Diversified Healthcare Trust
Q2 2013 Earnings Call Transcript

Published: 30 Jul 2013

[Operator:]

Good day and welcome to the Senior Housing Properties Trust Second 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 Bonang:]

Thank you and good morning, 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 transcription, 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, July 30, 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 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 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 on our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. And now, I would like to turn the call over to Dave.

[David Hegarty:]

Thank you, Tim and good morning everyone and thank you for joining us on today’s call. Earlier this morning, we reported normalized functional operations or normalized FFOs of $0.42 per share for the second quarter 2013. Our results this quarter were mixed with many positives to note. In short our triple net leased assets were steady with modest growth and our same store senior living portfolio demonstrated outstanding results although the former Sunrise properties underperformed expectations and the same store medical office building underperformed our expectations for the quarter but we remain optimistic. As announced this morning, we have $101 million of acquisitions that are under agreement that will be completed over the next few months which are the big positive given that the (inaudible) were slow coming out of the gate during the beginning of 2013. We are well positioned today to pursue accretive acquisitions without access to the capital markets conserving the capital we raise in January which we’re still working to fully invest. In addition, after taking an aggressive look at our portfolio, we made the decision to market to sale 18 properties in our portfolio which will generate more cash for investing. With all these moving parts, our board determined in early July to leave the dividend unchanged to $0.39 per share which represents an attractive 5.9% dividend yield as the (inaudible) base close. Occupancy and rental coverage at our triple net senior living communities remained strong and essentially unchanged for the 12 months ended March 31, 2013 over the prior year period. Same store triple net GAAP rental income for the quarter was up 1.2% year-over-year. Our managed senior living communities demonstrated strong internal growth and same store occupancy for the second quarter was up 390 basis points from the same period last year and same store NOI increased by an impressive 7.9%. Our medical office building portfolio remained well occupied at 94% at quarter end and total NOI was up 13% since the second quarter last year. However, same store NOI declined primarily due to a decline in same store occupancy since last year as a result of the few earlier lease terminations. On the acquisition front since April 1st we entered in two agreements to acquire five properties for total of $101 million. Four properties of private pay senior living communities with 306 units located in Georgia Tennessee totaling $51 million and will be added to our senior living portfolio. The fifth property was 105,000 square foot biotech laboratory building located in Boston for $50 million. This property will be leased to Perkinelmer a publicly traded investment grade company for a 15 year initial lease term. One private pay senior living community for $22 million which was previously disclosed in Q1 of this year will close on August 1st. We expect the other acquisitions under agreement to close over the next several months. And as mentioned on our last earnings call, we disclosed an agreement to acquire a medical office building at Cherry Hill, New Jersey for $21.5 million. During June, we terminated this acquisition due to results of our diligence process. As I mentioned earlier after taken an aggressive look at our portfolio decision was made to market the sale 18 properties including 11 senior living communities with 856 units and seven medical office building with 831,000 square feet. The 11 senior living communities consist of seven skilled nursing facilities and four assisted living communities and have an aggregate net book value of $15.5 million. The seven medical office buildings were 99.3% occupied with a weighted average remaining lease term of one year. We generated annualized NOI of $6.8 million and have an aggregate net book value of $27 million as of June 30. These sales are just commencing and are likely to be consummated during the second half 2013 and into next year. Several factors influenced our decision to sell these properties. We considered the underlying conditions in the markets where the properties reside situations we felt that future leasing would be challenged, the properties exposed to government reimbursement and related uncertainty over future profitability and other factors all led to believe that these properties were not with our long term strategy of only high quality senior living and medical office properties. Turning to the detailed performance results of our existing portfolio. Our triple net leased senior living properties which results reported on a rolling 12 month basis as March 31, 2013 continue to perform well. Occupancies on a same store basis overall remained approximately 85%, the coverage ratio was around 1.4 times. Looking at the performance of our individual operators Five Star Quality Care 190 leased properties had combined occupancy of 84.2% and rental coverage of 1.27 times. If you’ll exclude the 11 communities held for sale, Five Star’s aggregate occupancy would increase 60 basis points to 84.8% and rental coverage would increase from 1.27 times to 1.30 times. The four properties released to Sunrise Senior Living had occupancy of 93.2% and rental coverage of 1.9 times. The 18 properties related to Brookdale Senior Living had occupancy of 95.2% and rental coverage of 2.5 times. Our triple net senior living properties leased a private regional operative had occupancy of 83.6% and strong rental coverage of 2.1 times. The coverage is down from 2012 data due to the addition of a new tenant in new properties that came online at approximately 1.2 times coverage. Moving on to our managed senior living portfolio often referred to as TRS or REIT investments. Today we have 39 communities with approximately 6,700 units which generated $16.4 million of NOI during the second quarter. Occupancy at the 23 same store communities during the second quarter was 91.5% up 390 basis points from last year and average monthly rate was up marginally. Overall same store NOI was up 7.9% over last year and same store margins improved 28% from 27.2%. For the six months ended June 30, 2013 occupancy increased 400 basis points, rates were modestly higher and NOI improved 5.3%. The growth of the same store NOI was primarily driven by increase in occupancy and Sunrise properties were not included in the same store data. Moving on to the medical office building component of our portfolio, excluding the seven medical office buildings marketed for sale, we have 115 medical office buildings with over 7.7 million square feet generating NOI of 35 million. This represents 31% of our total company NOI. And NOI was up 12.7% from last year due to growth from acquisitions. Occupancy at quarter end was 94.1% up 20 basis points from last year. Looking at the 99 same store medical office buildings, occupancy was 93.6% down 117 basis points from last year. And NOI was $29 million down 3.4% approximately $1 million from last year. We believe these declines are temporary as they are primarily attributable to termination of leases at certain properties which we expect will be re-leased over the next few quarters. During the quarter, we renewed 83,000 square feet of leases and signed 18,000 square feet of new leases with weighted average roll out at 2.9% in a weighted average lease term of approximately four years. Tenant improved in leasing commissions for the quarter of $1.3 million. With that, I’ll turn it over to Rick Doyle to provide a more detailed discussion of our financial results.

