Healthcare Trust of America, Inc.
Q4 2016 Earnings Call Transcript

Published: 17 Feb 2017

[Operator:]

Good day and welcome to the Healthcare Trust of America 2016 Fourth and Year-End Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mary Jensen, Vice President of Capital Markets. Please go ahead.

[Mary Jensen:]

Thank you. And welcome to Healthcare Trust of America’s 2016 fourth quarter and year-end conference call. Yesterday we filed our earnings release and our financial supplement after the close. These documents can be found on the Investor Relations section of our website or with the SEC. Please note this call is being webcast and will available for replay for the next 90 days. We will be happy to take your questions at the conclusion of our prepared remarks. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the current beliefs of management and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although, we believe that our assumptions are reasonable, they are not guarantees of future performance. Therefore, our actual future results could materially differ from our current expectations. For a detailed description on some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. I will now turn the call over to Scott Peters, Chairman and CEO of Healthcare Trust of America. Scott?

[Scott Peters:]

Good morning, and thank you for joining us today for Healthcare Trust of America's fourth quarter and year-end 2016 earnings conference call. Joining me on the call today are Robert Milligan, our Chief Financial Officer; Amanda Houghton, our Executive Vice President of Asset Management; and Mark Engstrom, our Executive Vice President of Acquisitions. I'm proud to say that 2016 was another successful year for HTA. Our management team continued to execute our business plan. We continued to improve our enterprise value through our national asset management and leasing platform and we produced strong results for our shareholders. 2016 was HTA’s tenth year as a company and fifth year on the New York Stock Exchange. Our long term performance of a dedicated MOB company has been very consistent. We have reduced over 185% in total returns since we were founded and more than 10% per year through Friday. For the five year periods since we listed in 2012 we have averaged 3.1% same-store cash NOI growth which has led the sector and has not been benefited from any development related lease-up. During that same period we have grown our normalized FFO per by over 54% or 9% per annum. We have accomplished this performance by remaining extremely disciplined and focused on maximizing shareholder returns. As we look to 2017 the medical office sector continues to be an attractive place to invest. We believe that the past delivery models in healthcare are no prediction of the future, old and established paradigms are changing and smart investors will need to adapt to generate consistent long term growth for the future. Some examples of this is number one the demand for health care is increasing rapidly as Americans get older. With over 10,000 individuals turning 65 every day. Millennials are reaching an age where they are forming families and spending more and more discretionary dollars on health care. We believe both these trends will continue to drive health care spending for the next 5, 10, 15 years. We also believe these demographic groups have strong preferences for convenience, accessibility, and affordability in their healthcare destinations and the providers in healthcare systems are reacting to these methods in a forward looking trend. The US healthcare system is still extremely expensive which is forcing healthcare systems and physician practices to focus on cost efficient outpatient care. Most investors focus on the provider side of the equation but it is important to note that payers or large health insurers are accelerating this cost effective process by focusing their resources on moving care to outpatient and off campus locations. Insurers are increasingly buying provider networks, physicians and surgery center groups to control care and cost, in fact United Healthcare is now the largest employer of physicians in the US with over 17,000 employed doctors. And finally technology advancements are allowing more and more services and procedures to be provided in outpatient settings, many away from the hospital campus. For instance, full hip and knee replacements can now be done off campus. These settings are generally more profitable for the independent physicians. And these changes will certainly impact campus based healthcare in the future. With these dynamics in mind, our investment philosophy at HTA is focused on maximizing our asset management platform to drive growth by investing in 20 to 25 markets that have attracted healthcare and real estate demographics. Generally places where millennials will live highlighted by strong academic university presence. These markets generally have high levels of household income growth, population and job growth, strong infrastructure platforms and finally wealthy baby boomers. Two, assets that are core critical and located in the best position for healthcare delivery. These MOBs are surely on or around hospital campuses. However this also includes off campus core community outpatient MOBs which we define as multi-tenanted medical office buildings that have significant visibility are within a healthcare cluster of assets and are located close to attractive patient populations. Three, properties with a mix of leading healthcare providers and specialties that feed off each other generating synergies, referrals and great traffic patterns. This makes insurers long-term stability of leasing. As a company we believe the following characteristics will set us apart and allow us to outperform for investors and healthcare providers alike. One, efficient property management, generate critical core mass in our markets. Two, regional and local leasing teams that are in these markets and who understand the local dynamics and understand the local tenants. Three, aggressive but disciplined growth, stick to our markets, generate critical core mass and generate efficiencies. And four, maintaining a strong and flexible balance sheet, which provides capital sources for future growth while maintaining low leverage which will allow flexibility for long-term performance. This investment philosophy has generated results. For 2016, we generated the highest earnings in our company history $225 million of normalized funds from operations or $1.61 per share. We accomplished this by effectively operating our portfolio which generated 2.9% of annual same store NOI growth. Investing in over $700 million of medical office buildings and expanded our presence in our key markets and grew our portfolio by approximately 20%. Three, continue to access the capital markets through debt and equity transactions with extremely strong execution. Raising long-term capital that lowed our leverage and length of our maturities leaving us as we enter 2017 with below 30% levered balance sheet and finally all these options allow us for significant flexibility going into 2017. From an operating perspective, in 2016, we grew our same store cash NOI by 2.9% led by a 2.4% increase in base rent. Accounting for 2.7% NOI growth with the remaining 20 basis points of growth coming from our 80 basis points in margin expansion. Within the space, we have uniquely been able to lower our operating expenses each of the last several years. While we are proud of this performance this is understandably raised questions from investors and analysts seeking additional details. To aid in this question we have published a more detailed annual look at our expenses for properties we’ve owned for the last three years on our website. As you can see we have lowered expenses across the board with totals averaging 2% per year. Robert can discuss this more in detail. As we move forward, we remain focused on margin expansion opportunities and believe these can continue as we move forward in our key markets, generate critical mass, integrate our 2016 acquisitions and continue to add properties in our gateway cities. Our total occupancy remained relatively flat ending at 91.9%. Tenant retention came in at 80% across the 1.4 million square feet or 9% of our portfolio expired in 2016. This is despite the net loss of 60,000 square feet of space from the resolution of the Forest Park bankruptcy which occurred in third quarter of 2016. Now I would like to provide you with a quick update on the Forest Park MOBs. As you know we owned three medical office buildings, one on Frisco campus and two on the Dallas campus, both owned fee simple without any ground lease restrictions. At Frisco, we own one 90,000 square foot fee simple MOB attached to the hospital located in the middle of the Frisco Square Development. HCA acquired the Frisco hospital in the first quarter of last year and our MOB has remained full with 96% currently leased on long term leases. With the transition, we entered into new replacement leases on 45,000 square feet of space and should be fully physically occupied by the end of the second quarter, an extremely good results for shareholders. At the Dallas campus, where we have two fee simple MOBs totaling almost 200,000 square feet. During the second quarter last year, HCA and Medical City subsidy invested $135 million to purchase a Dallas campus. HCA still in the process of determining the appropriate specialty and the appropriate brand for this new campus given its proximity to the main Medical City campus across the street. At the end of the 2016, this campus fee MOBs were 70% leased which included 66,000 square feet of new or replacement leases that were signed in the third and fourth quarter of this year. For 2017, we have 23% or 46,000 square feet of the campus rolling. However, as in Frisco, during this transition we find our leasing pipeline is full with over 100,000 square feet of unique proposals issued in outstanding as of today. Given the critical location, the pipeline consists of a majority of non HCA or HCA affiliated physicians. Again very good for our MOBs. Not all of these will close but the activity is strong leading us to anticipate that we will see the campus 75% to 90% leased in the next 6,12, 14 months, again a very strong result for shareholders. While this hospital disruption is clearly not part of our underwriting, this leasing performance demonstrates several key factors in our acquisition discipline. Location and physical quality are key and owning buildings free of land lease encumbrances allows for complete control and leasing decisions when unexpected situations arise. Again a very fortunate and profitable process for investors. Turning to acquisitions, we invested over $700 million in 55 MOBs within our core gateway markets such as Connecticut, Mission Viejo and Texas totaling 2.5 million square feet representing just under $284 per square foot at an average cap rate north of 6%. Our disposition program focuses on non-core, non-MOB asset sales. We sold six non-core senior care facilities for $40 million generating net gains of approximately $9 million allowing us to reinvest these proceeds in the more attractive MOB assets. Finally as we look to 2017, we remain positive on the sector and our business and we continue to raise the bar on our execution. Are rent roll over in 2017 is around 11%, an increase from the 6% to 8% we have averaged since listing. We expect tenant retention will remain in the mid 80s for the rest of the year. Given the increased rent rollover and its potential impact on the timing of cash rent commencements of expected new leasing, we expect some same-store - our same-store growth to be in the 2% to 3% range for this year. From a cash perspective, our GAAP same-store NOI growth will likely remain steady at 2% given the impact of straight line rent. From an acquisition standpoint, we will remain disciplined and look to invest within our key markets where we can drive additional synergies and critical mass across our operating platform to drive performance. As we've discussed we are well capitalized and positioned to provide quality medical office solutions for our tenants and consistent performance for our shareholders who have come to rely on the stability and consistency of our performance. I will now turn the call over to Robert Milligan.

