Diversified Healthcare Trust (DHCNL) Q2 2016 Earnings Report, Transcript and Summary

Good morning. And welcome to the Senior Housing Properties Trust Second Quarter Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Brad Shepherd, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Joining me on today's call are David Hegarty, President and Chief Operating Officer; and Rick Siedel, Chief Financial Officer and Treasurer. Today's call includes a presentation by management, followed by a question-and-answer session. I would like to note that transcription, recording and retransmission of today's conference call is strictly prohibited without the prior written consent of Senior Housing. 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, Friday, August 5, 2016. 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. In addition, this call may contain non-GAAP numbers, including normalized funds from operation or normalized FFO and cash-based net operating income or cash NOI. A reconciliation of these non-GAAP figures to net income and the components to calculate AFFO, CAD or FAD are available in our supplemental operating and financial data package found in our website at www.snhreit.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. Now I'd like to turn the call over to Dave.

Thank you, Brad. And good morning, everyone. Thank you for joining us this morning on today's second quarter earnings call. Earlier in this morning we reported normalized funds from operations or normalized FFO of $0.47 per share for the second quarter, an increase of 6.8% year-over-year. As Rick will explain later we've removed estimates of percentage rent from our calculation of a normalized FFO. The impact of this change on the quarter was a reduction of a $0.01 per share of normalized FFO, or we otherwise would have reported $0.48 per share. The strong performance was achieved through solid operating results across all sectors and attractive financing during the quarter. In the second quarter, we continue to focus on adding value through selective accretive acquisition, internal growth, more efficient operation as well as lining up attractive long-term financing which close after the quarter end. Highlights for this quarter were that we grew normalized FFO per share year-over-year by 6.8%, grew consolidated same property cash NOI by 2% year-over-year, achieved the solid 8.5% same store NOI growth in our managed senior living portfolio year-over-year. Continue to lead the healthcare REIT sector with the 97% private pay portfolio, skilled nursing facility that are dependent upon government programs account only 2.6% of our portfolio. Maintained our normalized FFO payout ratio at 83%, achieved the year-to-date total return on the stock of over 50%. During the quarter, acquired seven triple net lease senior living communities for $112 million, one managed senior living communities for $8.4 million and one life science medical office building in Florida for $45 million. This brings our year-to-date total acquisition to approximately $188 million. We sold one skill nursing facility for $9.1 million and subsequent to quarter end sold four MOBs for $20.2 million, bringing our year-to-date total disposition to approximately $30 million. And finally subsequent to quarter end we closed on a $620 million ten year secured financing allowing us to term up the majority of the outstanding borrowings under the revolving credit facility. Our carefully constructed portfolio continues to illustrate our strategy of owning well diversified private pay focused healthcare assets. In the second quarter, approximately 40% of our NOI was attributed to triple net lease senior living communities. 16% to managed senior living communities and 42% to medical office buildings. At the end of the second quarter, our triple net lease senior living portfolio consisted of 236 properties generating quarterly NOI of $66 million, a 7.6% increase over the prior year. These communities continued to perform very well with same store cash NOI increasing 1.4% year-over-year. The triple net senior living portfolio had a combined occupancy of 85.4% and rent coverage of 1.33x for the 12 months ended March 31, 2016. The coverage ratio of our leases remains very strong overall. We've seen occupancies impacted on the margin by new competition in certain market and several of tenants are focused on stressing rate growth over occupancy. We continue to be comfortable with our tenants' ability to cover the rent due to us. At the end of the second quarter, our managed senior living portfolio consisted of 67 properties generating quarterly NOI of $26 million, a 78% increase over the prior year. The percentage of NOI that the managed senior living portfolio represents remains relatively small percentage of our total NOI at 16%. On the same store basis NOI at our 46 managed senior living communities grew 8.5% year-over-year. This performance was driven by the same store margin increasing over 200 basis points to 25.7% from 23.6% last year. While revenue in occupancy were down, average monthly rates increased 1.7% and our managers continued to be very focused on controlling labor and other operating costs. We will try to increase occupancy at our managed portfolio by investing capital in our communities, retaining quality professionals and maintaining a preferred status as a provider of choice in our markets. Our operators have done a great job enhancing and maintaining services for our residents while also tightly controlling cost. At the end of the second quarter, our MOB portfolio was comprised of 123 properties with over 11.6 million square feet, generating quarterly NOI of $68 million which is 2.7% increase over the prior year. Overall occupancy at the end of the second quarter in our MOB portfolio was a strong 95.9%. Occupancy in the same store MOB portfolio decreased 60 basis points to 95.8% in the second quarter, while the NOI remain flat year-over-year on a GAAP basis, and was up 70 basis points on a cash basis. Although our reported same store occupancy experienced a modest decline, if we had excluded the properties we had classified as held for sale, year-over-year occupancy would have been down only 6 basis points to 96.3%. Similarly, our same store NOI would have increased $300,000 or 47 basis points while same store cash basis NOI would have increased $650,000 or 1.1%. Turning to our acquisition and disposition activities, as mentioned on our last call in the second quarter, we acquired a senior living community in Georgia for $8.4 million and our life science MOB in Florida for $45 million. In June, we entered into a sale leaseback transaction with Five Star for seven senior living communities for approximately $112 million. The leases have initial expiration of 2028 with two 15 year renewal options and pay a rental rate of 7.5% of the purchase price with 1.25x coverage. It also carries the same cost to fall provision and get corporate guarantees as the existing lease. This transaction provides many benefits to us as the senior living community owner beyond an attractive and stable return. This transaction with Five Star improves the balance sheet of our largest tenant and operating partner and supports our continued investment in Five Star which we believe remain undervalued in the public market. Simultaneously with the sale leaseback, we amended certain management agreement which will create greater incentive and improve performance at our managed community. The second quarter acquisition bringing our total acquisition volume to approximately $188 million year-to-date. In June, we sold one skill nursing facility located in Pennsylvania for approximately $9.1 million, subsequent to quarter end in July we sold four MOBs located in Oklahoma for approximately $20.2 million, bringing our total disposition volume to $30 million year-to-date. These MOBs and one other MOB located in Pennsylvania were classified as held for sale at quarter end. We continue to monitor the investment opportunity in the senior living and medical office market. And are being patient for maximizing our risk adjust to return. Acquisition activity for the foreseeable future will continue to be modest with individual properties in small portfolios. I'd now like to turn over to Rick to provide detailed discussions on our financial results for the quarter.