[Richard Doyle:]

Thank you, Dave. I will now review our second quarter year-over-year financial results. For the second quarter of 2013, we generated normalized FFO of $79.1 million, up 8.1% from last year. On a per share basis, normalized FFO for the quarter was $0.42 per share compared to $0.45 per share for the same period last year. The year-over-year quarterly decline in normalized FFO per share is attributable to two main items. First, we experienced short term dilution from our January equity offering as we were unable to invest all the proceeds due to the timing of certain acquisitions in the termination of the medical office building acquisition that we previously expected to close on. Second, the NOI from our 10 previously triple net leased Sunrise communities which are now part of our managed senior living portfolio, are underperforming our expectations. The Medicare sequestration rate cut as well as the seasonal decline in Medicare census further impacted result at the skilled nursing units within these communities. We expect that NOI will recover as we continue to invest the appropriate amount of capital that we believe will bring operations back to stabilization. Eventually we believe that the NOI of the former Sunrise communities will be better than historical performance. Looking first at the income statement, rental income for the quarter was $112 million up 3.7%. The increase was due to external growth from acquisitions since April 01, 2012 which included five leased senior living communities and 16 medical office buildings. Approximately $57 million of rental income was derived from our leased senior living communities and approximately $51 million was derived from our medical office buildings. Percentage rank from our leased senior living communities was $2.3 million for the quarter down from $2.9 million for the same period last year due to the transition of the 10 community leased formally leased to Sunrise to our managed senior living portfolio. Residence fees and services grew to $74.6 million during the quarter due to the acquisition of seven managed senior living communities in the transfer of the 10 formerly leased communities to our managed portfolio since April 01, 2012. Property operating expenses for the quarter increased to $74.5 million due to external growth from acquisitions in the transfer of the Sunrise communities to our managed portfolio. Approximately $60 million of property operating expenses was derived from our medical office buildings compared to $40 million last year and approximately $58 million was derived from our managed senior living community compared to $26 million last year. General and administrative expenses for the quarter were $8.2 million compared to $8.1 million for the same period last year. The primary increase in G&A is the result of external growth offset by other cost savings. Interest expense increased 5.1% to $29.6 million this quarter compared to last year due to several factors. Since April 01, 2012 we assumed a total of $134 million of mortgage debt with a weighted average interest rate of 5.7% and we repaid $249 million of mortgage debt with a weighted average interest rate of 6.5%. Also in July 2012, we issued $350 million of 30 year unsecured senior notes at (inaudible). During the second quarter, we recorded an impairment of assets charges of $4.4 million related to four of our senior living communities held for sale. We also recognized a loss of 105,000 related to early extinguishment of debt for four mortgages we paid off on June 30, 2013. Income from discontinued operations was $1.5 million for the quarter. Seven of the medical office buildings now classified as held for sale are included in discontinued operations. We recognized a non-cash impairment charge of $27.9 million to reduce a carrying value to the aggregate estimated net sales price. Moving to the balance sheet. We did not close on any acquisitions during the second quarter, but we have announced $101 million of both senior living and medical office building acquisitions under agreement. We expect these acquisitions will close on the next few months. We intend to fund it. These acquisitions used cash on hand and borrowings on the revolving credit facility. During the second quarter, we invested $7.7 million into revenue producing capital improvements at our leased senior living communities. We also spent approximately $6 million in capital improvements which includes tenant improvements, leasing cost and recurring capital improvements at our medical office buildings and managed senior living communities. Our recurring capital expenditures include $1.7 million at our medical office buildings and $2.9 million at our tenant senior living communities. As previously discussed we expect, our recurring capital expenditures at our managed senior living communities to be between $1,500 per unit annually. This quarter in our supplemental data package, we broke out recurring capital expenditures in development and redevelopment capital expenditures. During the second quarter, we incurred approximately $4 million of development and redevelopment capital expenditures primarily at our managed senior living communities. We expect that over the next year or two in non-recurring capital expenditures at our managed senior living communities will be higher than normal until we complete many of our one time projects. At June 30th, we had $37 million of cash on hand, $1.1 billion of unsecured notes, $720 million secured debt in capital leases and $30 million outstanding on our $750 million revolving line of credit. At quarter end, our debt to market capitalization ratio was a strong 27% and our debt to total book capitalization ratio was 40%. 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. Today we have $10 million outstanding on $750 million line of credit. Our credit statistics remain among the strongest of all healthcare REITs with adjusted EBITDA over interest expense of 3.7 times and debt over annualized adjusted EBITDA of 4.2 times. We have excellent liquidity to fund future acquisitions with no need to access the capital markets for the foreseeable future. Although we are pleased with the significant progress being made at our managed senior living communities, we believe that the full potential of these communities have yet to be realized. The same store properties still have significant growth potential and after we spend the necessary capital to restore the former Sunrise communities to the market leading communities they once were. They have a tremendous value to be derived. During 2013, we will continue to focus on opportunities to grow cash flow, pay consistent attractive dividend while maintaining a conservative balance sheet. With that, Dave and I are now happy to take questions.