[Robert Milligan:]

Thanks Scott. We had a very consistent 2016 highlighted by solid operating performance, investment in key markets and strengthened investment grade balance sheet. From an earnings perspective, fourth quarter normalized FFO per diluted share was $0.41, an increase of 5.1% per diluted share compared to the fourth quarter of 2015. Overall normalized FFO increased over 17% to $59.5 million as compared to the prior year. The increase in year-over-year normalized FFO was primarily driven by our same-store cash NOI growth of 2.9% and NOI derived from the strong investment activity over the last several years. For the year, our normalized FFO per diluted share was an HTA record of $1.61 per share, a 5% increase over 2015. Total normalized FFO increased 15% to 225 million. From an operating perspective, we grew our same-store cash NOI by 2.9% for both the fourth quarter and the full year. In the fourth quarter, which includes all properties acquired through the third quarter of 2015, our NOI growth was driven by a 2.6% increase in base revenue which falls entirely to the bottom line. Our expenses for the comparative period actually increased slightly based on higher utility spending and some late full-year 2016 property tax increases. However since we true-up our expenses and recoveries quarterly from a GAAP perspective, the impact on overall NOI was relatively small. Occupancy in our same-store portfolio remained around 92% demonstrating the continued stickiness of our tenants and actually increased 20 basis points from the end of the third quarter. Tenant retention in the period was 80%, although releasing spreads increased around 1%. Tenant improvements increased slightly on a per square foot basis to $2 per year of term on renewals and $4 per year of term on new leases. Physician consolidation is driving larger space requirements and allowing us to refresh older smaller spaces with new capital. Pre-rent remains very low at less than one-month per year term. For the full year, our same-store cash NOI which includes properties acquired through the end of 2014 also increased 2.9%. This was driven by a 2.4% increase in base revenue and a $50,000 improvement in operating margins as we drove expenses 1.1% lower. Our expense savings and operating efficiencies have been unique in the medical office sector. For this reason, we published a full three-year look on our operating expenses and impact on recoveries. This includes property that we owned at the end of 2013 and continue to hold in our operating portfolio today. As you can see, we have driven costs efficiencies across the board reducing expenses by $3.6 million or approximately 2% per annum in each of the last two years. We've accomplished this in a few ways. First we've internalized third-party property management in many markets. This is mostly seen in the reduction of our external management fees as we move the properties in-house. As we move forward, we’ll continue to generate savings as we buy properties and then take them over from the developer and third-party property managers that oftentimes stay in place for a short period post acquisition. Second, we've established operating standards for our portfolio that are more efficient than local owners generally have. This includes standard preventive maintenance and continued monitoring and configuration of our building systems to gain efficiencies that can be seen in the reductions in our maintenance and utilities cost. Third as we focus on acquiring and gaining critical mass in our key markets this allows us to achieve economies of scale across our platform, extending our property management company, and engineers to cover additional properties as we grow in the market. Accordingly, we realized efficiencies in maintenance and administration line items. Fourth, we use our national platform to continuously lower cost across all markets including in telecom, insurance and other such supplies. And lastly we've invested capital to modernize our buildings and improve their energy efficiency. Overall we've invested over $13 million and this type of capital since we listed to improve energy management systems HVAC upgrades, more efficient and longer lasting LED lightings and building envelope ceiling. These increase our building utility efficiencies. Overall, these savings we're achieving not only improve our margins in the short term but also benefit our tenants by reducing the costs that are required to pay under the leases and ultimately allow us to be competitive in our markets by giving us more potential for growth in our rental rates. As Scott touched on earlier during the past year, we acquired over $700 million of medical office buildings located in key markets totaling 2.5 million square feet. The largest year for us since we listed in 2012, we are able to achieve this growth given ready access to the capital markets which allowed us to invest while simultaneously raising attractive long-term capital and actually lowering our leverage for the year despite growing our medical office portfolio by more than 20%. Our balance sheet is in great shape as a direct result of this capital market execution. We have low leverage at 29% debt to market cap and 5.7 times adjusted debt to EBITDA, higher liquidity and fewer near-term debt maturities when we started the year with. Our debt is now very well lettered with less than $100 million coming due before 2019 with an average overall maturity scheduled for six years. G&A for the period was 7.9 million for the quarter, up slightly from $7.3 million last quarter. For the year, G&A totaled $28.8 million. Increase in both periods were primarily related to increases in non-cash stock compensation issued in 2017 along with management contract. During the quarter, G&A remained very low as a percentage of our total revenues with it coming in for the year around 6.2%, down sequentially from 2015 and 2014. In what appears to be over 200 basis points lower than our direct peers. In addition, we have done this without development to offload our corporate overhead. I will now turn it back to Scott for final remarks.