Thank you, Dave. And good morning, everyone. As Dave pointed, we changed our calculation of normalized FFO to exclude adjustments for estimated percentage rent. Our calculation of normalized FFO in the first three quarters of each year no longer includes estimate for percentage rent and we will now include all percentage rental income in normalized FFO during the fourth quarter which is where it is recognized in accordance with GAAP. While there will be no change on a full year basis, this change will result in lower normalized FFO in the first three quarter of the year and higher normalized FFO in the fourth quarter. We are pleased with our performance in the quarter with normalized FFO of $111.7 million, an increase of 7.2% compared to last year, and up 6.8% on a per share basis to $0.47 per share. We declared the $0.39 per share dividend in July resulting in a payout ratio of 83%. Rental income for the quarter increased $8.5 million from the second quarter of last year to $164 million. This increase is primarily due to the acquisitions of two medical office buildings and 27 triple net leases senior living communities since April 1, 2015, partially offset by the sale of four senior living communities, three of which were skill nursing facility and one MOB during the same period. On a same store basis, rental income increased $1.6 million. This increase was primarily due to increase escalation income in our MOB portfolio as well as increases in rental income related to funding capital improvement at certain of our communities within our lease senior living portfolio. Resident fees and services revenues from our 67 managed senior living communities increased 6% compared to the second quarter of 2015 to $97.4 million. This increase is primarily attributable to our acquisition of 20 managed senior living communities since April 1, 2015, partially offset by a decrease in occupancy from last year. Property operating expenses from our MOBs and managed senior living communities increased 4.1% in the second quarter to $97.5 million compared to the same period last year, primarily due to the acquisitions I just mentioned. On a consolidated same store basis, property operating expenses decreased $897,000. This decrease is primarily attributable to controlling cost in our managed senior living communities while continuing to provide high quality services to our residents, partially offset by increases in operating expenses at our MOBs particularly real estate taxes which were largely recoverable from tenant. General and administrative expenses increased $291,000 or 2.5% to $12 million this quarter compared to the same quarter of last year. Within G&A expense, our expense related to business management fees only increased by $150,000 compared to last year despite growth in our portfolio because the fees continued to be based on market capitalization instead of historical cost through May of 2016. At 4.6% of revenues for the quarter, SNH remain one of the most efficient companies in the healthcare REIT sector, particularly when considering the size of our portfolio as we continue to benefit from the efficiencies of our management structure. We recorded non-cash impairment charges totaling nearly $5 million in the second quarter of 2016 related to the five MOBs that were classified as held for sale at June 30. We expect proceeds totaling approximately $23 million from the sale of these five buildings including the $20.2 million we received in July from the sale of four of these properties. Partially offsetting the impairment charges we recorded a gain of $4.1 million after all transaction fees and expenses on the sale of one of our skilled nursing facility that had been net leased to a private senior living company for $9.1 million. This sale further reduced our exposure to government reimbursement program in our senior living portfolio. Interest expense increased 8.5% to $41 million this quarter compared to the second quarter of 2015. The increase was primarily a result of increased borrowings outstanding on the revolver, the $200 million term loan in September of 2015, and the $250 million 30-year senior notes issued in February of 2016. These increases were partially offset by the repayments of $250 million of our senior notes in November of 2015 and $107 million of mortgages that had encumbered 10 of our properties since April 1, 2015. We recognize $789,000 of dividend income from our investment in RMR during the second quarter; we expect dividend income to run at approximately $650,000 per quarter going forward which will result in a total of approximately $2 million in 2016. In addition of the acquisition Dave mentioned, in the second quarter we invested $7.6 million into revenue producing capital improvement at our triple net lease senior living communities. Our recurring capital expenditures for the second quarter totaled $10.1 million and included $4.8 million at our MOBs for building improvement, $2.7 million on MOB tenant improvement and leasing cost, and $2.6 million at our managed senior living communities. We also spent $10.8 million on development and redevelopment capital projects with a vast majority ever being spent at our managed senior living communities. These significant modernization or renovation projects are being completed to give our properties a competitive edge against new supply that enters the market or reposition a property into respective market. At June 30, 2016, we had $26 million of cash on hand and $251 million available on our $1 billion revolver. Subsequent to the second quarter in July we closed on a $620 million mortgage secured by our two 1.65 million total square feet class A life science building located in Boston sea port district. The 10 year loan carries an interest rate of 3.53%. The proceeds of this loan were used to repay the majority of the outstanding balances under the revolving credit facility. So after this refinancing and the application of the proceeds from the disposition of four MOBs we now have approximately $900 million of available borrowing capacity under our revolving credit facility. Our total debt to gross book value of real estate assets at the end of the second quarter was 44.8% and debt to adjusted EBITDA was 6.0x. Given the quality of our portfolio, we're comfortable with our leverage ratios where they are and believe we still have some flexibility to take on a modest amount of additional debt. With that I'd like to turn it back over to Dave for a final comment.