[Operator:]

Thank you. [Operator Instructions]. We’ll go to the line of Juan Sanabria with Bank of America.

[Juan Sanabria:]

Hi good morning guys. I was just hoping you could talk a little bit about the RIDEA portfolio I think you previously talked about targeting at 30% margins sort of what you think the timeframe for that would be? What kind of CapEx you need to spend to need to get there and is that more sort of redevelopment CapEx on tired assets? And when do you think you’ll be able to push some rents if you had gains from occupancy but the rental rates stay relatively flat?

[David Hegarty:]

Alright. Rick you want

[Richard Doyle:]

Yes today we have about 28% margins on the same store RIDEA portfolio and if that would increase slightly more if we took all 39 prosperities and excluded the Sunrise properties would be right around the 30% margins. If you recall the Sunrise properties margins are lower. We just took those on over last six to nine months. We do expect to put these onetime capital projects into them. They performed well in the fourth quarter the first quarter they had a slight increase in the margins but they took a little dip from the first quarter to the second quarter here and that was due to the Medicare cap rate and as well as the decline in occupancy at these properties. Sunrise about 40% of the Sunrise units are skilled nursing units so they took a little bit decline in the second quarter. So we’re still focused on getting these properties back up to par, back up to the leading properties that they once were. And we do expect that to happen over the next four to six quarters and then you’ll see all 39 properties as a whole into the margins in the 30% margin.

[David Hegarty:]

And just to add to that and talk about the rate structure. To-date historical factors been when we take over properties that the rates are not increased until the resident comes up for anniversary date in the facility and then the rates are up and increased at that time. To this point, the focus has been on increasing occupancy and less selling the rates but rate should start to be able to be pushed during the course of this year and obviously going forward next year too.

[Juan Sanabria:]

Can you talk a little about how much you expect to reinvest into those I’m assuming that the Sunrise assets sort of what returns are you targeting?

[David Hegarty:]

Well I’d say as far as the returns go, there is going to be difficult to exactly determining that because a lot of this is just capital improvements that were left to run for several years there that just needs to be done to put the properties back into good working order including capital intensified from elevators and things of that nature.

