarter-over-quarter. We don't have any real uptick take on any specific one quarter over the next four to six quarters.

[David Hegarty:]

Right. What you're seeing right now is actually a lot of the V 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:]

Okay. And then sorry, 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 Hegarty:]

That is correct.

[Operator:]

(Operator Instructions). I’ll go to the line of Jorel Guilloty from Morgan Stanley. Please go ahead.

[Jorel Guilloty:]

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 as I compare what you've announced in closest years 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 Hegarty:]

Well, I think it's fair to say that most, but not all of the large portfolios of the 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 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 yearend 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 knew 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 it’s a truly Class A product that's coming out one at a time typically and those are 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’ll see a pretty steady amount of individual assets from 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’re 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. (I thought I'd give you some color on it.

[Jorel Guilloty:]

When you say fives and sixes are you talking about individual assets or small portfolios?

[David Hegarty:]

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 it’s a lot of money chasing them.

[Jorel Guilloty:]

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. Is this an area of more interest to you and if so how would you two intend to participate? Would you do investments on -- direct equity investments yourself? Would you provide loans to your tenants? Is it something that's been more considered now given where cap rates are at?

[David Hegarty:]

Right. It is something we’re actively considering and I know we already have a mechanism in our Five Star leases where they all do these 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 Alzheimer's 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 in every case we get a return on investment and we structure it as additional rent.

[Operator:]

We’ll now go to the line of Michael Carroll from RBC Capital. Please go ahead.

[Michael Carroll:]

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 Hegarty:]

Let's see. Well, we seem to be running at I would say at $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:]

Is that just with Five Star or do you have other tenants you're doing that with too?

[David Hegarty:]

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 we’re open to it, but at the moment we don't have any on the plate.

[Michael Carroll:]

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?

[Richard Doyle:]

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:]

Those assets should be stabilized by yearend. Is that correct?

[Richard Doyle:]

We would hope that most of those 10 properties will be stabilized by the yearend 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:]

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 Hegarty:]

That will be put into the RIDEA structure.

[Michael Carroll:]

And 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 Hegarty:]

Well, that was an asset that was acquired as part of a portfolio years ago and to be honest was a converted school and made it difficult to operate. And so we decided to empty it out and just sell it. So right now we 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:]

Who's the tenant?

[David Hegarty:]

It's one of Five Star properties.

[Operator:]

Next we’ll go to the line of Daniel Bernstein from Stifel. Please go ahead.

[Daniel Bernstein:]

I just want to go into the acquisition pipeline first. On the Seniors Housing side, again both you and Five Star 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 the mix of quality that's come into the market.

[David Hegarty:]

Well, we are seeing Class A and Class B prop coming to the 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:]

So would you characterize that some of the pricing is getting out of your comfort zone and that's why you're looking at MOB's a little bit harder?

[David Hegarty:]

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 fives and sixes which is not going to chase that product at that pricing.

[Daniel Bernstein:]

When you say fives you're thinking more independent living, not assisted? Or is it both?

[David Hegarty:]

Yeah and it's high fives.

[Daniel Bernstein:]

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. And so are some of those other real estate related investments on the -- are you looking at those at all?

[David Hegarty:]

As you mentioned, we don't do developments 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:]

And 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 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 want to hear it from you.

[David Hegarty:]

Yeah. There are a couple of thoughts on that. One is 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 to hit 5% or do better than 5%. I think that 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 incentives for people to 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 45 and 5% typically is good I would say.

[Daniel Bernstein:]

And you expect significant margin increase as well. So that 5% to 7% NOI growth seems pretty reasonable

[David Hegarty:]

For that?

[Daniel Bernstein:]

For that particular part of…

[David Hegarty:]

Correct. Yeah.

[Operator:]

Next we’ll go to the line of Todd Stender from Wells Fargo. Please go ahead.

[Todd Stender:]

Was the IL investment in Redmond a sale lease-back with Stellar?

[David Hegarty:]

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 almost all of that would be to the benefit of the operator, but we would see increasing rents as performance improves.

[Todd Stender:]

What was the occupancy and what are the in-place rates look like versus the market?

[David Hegarty:]

Let’s see. Occupancies we’re 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 $3,000 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:]

Does that mean you get -- did you get above average rent escalators in relation to the occupancy upside?

[David Hegarty:]

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 growth in revenues there.

[Todd Stender:]

And Stellar is an existing tenant, isn't that right?

[David Hegarty:]

Right. We currently have four properties with Stellar and we've added to the master lease.

[Todd Stender:]

There is assumed debt on this. When does that come due?

[Richard Doyle:]

2015.

[Todd Stender:]

Just lastly with the Cherry Hill, New Jersey MOB, any other specifics on that deal, if it was single tenant or hospital affiliated, any other details you can share?

[David Hegarty:]

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 there’s bumps in the lease 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 Hegarty:]

Thank you all for joining us today. We intend to take part in several upcoming conferences this spring; the 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.