Thanks, Rick. We continue to be pleased with the performance, diversification and quality of our portfolio. The second quarter further demonstrates that we are committed to being disciplined in capital sourcing, acquisition and investing in our property to drive internal growth. I believe our discipline is being appreciated in public equity market and by the support of our shareholders. And we look forward to seeing everyone for next non deal roadshows we've scheduled in August to the West Coast to the Mid West. As well as conferences that we will be attending in September. Thank you very much. I'll turn it back to the operator for questions

[Operator Instructions] The first question comes from Michael Carroll with RBC Capital Market. Please go ahead.

Yes, thanks. David can you go through some I guess some of your -- I guess can you walk us through some of your ongoing after sales and JV strategies right now? Are you currently marketing any of these assets for sale and specifically can you provide us an update on the company's interest in joint venturing the seaport property?

Sure. Good morning, Mike. First I'd like to just make one general statement just before answering your question. That I just want everybody to appreciate that this quarter you may have noticed for format presentation very different for the press release, the supplemental package we prepared and our prepared remark in that we were being very proactive and responsive to the SEC guidance on non-GAAP financial measures. And so we try to put all the traditional GAAP measure first and the non-GAAP measure as a second priority. So the format is little bit different and the biggest effect is really the percentage rent that we now have to be show to -- exclude from the first three quarters and put all in the fourth quarter. And Rick can just add if you want to say anything to that. Is there anything Rick?

