Diversified Healthcare Trust (DHCNL) Q2 2017 Earnings Report, Transcript and Summary

Good day, and welcome to the Senior Housing Properties Trust Second Quarter 2017 Financial Results Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Brad Shepherd, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Senior Housing Properties Trust call covering the second quarter 2017 results. 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 the transcription, recording, and retransmission of today's conference call are 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 and 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, Thursday, August 3, 2017. The company undertakes no do 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 operations or normalized FFO and cash-based net operating income or cash NOI. Reconciliations of net income attributable to common shareholders to these non-GAAP figures and the components to calculate AFFO, CAD or FAD are available on our supplemental operating and financial data package found on our website at www.snhreit.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. I'd now like to turn the call over to Dave.

Thank you, Brad, and good morning, everyone. Thank you for joining us on our second quarter 2017 earnings call. Today, we reported normalized funds from operations or normalized FFO of $0.44 per share, which was $0.03 lower than second quarter of 2016. This quarter was the first quarter we recognize the full effect of the joint venture of the Boston Seaport medical office building. As we have pointed out on our last call, on a temporary basis, the joint venture will reduce our quarterly FFO by up to $0.03 per share until we can accretively reinvest the proceeds. However, this transaction, together with the changes we made to our balance sheet this quarter, and subsequent to quarter-end, has strengthened our balance sheet and has positioned us to grow. That being said, we remain disciplined with our capital allocation and continue to believe that the most attractive return on investment for us in this competitive environment is in our current portfolio. Specific highlights to the second quarter were that we improved our already industry-leading high occupancy to 96.5% in the MOB portfolio, continued to generate 97% of our revenues from private pay properties, prepaid secured debt of almost $300 million with the weighted average interest rate of 6.7%. Subsequent to the quarter end, we amended our $1 billion revolving credit facility, extending its maturity to 2022 and lowering the interest rate. We amended our $200 million unsecured term loan due in 2022, lowering that interest rate, acquired one life science medical office building located in Maryland for $16.4 million and entered an agreement to acquire another medical office building located in Minnesota for $16.7 million. Approximately 42% of our NOI in the second quarter was attributable to triple net leased senior living communities, 14% to managed senior living communities, 41% to medical office buildings and the remaining 3% triple net leased to wellness center operators. In the second quarter, our total portfolio of cash NOI decreased compared to the second quarter last year by approximately $400,000 or 20 basis points. This decrease was driven mainly by a decrease in same-store NOI at our managed senior living community portfolio. Our triple net leased senior living portfolio continues to produce consistent, steady growth with same-store cash NOI increasing 1.7% in the quarter compared to the second quarter last year. This increase is the result of the $48 million we funded to five different tenants for capital improvements at our communities since the beginning of the second quarter of last year. The triple net leasing living portfolio had occupancy of 84.6% for the 12 months ended March 31, 2017, which was down 30 basis points from the 12 months ended December 31, 2016. Rent coverage was 1.27x for the 12 months ended March 31, 2017, just a slight decrease from 1.3x coverage we reported last quarter, and it was expected. Similar to recent quarters, the decline in coverage sequentially was heavily influenced by weaker performance in the skilled nursing operations at our leased continuing care retirement communities or CCRCs and our standalone skilled nursing communities. The 10 communities with the largest decrease in rent coverage over sequential quarters included 7 CCRCs and 3 skilled nursing facilities. These 10 properties accounted for approximately 60% of the rent coverage decline from the fourth quarter to the first quarter. This is a direct result of the challenges our tenants are seeing in the skilled nursing industry. Government reimbursement rates continue to be under pressure and margins continue to shrink. Efforts being led by accountable care organizations and managed Medicare programs are resulting in decreased lengths of stay, and in many cases, are requiring people to bypass the stay at a skilled nursing facility instead go home for care at a lower cost alternative. In addition, during the early part of the quarter, our operators were still feeling the impact of a late flu season and experienced a high level of move outs. A few things do encourage us going forward though. Yesterday, Five Star reported that 80% of their skilled nursing units are rated 3 stars or above by the Centers for Medicare and Medicaid Services or CMS. These ratings are a key qualifier for participation in most managed and accountable care organizations, and 80% is a high percentage that compares favorably among operators. This percentage of high ratings illustrates Five Star's focus on quality of care, and together with the widespread implementation of electronic medical records, which is well underway, should create some positive momentum in the skilled nursing operations. Another positive development is that we prepaid the mortgage debt on the CCRCs, which will allow our operator to make significant capital improvements to these properties. As Rick will discuss later, in the second quarter, we prepaid $278 million in secured debt related to these properties, and our operator has already begun the capital improvements for many of them. As a reminder, we do not remove properties in