[Scott Peters:]

Thank you Robert and operator we can open it up for questions.

[Operator:]

[Operator Instructions] Our first question comes from Michael Knott of Green Street Advisors. Please go ahead.

[Michael Knott:]

Just wondering if you can just comment on any thoughts that you're seeing in the marketplace, leasing marketplace among systems et cetera about any uncertainty related to affordable care potential repeal?

[Robert Milligan:]

Right now based on our leasing from what we're seeing we have not - I have not seen and I don't think any of our leasing folks in our markets has indicated that they've seen anything substantial or even a deal perhaps that has been pulled back based upon what we're seeing or the uncertainty that we're seeing in the Affordable Care Act. I think there is a consensus among folks that we talked to that the modifications that will come out of the changes in Washington will be somewhat minor meaning that everybody will tend to be covered perhaps more usage which was a problem issue with the Affordable Care Act as it moves through the last year and a half. You know more folks using it lower premiums higher credits, health care systems getting more early usage in the year versus late. And I think again there's a consensus that the change is going to be far more consistent with what we have than anything that would be a substantial and complete starts from scratch.

[Michael Knott:]

And then Scott on the comments that the mid-80s percent tenant retention for ‘17 that is a bit of a relief just given that the lease expertise are a little bit higher this year than they've been before. Just want to know if you can give a little more color on the 2% to 3% commentary on same-store NOI growth for this year on a cash basis that some like it could be a little bit lumpy. Do you expect any quarters where it would be sort of below 2 but round up to 2 or do you think it will be inside of that 2% to 3% range just any more color on that would be helpful?

[Scott Peters:]

Sure. Well, we've been very consistent in fact we've been consistent to a fault over the last three or four years. And that consistency has really been a huge large part based upon the three core fundamentals associated with getting to that same store growth. A big part of that as you remember we've talked about the last couple of years is the low rollover that we've had from a portfolio perspective. This year we do have a little more rollover which I think is good and bad. The good news is that we get to I think have an opportunity to move some rents; we get to have an opportunity to expand some spaces for folks that have wanted additional space. I look for that renewal rollover rate to be in the mid-80s. We're already as a company I would say 85% to 90% already engaged with not engaged with but have spoken to and have pretty clear intentions for folks that are renewing in 2017. So we're pretty comfortable with where we're at. I think that you know to sum up your view of the ebbs and flows there may be a little more ebb and flow in our same-store growth 2.5 to 3.5, but I wouldn't expect that there would be one whole percent or it wouldn't drop below 2 and we were just very consistent from a portfolio perspective and especially as we continue to see the activity force part that would actually be a benefit for us if that accelerated more than what we've conservatively put into our numbers.

[Michael Knott:]

And the last one for me and I'll jump in back in the queue but I know you guys have talked over the last couple of years about 93% to 94% range on occupancy as a target if I recall correctly and just curious if you have any updated thoughts there and maybe what the top range for multi-tenant would be embedded and whatever range you're talking about today or target goal.

[Robert Milligan:]

I continue to feel that you look at some of our peers, they’re in the mid 90s and I think that that's a huge compliment to them. A strongly positioned asset or a community core asset that is a campus with synergies to it fundamentally should be in that mid 94%, 95% range. We see it, we see it in our stronger assets, we certainly see it in our stronger markets, our multi-tenanted assets. We've been pushing rates and we've been reducing concessions which towards the end of last year that push fundamentally probably cost us a little bit of occupancy. I mean there is that - there is a correlation between how aggressive you want to move certain people versus what type of occupancy you want to get. Our goal as a company and our goal is an asset management platform is to be in that 94%, 95% range and I think we're going to continue to strive for that, we're up to about 92%. We'd be better - we'd be much better than that if again the Forest Park transition hadn't hit as at the middle of 2016 in Frisco and it continues to transition because the folks that were there before are not necessarily the folks that want to be there moving forward. That's the transition that goes on with an asset such as that. So I look for us to continue to gain momentum and continue to move that occupancy. But I think it's a matter of being disciplined and ensuring that you are getting the right rates, the right concessions. We look very - every lease we look at we're really looking at returns. What are we getting from our invested dollars and we want to make sure that we're maximizing shareholder return not just giving away capital in order to get a carry interest or someone paying us back for a three or four years from incremental over TI that you might give them. So we're still confident that we can move - continue to move up here over the next two to three years.

[Michael Knott:]

Thanks I guess Amanda has got her work cut for her thanks.

[Operator:]

The next question comes from Jonathan Hughes of Raymond James. Please go ahead.

[Jonathan Hughes:]

Good afternoon. Thanks for taking my questions and thanks for the disclosure on the expense savings, Robert, I found that very helpful. So few weeks ago the HCA mentioned they were seeing some increased competition for their outpatient properties and some movement of physicians from one center to another. Are you guys seeing any similar trends within your portfolio and then are there any specific markets that concert you in terms of new supply deliveries over the next 12 to 18 months.

[Scott Peters:]

I think that there is still that competition within the marketplace. We're a strong believer of that the paradigm of the past 15 years in medical office and healthcare systems and in physician practices is not the focus of the future. Technology is having such a huge play and insurance companies are continuing to push efficiencies and pricing you saw it with the hip and knee folks now being able to move off campus. You see it in the major gateway cities where accessibility to the patient is becoming extremely critical to the healthcare system in most cases in large gateway cities that have a lot of infrastructure, the hospital is the last place that folks want to get to. So there is that continued movement and I think you're going to see that continued movement as we see what the healthcare systems of the United States looks like over the next ten years. So I think that HCA is probably seeing those types of trends continuing to move. Competition or markets that we're concerned with, Phoenix has done a much better job from a market perspective. I have perhaps mentioned in the past that I have felt that Phoenix was a slower market to either have adapted to the Affordable Care Act or to have perhaps had physical practices started to consolidate, Phoenix is still like Miami and Florida. There are still practitioners, there are two or three folks that still manage. We're seeing that trend now change where we're seeing more activity in our Phoenix markets, we've had larger spaces that have been looked to be leased. We've had bigger expansion from existing practices. So we like the Phoenix market better than we have in the past. There are some markets we'd like to get into. I think the markets we're in, we like to be in, we like the fact that we like Indi [ph], we like Columbus, we probably would be very, very selective in secondary markets in the Midwest. I don't see a continued population in flow in secondary markets in the Midwest. Maybe in Texas you see secondary markets and you can continue to see inflow of population and continue to see inflow of millennials but you're not seeing that in some of the cities like there was some opportunities in Akron and Cleveland and Youngstown and even Cincinnati you look at and you might say I need to be very, very selective. But we like the gateway cities, we've looked at several and I think in 2017 we will continue to start investing in and getting critical mass in certain locations that we're excited about.