No. I mean it's really largely responsive to some of the interpretative guidance that changed during Q2. And again we just want to be as conservative and transparent as possible. So --

And we do think it's different than many of our peers have been reporting so far this quarter. But now having taken care of that. Talking about your question about potential JVs, capital structure and specifically the seaport district asset in Boston that we have been talking about potentially doing a JV on. We are open to JV structures as well as -- at the moment this most recent financing we did took care of just about everything on our revolving credit facility. So we really don't have an immediate use of proceeds. However, I do expect our investment activity to pickup somewhat. And we are part of what we do with the financing that we put in place was to eliminate one moving part to try to put together a JV structure for the vertex properties in the seaport district. And so we are still having number of conversations with several well funds and so on we are potentially putting JV structure in place there. But it's just a long process to educate everyone and just the -- and a lot of several upfront move relatively slow in the process. So it's an ongoing process but that is an option for us. It's not definitive but it is something we are continuing to work to do. And then we'll just continue to focus on doing some acquisitions. We are going to stick to -- we are going to still focus on just individual assets and small portfolio that compliment our existing portfolio. As well as looking for opportunities to expand existing properties to add revenue that way. We did sell the four medical office buildings in Oklahoma just at the end of the quarter. And we will continue to look to sell out skilled nursing facility and potentially few other MOBs for the rest of the year.

Okay. And if you don't pursue I guess the JV strategy in Boston, how do you think about improving your leverage metrics from this point and/or how do you plan on funding future investments activity?

Well, it would be pretty, again pretty modest looking for future investments. Obviously, if we do something larger of a transaction we would have to use equity as a component or sell asset or the JV structure coming through. I'd say at the moment there is nothing on the radar screen that would require that.

Okay. And then related to the managed senior living portfolio, can you go through some examples on how you are able to reduce expenses and what's the outlook for this market going forward?

I think the most significant piece in reducing the expenses within the RIDEA portfolio was -- biggest thing as we had in labor to some extent as the occupancy was down a little bit, the executive directors held little bit more time to focus on managing the payroll appropriately and keeping the building staffed accordingly. So there is obviously been a large focus on that. And it's working and in addition to that I think some of the strategic purchasing initiative that has been in place that helped reduce cost. I think Five Star as our primary operator in the RIDEA portfolio mentioned on their call in a number of different things yesterday that where they've seen some pretty substantial savings. So we benefited from that as well.

Right. Pretty much all of the operating expense reductions are due to programs like that they have been doing proactively to again reduce cost, monitor payroll and so on.

And this is a good run rate going forward because they have opportunities to continue reduce costs.

Well, on one hand I don't want to overstate expectations but on the other hand when you overall look at the margin, we would like to think that there is still some room for growth there.

Our next question comes from Tayo Okusanya with Jefferies. Please go ahead.

Yes, good morning. Just a couple for me. Rent coverage ratio generally stable for the quarter. The only tenants with -- there was slight dip where like the 12 privately owned operators. Anything in particular going on over there?

I think combination of things. One is just the trend that's in the supplemental package is rolling 12 months period through March 31. And as we've added properties to that portfolio that are leased in that one basically about a 1.2x coverage. So just as we add properties that's going to bring down the aggregate amount. But I mean I don't think there is anything particularly affecting that performance.

Okay. That's number one. And but then did you give cap rate for the MOB acquisition that was under in the quarter?

I think we did on last call that was the life science property. And so just to remind people that were outstanding investment, that was unique down in Gainesville, Florida area. And there was a brand new life science building built for R&D and manufacturing of vaccines for the US military. And I think cash cap rate was about 13.5 and the GAAP is about 15.9 investments. And our investment is about $240 per foot I believe $270 a foot. So it's modest investment and great return.

Okay. And then could you talk a little bit just about the terms of the secured loan against the seaport asset and specifically what kind of LTVs are on the assets and potentially what kind of appraisal you got for the value of the building?

Sure. From an appraisal perspective that was really more on the vendor side but we can tell you that the LTV was around 50%. So and nature of the term is real flexible enough that to the extent we do pursue a JV structure. We can do that without seeking further approval.

Our next question comes from Todd Stender with Wells Fargo. Please go ahead.

Hi. Thanks, guys. Dave if you did this on previous call I apologize but can you go into that MOB you acquired? It's a very high cap rate, I just wanted to get sense if it is triple net leased what kind of guarantees you have and maybe just go through the risk profile to just highlight why it's so high?