transition, while properties are undergoing large renovations that may be disruptive to operations from our calculations. So, our occupancy and coverage statistics, we believe, are very conservative. We continue to be supportive of our operators' investing capital in our leased properties during this period of increased supply. We currently have over a dozen additions, expansions or renovation projects ongoing with five of our tenants throughout the lease portfolio. Investing in our properties now to remain relevant and competitive earns us an attractive return immediately upon funding, but will benefit our tenants in the future by positioning them to take advantage of the promising demographic trends. We have and will continue to partner with them to identify growth opportunities and fund the capital necessary to achieve it, knowing that rent coverage in the near term may dip for the benefit of their future growth. We expect this coverage to continue to be under pressure for the remainder of this year. Our managed senior living portfolio same-store cash NOI decreased approximately $2 million year-over-year. Occupancy decreased 90 basis points over the prior year and only 10 basis points sequentially, which compares favorably to the NIC MAP 100 MSA statistics. We saw an increase in average monthly rates of 1.3% resulting in total revenue going up slightly year-over-year. The increase in average monthly rates this quarter was modest because the highest rates are paid by the skilled nursing residents in our CCRCs, which was down in both census and reimbursement rate this quarter. In addition to this, Five Star's dynamic pricing model allowed them to compete better for additional demand as evidenced by our smaller reduction in occupancy year-over-year and sequentially as compared to the industry. This increase in revenue was offset by a 3.2% increase in total same-store senior living operating expenses. Almost half of this operating expense increase was due to an increase in real estate taxes in the managed portfolio compared to prior year. Three properties, in particular, accounted for the majority of this increase, and we will continue to work through our appeals process, where we believe we can be successful. Other operating expenses increased more or less with inflation, but we were not able to increase rates sufficiently in this competitive environment to offset these expense increases. Out of the 60 properties that make our same-store managed portfolio, five properties accounted for a decline in cash NOI of about $2 million or 100% of the decrease in same-store cash NOI compared to last year. This is similar to Q1 where there was a handful of challenged properties accounted for the majority of the decline year-over-year and highlights the relatively small size of our managed portfolio. For the past year, we've been emphasizing that we are investing extensively in our existing portfolio to be a competitor for new competition and changing demand in our markets. Much of this investment has been through renovations, which disrupts operations, but ultimately better positions the properties in respective markets upon completion. Two of the five properties with the largest declines in NOI recently completed multi-phased, multimillion dollar refurbishment projects to redesign and enhance the experiences for their residence. Numerous upgrades were made to existing spaces, including new common areas and new amenities were added such as a pub, café or a movie theater. One of these properties located outside of Chicago had a grand reopening just two weeks ago that was very well attended. If we had removed what we considered non-stabilized communities from our same-store results, we would've reported 4.7% growth in same-store NOI. This swing in quarterly operating results demonstrates how disruptive major construction projects can be to community operations. Another challenge our managed communities continue to face is a byproduct of the high inventory growth. The new supply has caused the shortage of highly qualified executive directors and sales personnel. Our manager has been successfully recruiting new executive directors as well as developing them internally. However, a loss of an existing Executive Director is very disruptive to a community. Now let's turn to our medical office building portfolio. The medical office building portfolio same-store cash NOI decreased 20 basis points year-over-year or only $131,000 on a cash NOI of $61 million. And overall, occupancy at the end of the quarter was 96.5%. This is the 13th consecutive quarter that our medical office portfolio has reported occupancy north of 95%, which is indicative of the quality and stability of this portfolio. Tenant retention for the second quarter was a solid 91%, and approximately 75% of our tenants are investment-grade rated, publicly traded companies or major health care system. The decrease in cash NOI year-over-year was mostly created by timing of real estate tax expenses and the corresponding reimbursement of those taxes, lower parking revenues or increase in uncertain non-escalatable costs. Similar to our managed senior living portfolio, we will continue to appeal tax increases where we believe we can be successful. Additionally, in the second quarter, we anticipate a lease up of space in one of our larger multitenant medical office buildings in Washington, D.C. However, the tenant experience was slower-than-expected process for obtaining a certificate of need. This is a surgical suite and has been vacant since last November, and we are pleased to have this new tenant sign a long 10-year lease that began in July. And finally, I'd like to mention that we've added a detailed property list to our website that can be downloaded into Excel. This list contains location, size and property type and is intended to give the investment community a better appreciation of the quality of our portfolio. One of the more significant attributes of this list is the identification of the types of medical office buildings in our portfolio highlighting our significant concentration of life science properties. I'd now like to turn it over to Rick to provide a more detailed discussion of our financial results for the quarter.