[Richard Doyle:]

So yeah like I mentioned in the script we spent about $4 million in development redevelopment capital expenditures in the second quarter and the majority of that was the managed senior living communities and focus on the Sunrise communities so we expect that to may be even grow over the next four to six quarters to be between $4 to $5 million per quarter till we get these up and running.

[Juan Sanabria:]

Okay. Thank you. And could you just generally talk about the acquisition environment and how you see things I know you had an initial target at the year that was sort of running ahead of where you are to-date. What’s your sense on pricing if are you guys trying to scale back pricing expectations i.e. increasing cap rates or what are you kind of seeing out there in market place where people are kind of stepping back as a whole the competition is still pretty heated?

[David Hegarty:]

Well you’re right that there is a tremendous amount of competition for new investments in medical offices as well as senior housing. Many of these most of the large portfolio have been spoken for at this point and usually when there REIT based typically don’t trade after that. So I’d say probably in the large high profile properties most of better we’re trying to stay on average mid to high seven per cap rates for our acquisitions. I think on a really Class A properties it’s going to be about seven but as long as we believe in this upside potential from there. I think the first quarter we saw very few acquisitions announced by at least the tough REITs I think it will be an issue to see how this quarter plays out for other acquisitions it’s an interesting year because I see a lot of normally I would have expected for properties trading on the market just not either come to market they decided to wait till a better time or they are just refinancing buying time. So I’d say buying is definitely slower

[Juan Sanabria:]

Okay. Are those cap rates you’re talking about sort of what we should pencil in for the acquisitions that are yet to close that you talked about in your press release?

[David Hegarty:]

Yes that’s right about 7.75% is the average.

[Juan Sanabria:]

Great. Thank you very much.

[Operator:]

We’ll go to next to line of Michael Carroll with RBC Capital Markets.

[Michael Carroll:]

Yeah thanks. Guys related to your MOB portfolio sale are those same properties the off campus some of the assets that you are having issues with the tenant that were being impacted by the new medical device excess tax?

[David Hegarty:]

One of the properties is a property that is affected by that and they – We expect that they will be moving out in the next couple of years, signing short-term leases and so on. So that is one situation definitely impacted by that. The other properties have actually been impacted by consolidation one of the biotech properties that was we (inaudible) that was acquired by a West Coast company and they consolidate their operations out to the West Coast so it’s going to be very difficult for us to re-lease this property without a lot of capital improvements so on That’s one situation another situation is a Health Care System is building their own campus and moving a lot of their operations on to their campus that affects another location in Albuquerque as a matter of fact. So little over the themes most of the dispositions on the medical office side.

[Michael Carroll:]

Okay then with you starting to market a portion of your skilled nursing facility I know that’s a business that you’ve talked about possibly exiting on why are you not marketing the other assets now?

[David Hegarty:]

Well I mean a couple – Some of it First of all the leases are properties of leases of Five Star that we consider selling and Five Star really have to make the decision that they want to exit those properties because it would be a joint decision. And unless they want to stay on it and lease from another REIT or another owner I mean we’d have to break up the master leases and stuff so. So it has to be a joint decision and some of the properties that are into a network of care that Five Star have in certain markets that they don’t want to disrupt. Also our bases in the properties are extremely low so as a result of rent is very low and Five Star still makes money at those little rents. So I think it’s going to be piece meal for certain times as we reach these decision.

[Michael Carroll:]

Okay. And then can you remind us how big you want to grow that TRS portfolio it seems like most of your upcoming investments of the senior housing assets at least are going into that structure?

[David Hegarty:]

That is correct. I think for the foreseeable future additional investments will be included in the TRS structure again because the fundamentals are very good for the next several years as well as the pricing on these assets is a little bit dim for making a profit at the REIT level and a profit at the tenant level. So what we want to do I think we have pretty much around 20% of those are probably comfortable level in investing this space we’re about 15% of our NOI at this point.

[Michael Carroll:]

Okay. Great. Thank you.

[David Hegarty:]

You’re welcome.

[Operator:]

Thank you. We’ll go to next to line of Omotayo Okusanya from Jefferies.

[Omotayo Okusanya:]

Hi Good morning everyone. Dave thanks for the color on just the how disposition from a timing perspective I know that it is kind of hard to say when these things could potentially happen but for modeling purposes what are you kind of guiding us to in regards when does the potential sales could happen and what do you expect – how do you expect to reinvest the proceed?