Sure. For one thing we have our presence down in -- it's really lateral Florida which is adjacent Gainesville Florida and it's with the university there. And they have a biotech program and there is the Sid Martin Innovation Center which is right there that takes grad students and get them started into biotech. We owned progress center which is adjacent to it and so as people get companies off the ground they move into our space typically and then as they succeed and biotech EDU succeed and get acquired by someone or go public or you run through and you don't get FDA approval and you burn through your cash and have to find it -- we have to find a replacement tenant. So this park is very successful and the company itself nano therapeutics, they kept expanding within our park progress center and to the point where they landed this major contract with the US government and with the government is basically guarantying them an order flow and factored into the amount that the government is paying is the rent that's payable to us. So in it's 10 year contract and this is the 15 years sale leaseback for the property. So we feel that we have a corporate guarantee from Nano. We feel that through their formula basically the rent is coming from the US government. And they have this location in there and also have a similar program going on over in Czech Republic. And between the two of them they have a lot of venture capital. So I expect Nano will probably go public at some point. So we feel we are well covered and to either add to the success of that investment is that the current time we believe we pretty much have all the space that they vacating out of progress center released at very comfortable rate. So it's very much success story for us there.

Because of such a high cash cap rate you get your money back in short order.

That's right. And we are able to back double space pretty quickly.

Okay. Thank you, Dave. And then Rick did you receive the proceeds from the mortgages on the vertex building? I just wanted to get a sense of where your line of credit stands post Q2?

Yes. We have received, we closed in July paid down the line, and I think the line is around $100 million outstanding right now. So we've got $900 million of capacity.

Great, thanks. And then thank you for your comments. And now with the changes to the non-GAAP financial measures, because the rent, the percent rents were removed from first three quarters, is it because it was estimate that you were booking in each quarter and now it has to be more realized which is why it all goes into Q4?

Yes. I mean from a GAAP perspective it's always been recognized in Q4. It's contingent upon rent growth. So you have to -- and it's done on an annual basis. So we don't actually get recognized for GAAP until the end of the fourth quarter. The SEC's most recent -- sorry I should kind of start with the reason we used to include an estimate in each of the first three quarters was to normalize FFO. So we will be consistent from quarter-to-quarter throughout the year instead of having a spike in Q4. The SEC's most recent interpretative guidance that was published back in May had, one it was specifically related to individually tailored GAAP and not to deviate from it in the timing of recognition. So again being conservative we said, okay, fine we'll change our calculation and exclude the estimate. We still provided the estimate in our supplemental in case the analysts are interested but from a normalized FFO perspective we expect to see a spike in Q4 going forward.

The next question comes from Juan Sanabria with Bank of America/Merrill Lynch. Please go ahead.

Hi, thanks. Just following up on Todd's question. So what's the dollar amount we should be expecting in percent rent for this year and the fourth quarter? And if you don't have that maybe what was the amount last year?

It's included in the supplemental from the additional data pages, it's towards the front but last year's percentage rent was $10.2 million and our estimate for Q2 was $2.5 million.

Okay. And then on the Five Star deal where you changed the management contract and give them higher fees. What was the driver there? I mean you guys have try to work hard to improve the optics around the management contract with RMR. But here you do a related party deal and give them higher fees and lower their performance hurdle which can be squeamish and may be contrary to some of your efforts. Could you just walk us through the strategies? Why did Five Star get that one when from my side I think you had most of the leverage and the transaction given they had a disgruntle shareholder on their register pushing for change?

I think really the key thing to keep in mind here is that it wasn't all current management contracts that changed. There was an early termination provision that Five Star requested that we had included in the management contracts that have been entered into since May of 2015. So they had one time termination options where they could have gotten out at the end of 2016. It required six months notice. So Q2 was really -- the period where any renegotiation was going to happen. So they did as a result of that termination option kind of forced our hand to negotiate. And it is only on 17 properties so we -- and that's including the ones that we've added this year. So they came to us with some evidence that market was probably closer to 5%, historically it was -- as you know 3% and they had a larger share of 35% of the upside after the performance hurdle was reached on go forward basis for the 17 properties that shifted, so they'll only share in 20% of the upside. And we really thought lowering the hurdle little bit was in everyone's best interest because again if they do have the threshold and generate high returns, we keep 80% of the upside. So it was really in everyone's best interest to keep them working towards generating high returns.

Okay, thanks. That's very helpful. And then on CapEx you mentioned a bunch of initiatives and different buckets I guess of management CapEx, development, and redevelopment. How should we think about that going forward? I know there is some sort of one time maybe lower return, redevelopment CapEx and some of the sunrise assets and maybe some other properties. But if you could just help us think about kind of CapEx outlays, what sort of maintenance and what's over and above that might get some return and maybe might not?

