Diversified Healthcare Trust
Q3 2013 Earnings Call Transcript

Published: 29 Oct 2013

[Operator:]

Good day and welcome to the Senior Housing Properties Trust Third 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.

[Tim 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, October 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 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 funds from operations or normalized FFO of $0.42 per share for the third quarter of 2013. Our results this quarter were met with many positives to note. Our triple net leased assets, representing more than half of our NOI, helped steady and generated modest growth. Our medical office building portfolio representing 30% of our NOI showed modest overall growth and managed senior living portfolio represented 15% of our NOI demonstrated particularly outstanding results. I'll analyze these segments in detail in a few minutes. Consistent with our business strategy of owning and acquiring private pay assets and minimizing our exposure to government funded programs such as Medicare and Medicaid, we completed $101 million of private pay acquisitions since July 1st and have $27 million of additional properties under agreement to acquire. In September, we announced the sale of our two Greater Boston inpatient rehabilitation hospitals. The only rehab hospitals we own to a third-party joint venture for $90 million. Additionally during the quarter, we sold one skilled nursing facility and are making progress in some of the other 10 senior living communities and 7 medical office buildings held-for-sale. These actions are part of our portfolio of repositioning we announced last quarter. We continue to be well positioned today to pursue a previous private pay acquisitions while maintaining our disciplined underwriting standards and do not have a need to access to capital markets for the foreseeable future. With all these moving parts, our board determined earlier this month to leave the dividend unchanged at $0.39 per share, which represents an attractive and secure 6.25% dividend yield as of yesterday's close. I'll now spend some time discussing the trends you'll see in our portfolio in the acquisition environment and Rick will get into our financial performance in a few minutes. Our triple net leased senior living properties whose results reported on a rolling 12 month basis as of June 30, 2013, continue to perform well. Overall occupancies were approximately 85% and coverage ratios were about 1.4 times. Occupancy for the trailing five quarters were essentially flat for our independent assisted living assets, while skilled nursing continued to decline. The independent living assets covered around 87.6% to 87.7%, while assisted living remained between 86.5% and 87%. Skilled nursing declined from 80.4% to 78.9% year-over-year. The skilled nursing portfolio continues to be affected by the weak operating environment and the decline in skilled nursing census along with the Medicare sequestration has put some pressure on coverage ratios. Looking at the performance of our individual operators, Five Star Quality Care has 189 leased communities, had combined occupancy of 84.2%, and rental coverage of 1.25 times. If you exclude the 10 senior living communities held-for-sale, Five Star's aggregate occupancy would have increased 40 basis points to 84.6% and rental coverage would have increased from 1.25 times to about 1.3 times, more in line with historical coverage ratios. The four properties released to Sunrise Senior Living had occupancy of 92.9% and rental coverage of 1.9 times. The 18 properties released to Brookdale Senior Living had occupancy of 95.3% and rental coverage of 2.5 times. Our other triple net leased senior living properties leased a private regional operative had occupancy of 84.2% and strong rental coverage of 2.0 times. Coverage is down from last year due to the addition of five new communities with the new tenant that came on at approximately 1.2 times coverage, as well as declines in Medicare rates at the skilled nursing assets. Moving on to our managed senior living portfolio, about two-thirds of our managed senior living portfolio based on investment value and NOI is located in the top 31 metro markets and approximately 80% is located within the top 100 metro markets. Today we have 40 communities with approximately 6800 units. During the quarter, the portfolio generated $17.2 million of NOI, which represents 15% of our total company NOI. And occupancy at the 40 communities was 87.3%. Occupancy at the 25 same store communities during the quarter was 90.8%, up 270 basis points from last year. And average monthly run rates were up 2.5%. The increase in occupancy and rates resulted in increase in same store NOI of 10.8% over last year and an increase in same store margins to 27.8% from 26.5%. We believe there is still significant room to continue to grow occupancy and to push rates and margins at these properties. Beginning next quarter 8 of the 10 Sunrise Properties that were transitioned into our managed portfolio in September and October of 2012 will become part of our same store portfolio. The Sunrise assets have shown improvement over last quarter with margins increasing from 11% to 14%. If you exclude the 10 Sunrise assets from the overall portfolio, margins would have been 28% up from the 23% reported for the quarter. Moving on to the medical office building component of our portfolio, excluding the seven medical office buildings we're marketing for sale, we have 116 medical office buildings with over 7.8 million square feet generating NOI of $34 million. Compared to last year, NOI was up 1.9%, and occupancy was up 170 basis points to 95%. Looking at the 103 same store medical office buildings, occupancy was 