Thank you, Dave, and good morning, everyone. Our normalized FFO was $103.6 million for the second quarter or $0.44 per share, and we declared a $0.39 per share dividend subsequent to quarter end. Rental income for the quarter increased $2.7 million or 1.6% from the second quarter of last year to $166.6 million. This increase is primarily due to rents from the nine triple net leased senior living communities and three medical office buildings we acquired since the end of the first quarter of 2016. As a reminder, we recognized all the percentage rent related to our triple net leased senior living communities in the fourth quarter for both our GAAP and non-GAAP performance measures, so we did not recognize any percentage rent in the first or second quarters. Resident fees and services revenue totaled $98.4 million for the quarter. This represents an increase of approximately $1 million or 1% over last year and is largely attributable to the two communities added to the managed senior living portfolio since April 1, 2016. Property operating expenses from our MOBs and managed senior living communities increased 5.5% in the second quarter to $102.8 million compared to the same period last year. This increase was due to increases in real estate taxes within both our medical office buildings and managed senior living communities totaling $1.8 million. We also incurred a total of $643,000 of costs for the implementation of electronic medical records at our managed CCRCs and other noncapital investments at our medical office buildings that we have made in order to generate future savings. General and administrative expenses increased approximately $200,000 or 1.6% this quarter compared to the second quarter of last year after adjusting for the $10.8 million accrual for the estimated business management incentive fee. The incentive fee accrued this quarter is based on SNH's total return in comparison to the SNL U.S. REIT Healthcare Index from the beginning of 2015 through the end of the second quarter of 2017. SNH outperformed the index by 4.5% over that period. SNH's total return was 16.1% compared to 11.6% total return for the index. This incentive fee accrual may increase or decrease over the next two quarters depending on how SNH performs relative to the index. Interest expense decreased 80 basis points to $40.8 million this quarter compared to the second quarter of 2016. The decrease was primarily the result of our prepayments of mortgage debts since April 1, 2016, totaling $455 million with a weighted average interest rate of 6.4%. This includes $297 million in the second quarter that had encumbered 17 of our CCRCs within our triple net leased senior living community portfolio and two of our medical office buildings. Subsequent to quarter end, we amended our $1 billion unsecured revolving credit facility reducing the interest rate by 10 basis points and extending the maturity to January of 2022, as our existing facility had been scheduled to mature in January of 2018. At the same time, we also amended our $200 million unsecured term loan that matures in 2022 to reduce the interest rate payable by 45 basis points. The annual savings from these amendments, based on our loan balances at the end of the quarter, would be approximately $1.4 million. Our total debt to gross assets at the end of the second quarter was 40.9% and debt to adjusted EBITDA was 5.8x. During the quarter, we recognized $659,000 of dividend income from our investment in the RMR Group common stock. SNH continues to hold approximately 2.6 million shares of RMR valued at over $128 million at June 30. Owning these shares further aligns interest with our external manager and it's proving to be a good investment for SNH. In the second quarter, our recurring capital expenditures, which include leasing commissions, tenant improvements and building improvements, totaled $10.5 million. We also spent $7.5 million on development and redevelopment capital projects in our managed senior living communities. These projects are major renovations intended to reposition the property in its market or give our communities a competitive advantage against new supply. As Dave mentioned, we just completed a multimillion dollar renovation of a community near Chicago, and we are close to wrapping up 3 other renovations of equal or greater size at communities in Fort Myers, Florida; Dallas, Texas; and Orange County, California. In the second quarter, we invested $14.8 million into revenue-producing capital improvements at our triple net leased senior living communities, for which we will generally earn an 8% return on the amount funded. The majority of these improvements relate to major renovations and expansions that we believe, will improve our tenant's rent coverage once the construction is complete and the communities stabilize. To reiterate what Dave said earlier, we are supportive of our tenants investing in our leased properties during this time of increased competition. We would rather our properties remain competitive and poised for growth than have our tenants lose market share with the understanding that rent coverage may decrease temporarily as a result. At June 30, we had $20.2 million cash on hand and $434 million outstanding on our revolver. Currently, SNH offers investors an attractive yield close to 8% backed by our stable, high-quality portfolio of medical office buildings and senior housing communities. We believe there's more potential as we feel SNH continues to trade at multiples that do not reflect the relative value or risk of the portfolio, which is comprised of well-diversified private pay, focused healthcare-related real estate that's designed to benefit from the aging demographic and related positive healthcare and life science trends. I'll now turn the call back over to the operator for questions.

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

Thanks. David, can you talk a little bit about the triple net Five Star lease portfolio? Maybe quantify the outside factors that's impacting those coverage ratio such as renovation. How many communities are being renovated? What's the total budget of those projects? And how disruptive are those renovation projects?