I think really our low payout ratio has enabled us to be pretty aggressive with some of the capital to make sure that our properties are well positioned to drive future return especially in markets where there might be new competition coming online. We certainly don't want occupancy to suffer as a result of physical plan. So we've really been proactive in pulling some of that stuff up and making sure we are deploying our cash effectively. We've got a number of projects that are -- that have been in work. I mean to some extent occupancy this quarter has been somewhat affected by the disruption of construction at some our communities. And but that being said, it's important to make the investments and to improve the physical plan so they are well positioned to compete. We do expect the development or redevelopment CapEx to continue through the rest of the year. We got a couple of projects that we are really excited about. Largely they are substantial interior or exterior renovations. And there is few projects that we call rehab to home which is basically taking some of those old skilled nursing units and converting them into higher and private suite to go after some of the younger patients that are eligible for Medicare; it is higher return type work. So lot of projects that we are really excited about. They are moving forward and we are thankful that our low payout ratio enabled us to do it right now.

Could you put any dollar numbers around maintenance and redevelopment CapEx? Kind of per quarter or annual basis.

In the managed portfolio I think on trailing 12 months basis we've spend somewhere around $1,451 per unit. That kind of towards the higher end of our -- rule of thumb of $1,000 to $1,500 per unit. I think it's probably safe to say that it will probably stays towards the higher end of that range. I do expect a slight decrease next quarter but again we are encouraging our operators to do if anything they need to do make sure our properties is in great condition. So that's on the managed side. And then on the MOB side, I'd say the building improvement projects will largely be a little bit less than we spent this past quarter. Going forward but we do expect to put some tenant improvement and leasing cost CapEx in over the next -- the rest of the year really.

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

Thank you. So just to clarify on the CapEx on the managed side. The $1,400 to $1,500 you reference that just maintenance CapEx, is there other dollars that you are investing over and above that, that's included in your supplement?

I'd say that $1,451 is more the maintenance CapEx, it's excluding the significant development, redevelopment repositioning CapEx.

What is the all in figure then? Over the last 12 months.

I mean this quarter we spent little north of $10 million on those redevelopment project. So we have --

Probably running around $40 million for the year. And I'd say it's very much in the high end for us.

Okay. And then are you expecting sort of high 7%-8% sort of return on that or are that number inaccurate?

On the redevelopment work, I think that's probably little on the lower side. I mean I think when we analyze some of these projects and look at the expected return; we were usually north of that. So I think that's probably again conservatively probably a decent expectation.

And is that $40 million number is that sort of a good run rate says sort of over the next 12 months or does that you expect it to go up or go down materially?

On one hand as we pulled a lot of these projects up to them now, I'd kind of naturally expected to decrease going -- [Multiple Speakers]

We expect lot of the projects to have been completed. There are couples that are still -- that are going to run into next year but certainly some of the major projects have been completed or about to be completed.

Okay. And then just on the -- just a numbers question on the RIDEA on the managed revenues, can you just help -- I think we managed same store revenues fell a little bit but if I look at your changes in occupancy and rent growth combined it seems like they should have been up. Was there any one time item there?

There is not lot of one time in revenue.

Right. I mean revenue -- occupancy is clearly down and the rental increases were not sufficient to offset that, I don't know -- I don't think if anything else in the revenue.

Let me just -- maybe I was just reading this wrong. Give me one second, your occupancy fell about 130 basis points.

I think that's the same store number yes.

Same store number, yes.

They are same store number yes. It's 130 basis points and your rent growth was -- one second I am just going to be -- your rent growth was 17, I am just trying to square those two with the total revenue. Your occupancy fell 130; your average monthly rate was 17.

Off the top of my head, I can't think of anything but -

I can follow up with you that's fine.

Yes. That would be fine.

And then just lastly on dispositions. Can you maybe just remind us or of any targets you have even if they are broad target over the next 12 months or the next six months sort of any ranges you can give, what do you plan to divest?

Predominately going to be some more additional skilled nursing and some medical office buildings. So I think for the rest of this year what's likely to actually close. This probably in the neighborhood more says about $50 million. And we hope to continue that program into next year too but right now I think that's what's realistic.

We are showing no more questions at this time. This concludes our question-and-answer session. I'd like to turn the conference back over to Dave Hegarty for any closing remarks.

I just like to thank everybody for joining us this morning. And we love to meet up with you at one of the upcoming conferences or we are going to the hit road soon on nine day of roadshows. So we are happy to be with everyone. Thank you.

The conference is now concluded. Thank you for attending the presentation today. You may now disconnect.