94.7% at September 30, 2013, down 30 basis points from last year, and NOI was $30.2 million down 8.3% from last year. These declines are primarily attributable to a handful of lease terminations, which we expect will be released over the next few quarters along with lower rental rates on certain renewals and a decline in reimbursed expenses from last year particularly real estate taxes. During the quarter, we renewed 292,000 square feet of leases and signed 132,000 square feet of new leases with weighted average roll down on rent of 1.8% and our weighted average lease term of 5.5 years. On the acquisition front, since July 1st, we completed the purchase of five properties for total of $101 million. Four properties of private pay senior living communities with 306 units located in Georgia and Tennessee totaling $51 million and were added to our managed senior living portfolio. The fifth property was 105,000 square foot biotech laboratory building located here in Boston for almost $50 million. This property was leased to Perkinelmer Health Services Inc. a subsidiary of Perkinelmer, a publicly traded investment grade company with a $4 billion equity market cap for a 15 year initial lease term. The weighted average cap rate on these acquisitions was 7.9%. We also have four properties under agreement to be acquired for a total of approximately $27 million. One of the properties is a senior living community with 68 assisted living units located outside of Madison, Wisconsin for $12 million. We expect this community -- to add this community to our managed community portfolio. The other three properties represent a healthcare system affiliated medical office building portfolio with approximately 63,000 square feet located in Orlando, Florida. We expect the purchase price in this portfolio is approximately $15 million. We expect these properties to close during the fourth quarter. We continue to see a steady amount of acquisition opportunities to consider that focus on individual properties and small portfolios in the medical office, and senior housing industries, although we see many opportunities, we are diligent in our efforts to find the best properties to fit within our portfolio. In the last quarter's earnings call, we announced a disposition program to remove underperforming properties, particularly skilled nursing facilities and medical office buildings. The purpose of this disposition program is to further reduce the company's exposure to government funded program such as Medicare and Medicaid to upgrade the quality and portfolio by calling out underperformed and to reflect our proceeds into private pay properties and to further reduce our concentration with one tenant Five Star. One disposition we were not in a position to announce at the time of our last call was an agreement we entered in September to sell our two inpatient rehab hospitals for $9 million to a non-affiliated joint venture. We expect to realize a gain on sale of approximately $30 million upon completion, which we expect to be sometime in mid 2014 subject to house regulatory approvals. Both of these hospitals are leased to Five Star and in connection to sales they would agree to terminate their lease and transfer their operating rights and obligations. We will expect a rent reduction of approximately $9.5 million annually after the sales are completed 96% of our NOI and 98% of our revenues will be derived from private pay properties. We consider that's a big positive as it further reduced our exposure to government funded properties and increases our focus on private pay properties. As I already mentioned, we completed a sale of one skilled nursing facility for $2.6 million, and we expect the sales of the remaining senior living assets and medical office buildings likely to close during early to mid 2014. And before turning the call over to Rick, I want to take a moment to discuss the announcement we made in September regarding restructuring of our management agreement with Reit Management & Research or RMR concerning corporate government changes. Beginning in 2014, the base management fee will be paid to RMR based on the lower of historical investment cost for SNH total market capitalization instead of solely historical investment cost, and 10% of the fee will be paid in SNH common shares instead of cash. In addition, incentive management fee paid to RMR will no longer be paid based solely upon the growth in FFO, but instead based upon total shareholder returns in excess of benchmarks established by SNH's independent trustees and disclosed in our annual proxy statement. Between now and year-end, the independent trustees with the industry consultants will establish the appropriate benchmarks. The incentive fee will be paid in SNH common shares that we will invest overtime and are subject to a clawback provision. On the corporate governance side, we are making two significant enhancements based on feedbacks from the investment community. First, at our next Annual Meeting our board will be recommending the annual election of all trustees other than current staggered three year terms structure. Second, our board has determined to let the shareholders rights plan also known as the poison pill expire in April 2014. We view these changes as positive for our shareholders as RMR's financial centers will be better aligned with shareholder returns and estimates a business strategy of owning high quality price at properties, with paying attractive say dividend has not changed. Our board has considered possible additional corporate enhancements that may be announced in the coming months based upon further feedback from our shareholder community. And with that I will turn it over to Rick to provide a more detailed discussion on our financial results.