[Jonathan Hughes:]

Any West Coast markets on your radar given some limited exposure. Now it seems like Seattle, San Francisco might fit the mold of wealthy boomers and growing cities that are attractive to millennials.

[Scott Peters:]

Well, we have been vocal, sometimes it's interesting, three, four years ago no one listened to us and now people actually I think listen, but we like Seattle, we wanted to get into Seattle, but Seattle went to a sub-five based on some of our peer competition. We actually got outbid and it actually run into one of our peers there on a couple assets and they went lower than what we were prepared to do and they've got some substance there and maybe that was their decision process. San Francisco another expensive market. We got a 575 in Mission Viejo that I think is every bit as good as critical real estate as anything that you would find in those two markets that we just talked about and so we got 100 basis points probably better than you would have gotten some other stuff and we got it fee simple with no ground lease restrictions. So putting a $175 million out in that type of location we'd like to duplicate that but you got to be very selective I think where you go and what you pay because ultimately it is a ten-year return game. You want the value you pay and the same store growth you get, the capital you need to put into the asset, the restrictions that you may or may not have on the campus. The campuses energy or synergies that are associated with who they're attractive the campus. That all plays out on your returns and as we mentioned and we continue to mention, our goal is to continue over the next ten years to have the type of performance that we've had over the last ten and it starts with what you pay and continues what capital you put in and getting good and strong returns for that capital and then continuing to get the same store growth on your leases especially when they roll over. So we like the West Coast, I think you just you know it's all discretion, where will you get the best value for the dollar that you're putting out.

[Jonathan Hughes:]

And then I'll just ask one more and I’ll jump off. But could you give us some color on maybe the pipeline of deals you're looking at in terms of size, cap rates, who are the sellers and then if any of these have circled back from before the election and if they fell through after November.

[Scott Peters:]

Well we starting to see a little more activity. I think there was a - my perception it's been over the last five years I would say that the end of December and the first part of January a lot was done at the end of last year. And I think last year was a very, very productive year from a sales perspective and an acquisition perspective for folks in the MOB space. So we've seen more now that it's middle of February, we certainly have seen some opportunities arise. We've seen you know we're very focused on markets that we're in. So if there's five acquisitions out there there's probably maybe only two of those it probably fit the market that we're in, fit the discipline that we want and a lot of our stuff that we're finding is really relationships that are coming over a period of one or two years. I do think it's going to be a very strong year or a strong year again for MOB space given everything that if it stays relatively. If interest rates go significantly higher than I think that would put a detriment to - there’ll be a pause because folks should figure out if that pause is going to relate to cap rates. But I think MOB continues to be a very sought after place for investment dollars vis-à-vis office or vis-à-vis just the stability that you can get with the macroeconomic trends that continue - that we continue to see in our leasing pipeline.

[Jonathan Hughes:]

And then cap rates kind of in low six range still not seeing any movement there.

[Scott Peters:]

I'm not sure that cap rates of move much. I think that you saw some transactions at the end of last year that frankly were startling. If you looked at a couple of the larger transactions and then you would say alright, how do I look at this vis-à-vis so other transactions that might be available, you would think that cap rates will stay in that 5 to 7 range, 5 to 6.5 range. I think you might even get sub-fives. We've seen that in certain situations where folks are getting a benefits that they feel comfortable with from that particular asset or that particular market or where they're trying to continue to get a critical mass. So we haven't seen cap rates move yet and again if you look at where things are and so forth. If things stay about where they are I wouldn’t expect that you would see a lot of movement. in fact you might actually see some continued movement down in certain markets where the strength of the medical space or the strength of the healthcare systems are producing very strong same store growth on your leasing.

[Operator:]

The next question comes from Tayo Okusanya of Jefferies. Please go ahead.

[Tayo Okusanya:]

Question, you did make some comments just in general about your acquisition outlook based on those comments is it fair to extrapolate that you think the acquisition volume in ‘17 could be similar to ‘16 or I shouldn't go that far.

[Robert Milligan:]

I think that you know first and foremost I don't think you should go that far this early. It's very hard; I think it's always been our policy that guidance is a very hard thing. I think that any one that can see six months or nine months or 12 months down the road as it relates to the utilization of capital. That's a difficult thing to do and I think it puts a management team in a box to some example in some situations because the expectation is different than the execution. And there are decisions that are made that might not be made if one isn't pushed into that corner. We've always said and I think our balance sheet represents that we want to move into a year and every year we've done this ‘15, ‘16, ‘17. We've actually been left levered moving into the next year than we were the year before. 2016 we did something that I thought was extremely prudent, we bought assets but we matched it with equity and then with the same time we termed out debt which is now pushed us off one of our weaknesses moving into 2016. I felt was the length of some of our maturity. And as we moved into this time last year you know the ten year was supposed to move up to three and the markets - the bond markets were a little expensive and so we were patient and then we were able to take with some execution mid-year. And I think that was very good for us. So I would say, Tayo that we would say that we have flexibility in our balance sheet to be able to execute on very good opportunities in our markets that are going to add synergies to our platform. You add that with our dividend, you add that with our growth in our same store, you get a very solid representation of what HTA’s baseline is. And then we'll make the decisions and then we'll make the execution options to say is the market looking for us to make good investments and continuing to keep the company extremely balanced from our equity perspective. So, again I like where we are, I think we have options to continue to provide good rings for shareholders, but I think that we're not in any corner and I wouldn't want to put us in any corner with some outlandish expectation that since we're so early in the year.

[Tayo Okusanya:]

And then could you just talk a little bit about your tenant improvement on leasing costs for renewal spaces that did go up in the 4Q versus 3Q. Can you just talk a little bit about what caused that increase whether it’s mix or something of that nature? And could you also give us your tenant improvement and leasing costs for new leases and looking at a general sense of how that’s been trending as well?