[David Hegarty:]

Yeah well realistically we are just launching the sale of these assets to see housing is any day now formal process launched through the market. In case of the medical office buildings we’re still putting together offering memorandum so on So that say in the next 30 days we probably have those properties on the market officially. I probably think it will be in the end of the year or first quarter of next year that we probably end up most of if not all.

[Omotayo Okusanya:]

Okay. I may have missed this but why did the Cherry Hill deal fall out?

[David Hegarty:]

It was a result of diligence. We were not satisfied with them some of the progress that have been on some issues at the properties and so we decided we’re not buying at the present time.

[Omotayo Okusanya:]

Okay. Great. Thank you

[David Hegarty:]

Okay.

[Operator:]

Thank you. Next with the line of Daniel Bernstein with Stifel. Please go ahead.

[Daniel Bernstein:]

Alright Good morning.

[David Hegarty:]

Good morning Dan.

[Daniel Bernstein:]

I want to go on to the rate cut the NOI growth and the triple net portfolios and senior housing it’s only about 1.2 obviously you discussed some of the issues on the MOB side. Is the NOI growth there was in the supplemental was that cash or gap and specially in the senior housing side can you talk about whether you think that’s going to improve or not?

[David Hegarty:]

Well on the triple net is the 1.2% growth and that’s because by about 75% 80% of our leases have 4% of growth over revenues at the properties of our base period. So basically so the revenues did not grow that much of the properties about 20% of our leases have increases between 2% and 3% per annum. So on a cash basis it’s actually higher than the 1.4% but that’s a gap because we have this formula and I’m sorry your question

[Daniel Bernstein:]

It was good how much did the skilled nursing reimbursement impact that 1.2% I mean since you’re wearing off revenues

[David Hegarty:]

That’s right.

[Daniel Bernstein:]

Is that significant impact because of the Medicare reimbursement?

[David Hegarty:]

It is an impact I mean we still have the 48 nursing homes in each of them impacted by – most of them were impacted by sequestration. And in addition there seems to be within the skill nursing area a couple things that are happening one is there has been seasonal drop in occupancy for Medicare patients just due to hospital procedures and slowing down and so on. But in addition just the hospitals what we’ve seen is hospitals are holding on to patients longer for observation because if they get readmitted the penalties are pretty significant. So that has affected census in Medicare beds at the skilled nurse facilities too. So it’s definitely been a soft point. I guess I’m not sure I could quantify the exact dollars that was probably impacted by but it definitely had an impact because otherwise price base has been modestly up. And obviously to get 1.2% growth we have to have decent growth from the private side to make up to the shortfall in the Medicare side.

[Daniel Bernstein:]

Okay. And I guess my other question was on the medical office buildings and I think you alluded to so many issues in the MOB side. But is the occupancy drop and the NOI drop is that primarily what would be considered as a traditional MOBs where on campus are affiliated with hospitals or is that more in the medical device life science side how – where I’m going with that if it’s life science and medical device could be harder to lease up if it’s an on campus MOB to get (inaudible) to your comments to that may be that you expect to at least back up and improving the NOI?

[David Hegarty:]

Right I mean the assets we chose to sell are exactly those issues where biotech that will be difficult to re-lease to the party and the other one is a hospital affiliated system that’s consolidated and it’s going to be very difficult to re-lease that space to somebody else in that particular marketplace. So those are problems issues within the existing same store numbers and so on that we had a decline occupancy that’s attributable to three or four buildings primarily and they had early lease terminations (inaudible) every case one of them was a physicians’ practice group that vacated and we are on probably third re-leased there and expect that to ultimately get back to fully being leased within the next couple of quarters. So (inaudible) consolidation our position joining on the stats of healthcare systems being paid employees rather than their own group practices.

[Daniel Bernstein:]

So it’s an off campus multi-tenant MOB event?

[David Hegarty:]

That at the time was one tenant with the physicians’ group.

[Daniel Bernstein:]

Okay.

[David Hegarty:]

Yeah.

[Daniel Bernstein:]

Did the single tenant go in the multi-chain?

[David Hegarty:]

Right.

[Daniel Bernstein:]

Okay. And I guess the other question I had on the disposition of the assets it seemed to me it was from the Five Star report yesterday that some of at least on the skilled nurses on senior housing side – skilled nursing side that the assets are losing money and should we expect these covers to improve once you sell those skilled nurses assets did that make sense?

[Richard Doyle:]

Yes we do expect the coverage to go up a few points To-date 1.27 times will go up to 1.30 times so we do expect rent coverage to increase.