[Rick Doyle:]

Thank you, Dave, and good morning everyone. I will now review our third quarter year-over-year financial results. For the third quarter of 2013 we generated normalized FFO of $78.8 million, up 5.4% from the third quarter of last year. On a per share basis normalized FFO for the quarter was $0.42 per share compared to $0.43 per share for the same period last year. Normalized FFO per share continued to be impacted by the timing differences of our capital rates earlier this year until we were able to fully invest the proceeds in August. Normalized FFO per share was also impacted by lower than expected NOI from our same store medical office portfolio primarily related to the decrease in occupancy and lower rates on renewals, as well as decline of certain reimbursable expenses. However we expect our medical office segment to improve in the fourth quarter. Looking first at the income statement. Rental income for the quarter was $112 million down 1.3% from last year. This decline was due to the transfer of 10 previously triple net leased communities to our managed single living segment during the third and fourth quarters of 2012. The decline was partially offset by the acquisition of five triple net leased senior living communities and 30 medical office buildings since July 1st, 2012. 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 rent from our leased senior living communities was $2.3 million for the quarter down from $2.4 million for the same period last year due to the transfer of the 10 previously leased communities to our TRS. Residence fees and services grew to $75 million during the quarter due to the acquisition of six managed senior living communities and the transfer of the 10 formally leased communities to our managed portfolio since July 1st, 2012. Property operating expenses for the quarter increased to $74.7 million due to external growth from acquisitions in the transfer of the 10 formally leased communities to our managed senior living portfolio. Approximately $70 million of property operating expenses were derived from our medical office buildings compared to $15.6 million last year and approximately $58 million was derived from our managed senior living communities compared to $31 million last year. General and administrative expenses for the quarter were $7.8 million compared to $8.4 million for the same period last year. The decline in G&A is a result of a state franchise tax refund and a decline in professional fees. As a percentage of total revenues, G&A was 4.2% compared to 5.4% last year. Interest expense declined 3.3% to $29.4 million this quarter compared to last year. During the quarter we prepaid a mortgage note encumbering two of our properties totaling $13.6 million with a weighted average interest rate of 6.5% and recorded a loss on early extinguishment of debt of approximately $150,000. Since July 1, 2012, we have paid down $230 million of secured debt at a weighted average interest rate of 6.4%, and during the same time period we assumed $77 million of secured debt at a weighted average interest rate of 6.1%. We also recognized the loss of early extinguishment of debt of approximately $550,000 during the quarter related to the amendment of our credit facilities. During the third quarter we recognized the gain on sale of $1.1 million related to the sale of one skilled nursing facility previously classified as held-for-sale. Income from discontinued operations was $1.2 million for the quarter, which included operating results of the seven medical office buildings for sale. We currently have 10 senior living communities and seven medical office buildings classified as held-for-sale and two rehab hospitals under agreement to sell for $90 million. We expect to sell these properties by midyear 2014. Once these rehab hospitals are sold and the leases are transferred to the new operator, we will reduce Five Star's rental payment by $9.5 million or approximately a 10.5% cap rate on the sale. We expect to reinvest the proceeds into private pay properties in well experienced moderate dilution. We believe that the divesting assets that are impacted by the uncertainty surrounding government funded programs in reinvesting the proceeds into private pay assets will improve our overall portfolio of quality and risk profile. Even today we stay in as the public healthcare REIT with the lowest exposure to government funded properties. Moving to the balance sheet. In September we announced an amendment to our existing $750 million of unsecured revolving credit facility. We extended the facilities maturity date from June 2015 to January 2018 and reduced the rate from LIBOR plus 150 basis points to LIBOR plus 130 basis points. The facility fee was reduced from 35 basis points to 30 basis points and we also have an option to extend the facility by one year to January 2019. Since July 1st, we closed $101 million of acquisitions; we also invested $6.6 million into revenue producing capital improvements at our leased senior living communities. During the quarter we spent $3.5 million on tenant improvements and capital and leasing costs. Recurring capital expenditures include $1.5 million at our medical office buildings and $2.6 million at our managed senior living communities. We also incurred approximately $3 million of development and redevelopment capital expenditures primarily at our managed senior living communities, which will be higher than normal until our significant one-time projects, are completed over the next year. At September 30th, we had $52 million of cash on hand, $1.1 billion of unsecured senior notes, $703 million of secured debt and capital leases, and $125 million outstanding on our line of credit. At quarter end our debt to market capitalization ratio was a conservative 30% and our debt to book capitalization ratio was 41%. 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 $115 million outstanding on the line of credits. Our credit statistics remain amongst the strongest of all healthcare REITs with adjusted EBITDA over interest expense of 3.7 times and debt over annualized adjusted EBITDA of 4.4 times. We have excellent liquidity to fund future acquisitions with no need to access the capital markets for the foreseeable future. During the remainder of 2013 and into 2014, we will continue to be focus on opportunities to grow cash flow, pay consistent, and safe dividend, while maintaining a conservative balance sheet. With that, Dave and I are happy to take your questions.