[Robert Milligan:]

Yeah. So from a tenant improvement on renewal cost, when we - we tend to see the larger tenant improvement dollars really going to the larger tenants that in many cases are expanding and reconfiguring suites really where you're going from two or three smaller suites consolidated to make a larger suite. We've got a couple examples as those deals get signed. On the positive front on that, you get a larger tenant, you get a refreshed space, somebody that's really going to anchor the building for a longer period of time, but it does take a little bit more dollars to knock the walls down and things like that. So that's generally where we’ve seen some of the tenant improvement dollars increase slightly on that. From a new leasing [indiscernible], I’ll pull that up here in a second, but we've seen the new leasing really be pretty consistent. I mean it's tended to be in the $4 to $5 per square foot per year of term. And that really hasn't changed all that much materially over the last really two or three years. I think it's kind of fluctuated in between $4 and $5 per year of term, depending on the location and depending on really the consolidation of the space, a similar concept there.

[Operator:]

The next question comes from Rich Anderson of Mizuho Securities. Please go ahead.

[Rich Anderson:]

Thanks. Good morning out there. A couple of quick ones. Are you guys going to still expense acquisition costs with the FASB pronouncement guidance that starting in ‘18, REITs aren’t longer obligator, should be doing that, they should be capitalizing those costs? Are you going to start that prematurely or are you going to wait till ‘18 to do that?

[Robert Milligan:]

I think, Rich, we're evaluating that right now. Obviously, it came out late in the year, but I think we’ll see what most REITs are doing and we’ll make a decision on that standpoint.

[Rich Anderson:]

Okay. That's good enough. Scott, you talked a little bit about occupancy potential out of your portfolio, HR on their call today said, sort of I don't know if they used the term functional vacancy, but for the multi-tenant side that generally people are below 90% there just because of the granular nature of the asset class. Do you disagree with that? Do you think multi-tenant even despite its moving parts can also naturally exist in the 90s and are you there now within that side of your portfolio?

[Scott Peters:]

Well, three questions and I'll give you three pretty forthright answers. One I think that I do disagree with that general concept. I think that an occupancy within a multi-tenanted building that is on a campus - community core campus or multi-tenanted building that's on a great campus next to a hospital, what we're seeing is we’re seeing a lot of energy in those buildings and if you do have someone move out, you have someone backfilling. If you have someone moving out, you have someone expanding. We were just talking about one of our buildings here in Phoenix, where someone wants to take expansion space of 1500 square feet and we've got someone backfilling that immediately and that building is 98% occupied and that's a great, it's one of our best buildings here in Phoenix. We have that examples in Raleigh, where we have some space that does that. Again, I think it's the critical core nature of the building. Now, some buildings that are on campus, they're just not the activity that allows that to happen and I think that that's perhaps what they're referring to is there are some cases where the campus isn't being - enough synergy is being generated. But I don't think that that is a necessarily a function of the MOB space. So I'd like to think that our multi-tenanted buildings bought right, tenanted right in the right locations can continue to be in that mid-90 range on a consistent basis.

[Rich Anderson:]

Are they there now?

[Scott Peters:]

We're not quite there now. No. I think we're in - I think we're consistent to what where they are. Robert might know the actual number.

[Robert Milligan:]

Multi-tenanted is closer to 89% when you look at compared to the single tenant buildings. I think when we look at it to Scott’s comment, if you take out really two or three campuses or locations or things like that on a multi-tenanted side, a vast majority of our multi-tenanted side buildings are in that 93%, 94% occupancy. I think we've got a handful of locations that drag that down. So I think that's our view that the strong buildings, as we look across our portfolio certainly, are the 95.

[Scott Peters:]

And I think Rich to take it a step further and I think Robert hit right on the head and Amanda's doing this and we're doing this as part of our budgeting process is that if a building isn't in the 90s, that's something that management should understand why. Whether it's an issue with location, whether it's an issue with type of tenancy, whether it's an issue with price. What is it? Because you should try to get those buildings, those campuses into the 90s and Robert is right, where we have strong presence, strong assets, strong synergies, strong tenants. Predominantly, we're in the 90s.

[Rich Anderson:]

Good. And just a couple, one two part to close out. And I do of course appreciate the expense breakout, I think, universally helpful for everyone. Just a couple of questions. First on the administrative bucket. That number was one that caught my eye the most. What is in administrative, is that that like off-site property management, is that what that would be or can you just describe what that?

[Robert Milligan:]

Yeah. That’s typically our internal property manager costs that are in there. And as we talked about before, you really get that - drive that lower a couple of different ways. First of all, as we expand within the markets, this is the concept you hit on last time. We're able to allocate a single property manager further or a group of property managers further across multiple assets, which then makes it a more cost effective solution certainly for us and for tenants and that's really what goes into that administrative bucket is primarily the property management cost.

[Rich Anderson:]

Okay. And then the last question is you mentioned $13 million investment that you made over the past three years to improve technology and how the buildings run and all that sort of stuff. Those are capitalized costs though, is that correct?

[Robert Milligan:]

That's correct. Yeah. And that goes back a little bit further. I think, we looked at the total capital spending really back to when we listed. So it does go back a little bit further. But that is upgrading HVAC units, it’s putting energy management systems in, all things that we as buyers, institutional owners, we buy assets. They're not often really managed by other institutional owners and so there is that ability to put in the right kind of capital to drive that efficiency and I think that's one of the things that we kind of stress and we talked about the difference between a three year look and a two year look. The process we go through in the three year look really shows that as we put things on our platform and our standards and we put the right investment into them, you see the operating cost efficiencies and really what we look to do is as we buy additional properties, they go through the same process as well and that's where we see that additional benefit from a yield and from an acquisition.

[Rich Anderson:]

The only thing I would say is you kind of get a same-store benefit for a capitalized cost. So, it's not a big number, but -

[Robert Milligan:]

I think you're absolutely right. Rich, you’re absolutely right. And I think when we look at our capital, you would expect that that’s a pretty good predictor of what you should see from an NOI growth perspective and if it doesn't get a return on that, then we shouldn't be spending the money.

[Operator:]

The next question comes from Todd Stender of Wells Fargo. Please go ahead.

[Todd Stender:]

Hi. Thanks. And my questions are geared toward the leasing activity. I just want to get a little more color on Q4 leases that didn't renew, maybe could break them out how much was on campus versus off campus. And then if we could look at also the leases that did renew the mix of on campus versus off campus if you have that?

[Scott Peters:]

I'm going to give that one to Robert, Todd.