[Daniel Bernstein:]

Okay. And on the managed operating portfolio you talked a little bit about some of the softness this quarter and especially in the Sunrise portfolio. Are you being impacted especially you think about the rate side the reimbursement I think you actually did say earlier in the quarter impact of sort of reimbursement on those skilled nursing units is that probably the primary cause of the rent decrease also sequentially?

[David Hegarty:]

Yeah on the Sunrise assets that’s definitely negatively impacted that’s it’s tough to quantify it’s probably about in total about $1 million versus last quarter negative impact. So I’d say more than half is probably is the sequestration impact that have particularly April 1st and balance was declined by Medicare census. I think we’ve even seen these situations with Medicaid actually was reduced to so and I could say 40% of the summarized assets are skilled nursing which makes up the Sunrise and total makes up like 40% of our managed senior living portfolio.

[Daniel Bernstein:]

Do you need to convert some of those assets those units to say memory care or some other equity level I don’t know if those facilities allow themselves to be converted have those units converted but is there something – Can you convert those units into a level of care that would give you some more stability relative to the reimbursement environment itself?

[David Hegarty:]

Yeah I think there could be a number of modifications made to convert wings to care but also these traditional nursing home bed with two beds per room and so on and they really can be updated to be competitive for the Medicare suites that many people are promoting to capture more of the Medicare business for referrals and so on. So each property is going to be individually examined and significantly modified in some way.

[Daniel Bernstein:]

Okay. That’s enough I guess. I’ll hop off and allow somebody else on the call. Thanks.

[David Hegarty:]

Thank you.

[Operator:]

We’ll go next to the line of Todd Stender with Wells Fargo.

[Todd Stender:]

Hi good morning guys.

[David Hegarty:]

Hi Todd

[Todd Stender:]

The senior housing assets that are teed up for sale are they represented in one of the Five Star leases or are they spread amongst the four?

[Richard Doyle:]

They are spread around among three of the four of the leases so did not all in one lease but three of them.

[Todd Stender:]

Any one particular lease hit more than the rest?

[Richard Doyle:]

I believe yes lease number one may have the majority of them compared to lease number two and number four.

[Todd Stender:]

Okay. Thank you. And then the MOBs were these the ones teed up for sale? Were these acquired from CommonWealth and when they were acquired?

[David Hegarty:]

They are acquired back in 2008 in our first original transaction where we did buy a portfolio property from them. And if you go back to the spring of 2008 when we did the transaction, it was prerecession so the world still looked very wonderful back then and all these businesses were expanding. But during the recession many of them looked to contract or consolidate and so here we are five years later and some have made that decision. So I think in looking at our portfolio if you flipped on to our presentations we broke down our pie charts to on campus our hospitals affiliated non-core and biotech. And I think most of this is coming out of that middle non-core component so be focused more on the on-campus affiliated and nearby affiliated or some biotech like the Perkinelmer deal which is here in Boston it’s a biotech space and the tenant is signing on for a 15 year commitment to lease the space. So we actually have other opportunities to reinvest proceeds.

[Todd Stender:]

Okay that’s helpful. And just looking at the average lease term of the bed a year are any of the MOBs currently vacant?

[David Hegarty:]

One is

[Richard Doyle:]

One just became vacant on July 1st and the others over the next 12 months early 2014 or second quarter 2014 will become vacant.

[Todd Stender:]

Okay. Thanks Rick. And back to your comments with this July 13 acquisition the MOB in Boston can you kind of go through any cap rate differential if there is one between a traditional MOB and one that has more of that biotech lab space? Is there any real difference in acquisition cost?

[David Hegarty:]

I mean I think that’s a pretty comparable the biotech in Boston area is pretty hot and actually I should say on fire in the Cambridge market and so on. So cap rate there is a little less than traditional medical office buildings that we’ve been buying. We’ve been usually in the higher sevens to mid seven for biotech just a little bit below mid. But investment grade tenant long term lease too also worthy of stretching a little bit for

[Todd Stender:]

Okay. Thank you very much

[David Hegarty:]

You’re welcome.

[Richard Doyle:]

Thanks, Todd.

[Operator:]

Thank you. And I’ll turn it back to Mr. Dave Hegarty for closing remarks.

[David Hegarty:]

I’ll just thank you very much for joining us on the call. Hope you have a nice rest of the summer and we’ll see you in September I’m sure. Thanks a lot. Bye

[Operator:]

Thank you. And ladies and gentlemen that does conclude your conference for today. Thank you for your participation for using AT&T Executive Teleconference. You may now disconnect.