[Operator:]

Thank you. (Operator Instructions) First question is from the line of Juan Sanabria, Bank of America. Please go ahead.

[Juan Sanabria:]

I was just hoping, you could comment on the acquisition environment, I believe you've previously spoken about three to $400 million of transactions for the year, I think you got about $200 million to-date and how you feel about that and just asset pricing?

[David Hegarty:]

Yes, okay. On the acquisition environment, I'd say we're continuing to consider these single opportunities, smaller transactions. So I'd say by year-end, yeah, there's always a possibility of a significant transactions -- but bread and butter transactions. I think we're probably more in the neighborhood of $250 million to $300 million expectation at this time. So I think it's a challenge to win some of the larger transactions and this environment because I think pricing is getting a little bit frothy but -- while we're still trying to hold the line on our investment parameters.

[Juan Sanabria:]

What kind of cap ratio should we expect for the $27 million, that's under agreement those four properties?

[David Hegarty:]

Yeah that should be north of 8% cap rate.

[Juan Sanabria:]

Okay. And can you give any color on the same store MOB portfolio had a rough period year-over-year kind of what your expectations are going forward and it seems like margins came back a bit. I think you said that reimbursements were part of the problem, but any color on how we should think about going forward?

[Rick Doyle:]

Well, yes. We do have a stellar of third quarter on MOB same store. We do expect --

[David Hegarty:]

I know we had a tough time.

[Rick Doyle:]

Tough time, yeah, and we do expect the fourth quarter to improve. Occupancies did go down year-over-year. And we will be working on that to get some leases signed up there and push the rates where we can. You also mentioned that we had higher utility expenses, real estate expenses during the quarter unusually high. So we don't expect that moving forward and we do intend to -- we do believe that this will improve in the fourth quarter going forward.

[David Hegarty:]

Right. We did have some occupancies; some leases expire during the period that were not renewed. So there is a bit of downtime until it gets renewed but the prospects are looking pretty good for most of the space.

[Juan Sanabria:]

Just one last question on the dispositions of the 17 assets, the senior living and senior. Can you just remind us on the NOI attributable to those properties that you're looking to dispose of?

[Rick Doyle:]

Yes. Well some of these -- the 10 senior living facilities for sale and they're underperforming. There's really not that true. These -- although we're collecting rents on those 10 senior living communities, our tenants experiencing negative margins on them. So selling these will not only help them on the performance of their other properties in the leases we can actually take the proceeds and put them into other private pay senior living facilities first.

[David Hegarty:]

Right. And the impact on SNH would be that to the extent, we received proceeds -- we take those proceeds and reinvest them in other assets. If the original rent on the property whatever differential shortfall the risk gets put back onto the master leases. So if we had a property for $10 million and the rent was a $1 million, if we sell it for $5 million, we give the tenant a rent concession of 10% on $5 million or $500,000 -- $50,000 -- $500,000. That differential of $500,000 from the original rent just gets put back on the master lease and distribute it over the remaining properties in that master lease. So we're really talking about how much we can reinvest the net proceeds and what cap rate we can do. So, for today it's going to be about 1.5%, 2% dilutive effect from the net proceeds, which is effectively couple of $100,000 per annum. Yeah, on the medical office buildings, some of the buildings are vacant today and are already in our numbers and so with the net proceeds, I think we will probably come out neutral to little bit dilutive on that.