[Robert Milligan:]

Todd, you’re going to make me up to look that up. So if I can get back to you on that one, I don’t have that readily available. Yeah. I think conceptually, on a general basis, we've certainly seen pretty consistent leasing kind of both on campus and off campus from a renewal standpoint. I think certain things that we've done on an off campus basis, we've seen the ability actually to push rents more. And so I think we've looked at some of the space and said if it's an active core critical outpatient location, sometimes, it's better to let those guys expire and we can push the rate as either somebody is going to consolidate and take more space or we can free the space up to bring in somebody that's willing to pay a little bit more money there.

[Todd Stender:]

That’s helpful. Yeah. As you guys move towards, maybe, it's more or incrementally more community core location. Just to get a sense of that -

[Scott Peters:]

I like the questions. We’ll find the answers.

[Todd Stender:]

That sounds good. And then just how about in size. For a while, we were talking about moving from smaller to larger footprints, maybe for less tenants in a multi-tenant building, but they're taking bigger footprints. Any more signs pointing to that, anything the people looking at post-election as the ACA is being renewed or reviewed, I should say?

[Scott Peters:]

Well, that question, we’ve look at that question, because it came up in a discussion I was having probably two weeks ago and it was our panel and we, the MOB peers were sitting there and the consensus was that the average space is about 4000 to 5000 square feet. We came back and I was curious to see if the average space on campus and off campus was consistent to the comment that was made that on campus was about 4500 square feet. And it does seem that when we looked at our portfolio that the consistent space seems to be on campus and off campus about 4000 to5000 square feet. Now, I will say that in our pipeline today and in our pipeline in the last 90 days, there has been an disproportionate [ph] amount of larger spaces and I'm talking about 3, 4, 5, 6 deals of 10,000 square feet. But those seem to be an aberration of what traditionally goes through the rest of the 96 leases that we do. So we have seen some larger spaces in some of our assets being taken. Vegas was a large space. We had some in Texas taken. We had here in Phoenix taken with some large space, but if you looked at them all and we did, the average would be that 4000 to 5000 square feet and it would be consistent on campus or off campus.

[Todd Stender:]

That's helpful. Thanks Scott. And then just last question, when you're looking at re-leasing spreads, I think they're around 1% recently. How do you see that trending over the next couple of quarters, where do you see that going for this year?

[Scott Peters:]

Well, I would say conservatively and cautiously that we would be - our baseline is probably the same. It's performed well for us over the last couple of years, but I know that Amanda and I have had some conversations and Amanda actually was the one that brought it up about, we talked probably three weeks ago about as we move through the year, do we want to become more aggressive with our leasing spreads. Again, that gets back to occupancy, it gets back to looking at specific buildings, it gets back to looking at how it affects certain of your larger tenants and so forth and so her view and feeling was that there are opportunities in locations that we have that seem to be saying, by the amount of reduction in free rent and in the amount of reduction in TI dollars that you could move rents a little more if you were going to be a little more consistent with that number, because you either move spreads a little more, keep it at $4 and keep it at a month free rent or you can move that to some extent. So I think you might see us become a little more aggressive towards the middle of the year in our leasing spreads.

[Operator:]

The next question comes from Chad Vanacore of Stifel. Please go ahead.

[Chad Vanacore:]

Hey, good morning and good afternoon. All right. So Robert, in your prepared remarks, you might have covered this, but I was just going to see what was really driving the increase in OpEx in 4Q that’s a bit unusual for you guys? And then how should we be thinking about expense savings in 2017?

[Robert Milligan:]

So in the fourth quarter, I think, for the year, we were successful in driving expenses lower across for. I think in Q4, what we saw on a year-over-year basis was we did have some kind of late full-year property tax bills come in - came in with some increases on that that you recognized the full expense in the period that you get them. And since you’re so late in the year, you get a full year impact on it. That was the main driver of the expenses. I think what I would also point out along with that though is there was really - that really didn't have that much of an impact on our same-store NOI though. From a conceptual perspective, we always get tenant recoveries of our expenses averages about 67% across the board. In this case, given where the tax increases were coming through, all of that becomes a tenant recovery responsibility. So from - which is something that we really drop every quarter. So even though those expenses did come up, there was really no impact to NOI on that just because we do think those expenses or recoveries that are contractual should be trued up on a quarterly basis, but that expense was largely driven by property taxes.

[Chad Vanacore:]

Okay. And then how about the fairly large impairment in the quarter, what was that from?

[Robert Milligan:]

Yeah. So the impairment, we have an $8 million asset that was under contract. We entered into a contract to sell it. We've actually closed it now in February and we sold it for $5 million. So it's a small asset. It's one that was just non-core to our markets or close to where we have the rest of the buildings and it was an opportunity frankly to sell it at very low cap rates and just move our intention elsewhere.

[Chad Vanacore:]

Got you. And then just one last one for me, you disposed of some more senior care facilities, I think Scott that six properties, but I’m not sure if that was for the whole year or that was year to date as well, but can you tell us what type of care it’s provided and around what cap rates sold?

[Scott Peters:]

Yeah. The six assets that we sold were for the year. The two that we sold in the fourth quarter, we sold for primarily a skilled nursing and we sold them for about a 7 cap back to the operator

[Operator:]

The next question comes from Karin Ford of MUFG Securities. Please go ahead.

[Karin Ford:]

Hi. Good morning out there. Just a clarification I think you've talked around a lot of this, but just want to make sure I understand it. So the 2% to 3% same store NOI growth expectation for this year compares, it's a little lower than the 3% you've done in years past. The reduced expectation is due to the churn associated with the higher rollover this year, maybe a little higher expense growth, maybe both. If you just sort of outline that for me?

[Scott Peters:]

Sure. I think our 2% to 3% has always been 2% to 3%. It's 2.5% to 3.5%. I think that we're very comfortable with the consistency that we're going to have and that we've demonstrated. I think the additional roll obviously gives you a little more variance in the ability to move things and I think we've been very consistent with people in the past and the 2% to 3% really that in the Forest Park transition that we're talking about, I don't expect us frankly to see much change in our numbers going forward. But I think that's a pretty good range for folks to look at and say okay, here's where I can expect that they will be going forward this year.

[Karin Ford:]

Do you have an estimate as to how much, how big the impact is of the downtime at Forest Park, how much of a drag that is on same-store NOI this year?

[Robert Milligan:]

It's going to be small. I think that we lost about 30 bps of occupancy across the portfolio as a result of that. And so as we re-tenant that space and bring people back in, I think that’s the total impact to that and it certainly didn’t impact us in the fourth quarter as we had offsets elsewhere to that as we’re able to grow the occupancy. I think in the back half of the year, if the leasing pipeline comes to fruition like it seems like it might actually be a benefit.

[Karin Ford:]

Okay. Great. And just last question, I know you guys aren't developers, but any opportunities for redevelopment or expansion in the portfolio that might start this year?

[Scott Peters:]

No. I think right now, we haven't seen a lot of development going on frankly. Again, I thought it was a pretty quiet last 90 days in the MOB space as an overall view of what's going on. People were trying to I think figure out, they were exhausted in 2016 and wanted to figure out 2017. We continue to talk to some of our healthcare systems where they want maybe a renovated space or they want some opportunity with a location that we have with something on it and we’ll continue to take advantage of that where it makes sense. But as you said, we're not developers and so we pretty much focus our attention on our leasing, our acquisitions and our asset management program.

[Operator:]

The next question comes from Vikram Malhotra of Morgan Stanley. Please go ahead.

[Vikram Malhotra:]

Thanks, guys and thank you for the additional disclosure. Just wondering if you were to publish the same thing in a couple of years, where do you think the margins, the cash margins would go from here.

[Robert Milligan:]

I think from a margin perspective, it’s interesting and this is one of the things we were trying to demonstrate with this disclosure is typically when we buy assets, their margin is not at the same level where we're able to operate across the portfolio. So I think as we continue to grow, we're buying assets and I’m going to say typically come in at a 65% margin and we're able to grow them up to 67%, 68% margin over time. So I think from a baseline perspective, you should see us continue to grow the margin opportunity 20, 30 bps a year. I think it’s what we typically look at.

[Scott Peters:]

Vikram, I think the key question that we have to look at as a management team is key markets, critical mass, continue to buy acquisitions where our infrastructure is in place because we've talked in the past that we feel that where we're located right now in the markets that we’re in, we can add a substantial amount of acquisitions, we added 700 million last year and didn't move much of our needle. I mean, it didn't change, in fact, it improved our margins. And I think if we continue to pick the right assets in the right locations without trying to be everywhere or move in to new markets with one-off assets, I think we can continue to move that number. And so I think it's incumbent for management and it's incumbent for our asset management team to focus in those areas that are going to bring the synergies to our platform because our platform is not fully built out. I guess the short way of saying it is that our platform in the markets we’re in right now have additional volume that they can handle without additional cost and that's really where we're focused on and that's where our discipline needs to present itself.

[Vikram Malhotra:]

Okay. That's helpful. And then just on the 2% to 3% same store NOI, I'm wondering is there any - this year or going forward, do you think there will be more of a divergence between what on campus and then what you're defining as core community versus non?

[Scott Peters:]

Well, I think what we're going to do is continue for some more disclosures. I think the disclosures that Robert did this time with the expenses was very good. I think one of the questions we got earlier from Todd was very good, which was, get some more detail on off campus, on campus, because I frankly am not afraid of the analysis. My view is just that it was ten years ago when I started this company was that medical office was a great place to build a company from. I also believe strongly that the focus of our healthcare system as it continues to expand generated by technology, is going to move and continue to move more and more services to patients into the outpatient locations, which are not the hospital because the hospital by itself is most expensive place you can be as a physician or a healthcare system and populations don't grow around hospitals, they grow in suburbs, they grow in locations that that have infrastructure that really services the millennials or the families that are growing in those locations. So I like the community core campuses. You heard, that's all you heard about five years ago when the Affordable Care Act was introduced, then it kind of went away. I think there are limitations on campus. So I think that the ground lease, you heard us talk about the ground lease restrictions. If a campus does not have a lot of energy to it and there's ground lease restrictions, then the health care system doesn't want competition and if they're not actively looking for more physicians, then your space sit. And you as a landlord don't have a lot of opportunity to change that. So we like the ability to be able to be a buyer of three types of specific assets in the medical office building space. We like the on campus across the street, but we want to be very careful. If I have a chance to buy a building across the street without a ground lease versus a building next to the hospital with a ground lease, the longer term value in the building across the street, if it's the same sort of energy, the same sort of tenants, the same sort of synergies within that location will always be better because I have a better ability to move the folks into that building that want to be there. And then the community core, competition, healthcare systems, being in locations, generating synergies, accessing patients that also moves rents. So we like the fact that we can be in that - those two spaces plus the academic university setting, which is of course the forefront of healthcare as it moves forward over the next 15 to 20 years. So we like the three spaces and I think the more we can disclose about the opportunities and the profitability of these assets, the more investors will see that it's really about the cash that is generated at the building over the long-term versus the fact that it just happens to be on campus. I'm not a buyer of a secondary market building on a campus because the population inherently is not growing.

[Vikram Malhotra:]

That's fair. So it sounds like just from in that 2% to 3% and if you look out, there's not a material difference between what you're modeling it for just on campus versus community core?

[Scott Peters:]

I’ll say this, if you look at us and HR and I had mentioned this before and HR has made a big point and I think it's their business philosophy and I think it's a great philosophy because I think as I've said, each of the three of us in the space right now have distinctive business models and that's perfect for investors to look at. It's great for them to analyze it and distinguish how they want to invest and what they want to invest in. They’re on campus. That's what they said. Well, we're a mixture, 76 and 23 and so forth. Over the last four years, same store growth even stevens. But my acquisition costs have been less and my capital that I spent has been less and my returns have been greater. And so if the buildings are going to be consistent, and again, I think the opportunity, we're seeing better pricing in the community core and I think we're going to continue to see that, because hospitals by definition are expensive and insurance companies by definition want it cheaper, more efficient and more productive and patients want accessibility. So we like where we're at and I think that the returns are going to show themselves over the next 5, 10 years and I think they'll be very favorable.

[Operator:]

The next question comes from John Kim of BMO Capital. Please go ahead.

[John Kim:]

Thank you. Just a follow-up on the same store reconciliation and Richard’s question on administration costs. I would have thought of, as management fees went down, if you took more management in-house, but that number would have gone up. So I'm wondering if there was any reallocation of those costs into G&A.

[Robert Milligan:]

No. I think that’s an easy short answer. I think the management cost is really third-party management fees as you point out and our ability to run the properties is wholly dependent on the amount of scale that we get in a market. So as we've grown scale, we become more efficient. You’ve seen them both move down.

[Scott Peters:]

And an example would be, we have $1 billion investment now in a 110 mile radius in Boston, White Plains, Albany and Hartford. And a lot of that investment has come over the last 18 months. And we actually have less dollars being spent from a G&A perspective, property management perspective in those areas today than we did when we had half the amount of investment in those locations. The ability to maximize and utilize scale has always been and I think always will be a huge opportunity for folks or businesses that get critical mass.