[Juan Sanabria:]

Okay. So for the senior living, because of the master lease, it's going to be a wash it's just a question of the cap rate you can reinvest the proceeds at, is that correct? Sorry.

[Rick Doyle:]

That's right.

[Operator:]

(Operator Instructions) And we will go to the line of Omotayo Okusanya with Jefferies. Please go ahead.

[Omotayo Okusanya:]

Dave, I just want to dig a little bit more into the Sunrise aspect. I think you mentioned on the call that the margins around that is now about 14%. Could you talk about what occupancy levels are with that portfolio and then ultimately your efforts to kind of get operating margins kind of closer towards the rest of the retail portfolio, how that's going and how do you expect that to manifest over the next 12 to 18 months?

[David Hegarty:]

Correct. You're correct that in the presentation we said that 14% would be margin for the quarter for those assets. The occupancies of those properties are about 80% -- high 70s to 80% and we expect that we are putting capital into the properties right now to make them more competitive for the most part; most of that capital will still continue to be put into the properties over this coming next couple of quarters. So we would expect to see increasing occupancy at those properties. One of the things that makes it not comparable to our existing RIDEA assets the same store assets is that these assets are roughly 40% skilled nursing and 60% assisted living. So the margins are going to be not as good as the existing RIDEA assets because the same store RIDEA is about 75% independent living and 25% assisted living. So the higher, the best margins are independent living. So I would expect, this portfolio to probably in the neighborhood of 20%, 25% margins as opposed to the 30% to 40% margins we can achieve on our existing RIDEA assets if not better actually.

[Omotayo Okusanya:]

And how much in CapEx are you still putting into the assets, are you still kind of running around the $2,000 to $2,500 per unit that you were talking about or that you've guided to?

[David Hegarty:]

Yeah, overall, yeah, I would say the normal --

[Rick Doyle:]

Recurring.

[David Hegarty:]

Recurring is more like $1,500.

[Rick Doyle:]

Yes.

[David Hegarty:]

But with an extra $1,000 or so of structural costs and so on.

[Omotayo Okusanya:]

The $100.5 million of acquisitions that you made could you give us what the split is between the MOB piece and the senior housing piece in result to cap rates you paid on each of those pieces?

[David Hegarty:]

Its 50

[Omotayo Okusanya:]

Okay, MOB, senior housing. And then last one from me, I mean just with everything going on with commonwealth that at this point whatever ultimate decision kind of guesstimate on that and do you expect that to have further implications for changes to corporate governance on SNH and what potentially could those additional changes be?

[David Hegarty:]

I mean I don't know what will happen at CWH. I think we would have to take into consideration what they're doing. But our board is really going to make a sound decision on, what it's going to do as far as corporate governance matters, I mean, like the management fee structure, we have five different REITs with the same manager and so it would be -- you couldn't justify really one REIT paying a different fee structure than another REIT paying a different fee structure. So as far as that type of analysis that that probably would be do it from change their we'd have to seriously consider making such a change at SNH. As far as like each of our bylaws and declaration of trust and so on, have some differences between them and so what might be appropriate for one might REIT not be appropriate for another. So I think down the road I -- we have been looking at surely the board composition and things of that nature.

[Operator:]

And our next question comes from line of Daniel Bernstein with Stifel. Please go ahead.

[Daniel Bernstein:]

On the MOBs, I just want to go little bit into -- further into what you are expecting to improve. And so are you expecting occupancies to improve as you leased up some of the vacated properties or space, what are you thinking in terms of rent growth? Are you -- what should we be expecting occupancy to go up but rents to continue to roll down and margins as well? Just want to get a little bit more clarity on what you are expecting to, how are you expecting NOI in MOBs to improve?

[David Hegarty:]

Right. Well, we do have some expected occupancy increase at certain locations, so that should be a pick up. As far as rental rates, I think for the traditional MOB that that is going to be more or less flat and may be a little positive. But I think some of the concerns we have or issues we've had is with some of the may be non-core MOB buildings and a number of leases were executed pre-recession that when we -- that are rolling over now it is been a challenge to achieve the same rental rates today. So I would say net, net I would say the flat is -- probably will come out, may be plus or minus percent, but I think we are pretty much at status quo today and we would expect to somewhat improve.