[John Kim:]

Okay. So it's not the same amount of costs spread out over more assets of actual dollar amount?

[Scott Peters:]

Yeah. If you buy three assets and they’re within the appropriate radius, we've let people go. I mean, you need three of them, you need one of them and that's a plus-plus savings and we look at that and we take that very seriously as we go through our acquisition and our asset management process.

[Amanda Houghton:]

And this is Amanda, just to add one other bit of color. I mean at the earlier administrative charges, those included third-party property management salaries and office costs. So the administrative line isn’t HTA property management salaries and office costs, those are the third-party costs are sort of transition to HTA costs and we're able to operate and run those offices more effectively and efficiently and I think that's why you see some of that reduction over time.

[John Kim:]

Okay. Thanks for clarifying. On the CapEx, the recurring CapEx as a percentage of rent has been increasing year-over-year. I'm wondering how much of that is really market driven and not really lease driven or part of your control because we're seeing this with some of your competitors as well?

[Scott Peters:]

I’m sorry, could you clarify.

[John Kim:]

So basically, the tenant improvement costs, is that really market driven and do you see that basically increasing?

[Robert Milligan:]

Again, I think that the - our experience in our markets has been that we have been able to, over the last 30 months, continue to move down the amount of dollars that we spend in return for executing a lease. That’s either in one of three areas. It’s either one, a TI that we spend associated with that per year or the free rent that is associated with that. There are, if you have a critical mass within a market and if you have strategic locations, you're not necessarily competing against market and I think that because you can't necessarily compete against a desperate landlord and we don't compete against desperate landlords. We have lost, in fact, we lost some square feet on the East Coast to a large user, moved from us, because the landlord had just bought a building out of bankruptcy and they were giving away what we felt was completely unreasonable concessions. We backfilled that since then and in fact, we came out in a more positive position from a net rent perspective. But you can't necessarily chase market. You really need to look at your asset and the synergies and the need of that group or that healthcare system to be in your building and your building generates a market. I mean that's really I think the sense is when, when we look at our leasing, we make decisions that says, well, if we lease it for this set of criteria to this tenant at this amount of square feet, then you have to be consistent with the next tenant with that same consistent square feet regardless of necessarily whether or not that person or that group can go somewhere two miles down the road cheaper. So I think that it's very important and we talked about this, we don't buy buildings with 1% growth rates in leases, because it is really hard to put a 3% growth rate in the first lease that rolls over because the physician group doesn't want to be the first one paying 3% and the building may not have been sold or leased under that philosophy. So we look at that when we buy assets because we have run into situations where you just get yourself into a very unattractive situation with a group of tenants and you don't want to do that.

[John Kim:]

On that subject, have you provided the annual lease escalators on both in placed trends and also leases signed during the quarter?

[Robert Milligan:]

Yeah. The in place leases. Let's see. For the full year, we averaged - the new leases averaged 2.8% contractual escalators in there, which is above where we remain in that 2.3%, 2.4% range across the portfolio. So we continue to push the escalators.

[John Kim:]

Okay. And then I think a common theme that's been discussed throughout this call is like the consistency of the growth that you have. So I’m just wondering why don't you provide full year guidance.

[Scott Peters:]

We fundamentally, as I mentioned, I think guidance, we've given it in regards to where we think 2% to 3% is something that the sector itself should provide. We look at our portfolio and we've been very consistent with what we can provide and how we handle it. But as a company, we made a decision early on that giving guidance again sets management up or sets investors up for perhaps a divergence of expectations or make bad decisions. I think you make the decisions, you run a company on a day-to-day, month-to-month, quarter-to-quarter basis and you don't make it necessarily run based upon things that you can't anticipate or don't know about six months from now or nine months from now. So I think you could look at us and I think the past execution is a tremendous precursor of future execution, especially since we've been at this for 10 years as a company and now 5 years as a public company.

[Operator:]

Our last question is a follow up from Michael Knott of Green Street Advisors. Please go ahead.

[Michael Knott:]

Hey, guys. Just a quick clarification on your external growth and acquisition stance for 2017. How would you summarize that in one sentence?

[Robert Milligan:]

I think it would be consistent. I think last year was a unusually good year, good execution, strong balance sheet performance, great asset acquisitions. I think historically, we've been always said that we've been in that 200 to 300 range and I think that that would be a consistent thing for us to say, we want to add good assets in our markets and we will run into them because that's what we see and our balance sheet is positioned in order to give us that flexibility.

[Michael Knott:]

Okay. And then you talked about this quite a bit with regard to the sample versus leasehold, but the table that’s at the bottom of page 14 of your supplemental, do you feel like there would be differences in performance between and maybe in terms of occupancy for example between the fee simple and the other three categories of leasehold interest?

[Robert Milligan:]

Yes. I think as we generally see it and we're talking about the multi-tenanted campuses for instance that might be under 90% occupancy, those are all campuses for the large part that are underground lease restrictions.

[Scott Peters:]

And I give you a specific example because I know that people perhaps believe that this ground lease issue that we bring up and continue to talk about is perhaps a figment of our imagination. But we had a Frisco asset that went through a transition as everyone knows and HTA hospital and that building is located downtown Frisco, great location and we didn't have a ground lease. And if we would have had a ground lease, we would have not been able to execute approximately 25,000 square feet of new leases that are now in that building because they're not necessarily associated with HTA and HTA necessarily would not have approved them if they would have had a ground lease restriction on that building for its park. We have entered into several leases in an exact same situation where again the rule of business is that if a health care system is looking out for themselves and they look out for themselves, they want folks with privileges, they want folks that refer only to them, they want folks that they do business with and unfortunately, the world is not made up of everyone getting along and everyone necessarily wanting to be in that position. So I find that and it's consistent with across our portfolio that there is a distinction between when I have to send a ground least to someone to approve it, I mean at least to someone to approve it in regards to a ground lease versus being able to make a decision that says, yeah, I’ll issue that space because it's a great rate and you're a great use for that building and it improves the value of my asset.

[Michael Knott:]

Okay. Thanks and thanks for the expense disclosure and TI’s think about further enhancements to the recurring supplemental, I would suggest tables on leasing cost per foot per year, re-leasing spreads, maybe more detail on multi-tenant, MOB performance versus the single tenant, MOB occupancy, et cetera. So thanks a lot. I appreciate it.

[Operator:]

And this concludes our question-and-answer session. I would like to turn the conference back over to Scott Peters for any closing remarks.

[Scott Peters:]

I'd like to thank everybody for participating. Good quarter for HTA and we look forward to another year in 2017 of being able to execute and bring performance and drive shareholder value. Thank you everybody again.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.