[Daniel Bernstein:]

Okay. And now on -- or is there any pressure for you to put additional CapEx or TI to get those leases? So in another words, your NOI might go up I think on an after CapEx basis, am I going to see the NOI go down? Just trying to think about what kind of pressures you are seeing in terms of CapEx and TI?

[David Hegarty:]

Right. I mean we are spending regular CapEx on some of the buildings, particularly some of the older buildings, we have 2141 K Street and the other on is on 19th Street in Washington, D.C. And even at Cedars-Sinai we are doing fair amount of renovations to the lobbies and elevators and things of that nature. So -- but as far as the tenant space itself, I know I'm not expecting significant increase in TI required to release the space.

[Daniel Bernstein:]

On the managed assets, if you took out the Sunrise assets, do you have any data that can provide on a quarter-over-quarter performance again for the non-Sunrise assets? Just when I look at the supplement, I don't have an apples-to-apples basis to how you did sequentially on occupancy rate margin, etc.

[Rick Doyle:]

Yes, if we took out the 10 Sunrise and we had just the 30 managed senior living communities, I think we said on the call that the margins would be above 28%. And that's little higher than it was year-over-year. It's consistent with second quarter to this quarter. It's somewhat flat this quarter.

[Daniel Bernstein:]

And then, I assume that occupancy improves sequentially looked like 20 basis points in the supplemental but it is -- again it is not apples-to-apples, is that about right, 20 basis points or so?

[Rick Doyle:]

That's probably in line.

[Daniel Bernstein:]

And then, the other question I had is, most of you acquisitions in the senior housing side has been put into TRS to manage the assets. Could you go over maybe again the criteria of using triple net versus TRS? And is it you preference now to basically do seniors housing acquisitions, placed them into the managed portfolio and thus the construction data that you see at NIC MAP alter that thinking at all?

[David Hegarty:]

Well, currently our expectation is to continue to put them in to TRS assets. It definitely is a transaction by transaction analysis that we do. But our -- we do not feel threatened for the say the next year or two on the fact that new construction will impact occupancies at properties. I think we feel that the demographics and the local analysis we do at each acquisition suggest that they're is still decent amount of upside potential. So we're still staying with the TRS model for now, I'd say for the next several quarters at least. And if a significant transaction comes along I think we probably evaluate that even further whether or not we should, which way we should do it. But I think we still have quite a bit of running room.

[Operator:]

Our next question today comes from the line of Michael Carroll representing RBC Capital Markets, please go ahead. Michael Carroll - RBC Capital Markets Can you guys give an update on the two portfolios you're currently marketing for sale? What type of interest have you received already and when can we expect these sales to be completed?

[David Hegarty:]

Well we have a good amount of interest. The -- I'd say although the skilled nursing and senior housing assets, both are actively getting good solid offers on each of those properties. So as you can see where we could sell some them before year-end, close on them, otherwise I think it would slip into the first quarter on the senior housing side of things. Medical office buildings, a little bit later marketing effort, but there is a good amount of interest in the properties. So I think it's a little longer time to through the sales effort. But then again they don't need healthcare regulatory approvals to close on, so the closing again is most likely to occur mostly in the first quarter next year. Michael Carroll - RBC Capital Markets And these are the senior housing assets, at least are mostly leased to Five Star, right. So can we expect a pretty good pick up in Five Star's coverage ratios?

[David Hegarty:]

Yes, yes, it's -- and again in the presentation -- in the script I had mentioned that there would be a 40 basis points pick up in occupancy and about a five basis point pick up in coverage ratio. Michael Carroll - RBC Capital Markets And are all the assets leased to Five Star or only some of them?

[Rick Doyle:]

Well all 10 are leased to Five Star.

[David Hegarty:]

Yeah.

[Operator:]

Well now I'd turn the conference back over to the speakers for closing remarks. Thank you.

[David Hegarty:]

Well thank you all for joining us and we will be at Marriott in just a couple of weeks from now. So we look forward to seeing many of you at that conference personally. Thank you. Have a good day.

[Operator:]

Gentlemen, that does conclude our conference for today. We thank you for your participation and using the AT&T executive teleconference. You may now disconnect.