Great. Good morning, Mike. Well, they have been undergoing significant renovations throughout the whole portfolio, but the largest dollars are pretty much in the top about 10 and 12 properties. And I would say that it's - well, what's interesting is, depending on the nature of it, it can be extremely disruptive, sometimes it can be actually attractive to draw in new customers or existing ones to raise rates because they see that money is being spent on their property and they are more willing to accept a little bit higher rate increase. But that still does not show up until the next time a rent is reset for the residents. But if we were able to pull out, say, the seven that we mentioned in the prepared remarks as well as a couple of skilled nursing facilities, we would be back up in that 1.2 to 1.23 coverage that we historically have run, so it does have a meaningful impact on the coverage, and we understand why. But I guess dollar-wise, I think we've been indicating that we're funding approximately $60 million to $75 million of those types of capital improvements over the course of this year. So it's a meaningful number.

Okay. And when did the bulk of these projects, I guess, commenced? And when do you expect that, that will be completed?

Well, it's pretty much an ongoing process. We spent - several other projects were started during the course of last year. And as we mentioned, a number of them are just wrapping up now. There's property out in the Chicago area, it just had its reopening a couple of weeks ago. We had about 3 or 4 other properties open up new improvements within the past month, and so it's an ongoing process. We mentioned that we just prepaid some of the debt on 17 CCRCs, and those properties needed - need capital. And so those - that process will just commence. So it's an ongoing process. It will take a while, but every place we've spent significant capital, we've seen outsized returns once they bounce back.

Okay. And just my last question is who's funding these deals? Is it Five Star or is it SNH? And what's the expected yield that you guys underwrote on the projects?

Right. Well, I'll let Rick can speak to the yield and...

Yes, sure. So as far as funding goes, it's a little bit of both. Obviously, if it's in the managed portfolio, it's on us, but if it's in the triple net portfolio, it's primarily the responsibility of the tenant, but they can come to us and ask us to fund it. Later today, you'll see in our 10-Q some disclosures. Five Star did come to us with a couple of interesting proposals. There was two particular leased communities where the underwriting to do the project was compelling, but the return that was left for them after our typical 8% increase was less than they desired in order to take on the project. So we did agree for those two communities to give them a temporary reduction on that additional funding, the capital funding, I'd say, for these improvements. So in this case, we're going to basically provide almost construction financing for the expansions, and then it'll go back up to the 8% return 12 months after the project is completed to give them a chance to fill up the additional units. So again, in that case, we're going to do 2% over our revolver kind of cost of - short-term cost of capital, but long-term, these are 8% plus returns.

Right. Typically, when the tenants - we have this with Five Star, but we also have it with Brookville and a number of the private operators. And generally, they're penciling in a total return of somewhere between 10% and, say, 13% return. So our funding cost then typically 8% of the amount funded, and that's true with all of our tenants, except for these two carve-outs that Rick just mentioned. So they start paying rent at 8% immediately upon funding, and they may not realize that double-digit return. Now that's double-digit total return. So after you deduct the 8%, they're earning roughly 5% to 8% on that investment once it's occupied, stabilized and they can charge the rates.

Okay great, thank you.

You’re welcome.

Your next question comes from Tayo Okusanya with Jefferies.

This is Austin Caito on for Tayo. How are you?

Good. Good morning Austin.

I just wanted to first ask about the same-store NOI slowdown in the shop portfolio and if you see that bouncing back sometime in the back half of 2017.

Well, yes, we did experience a slowdown, although our occupancy was only 10 basis points sequentially from Q1 to Q2. So, we are seeing occupancy holding up pretty good, rates need to be pushed more, and I think our expenses were higher than normal this quarter, particularly for the real estate taxes, of which some of it was truly up of some prior periods. So, I think this quarter was outsized, but also electronic medical records was a significant chunk this quarter on expense side. So, I do think some of those costs will dissipate, and I believe that a lot of these new improvements will significantly enhance our performance going forward.

I was just going to add. As David mentioned in the prepared remarks, if you strip out just a handful of properties that were down the most this quarter, I mean, the rest of the portfolio performed pretty well. It was up about 4.7% or so, and that's considering last year was the year that we were up about 8.5% on a same-store basis. So it was a fairly tough comp. And again, most of the portfolio performed fairly well despite new competition.

Great, thank you. And the last one for me. It's just more generically for Five Star. Their coverage has gone a little worse. They reported a weak 2Q 2017. Their cash flow position is worsening. How do you guys assess that risk in regards to their ability to keep up its rent payments?

Well, Austin, we constantly monitor the performance of the properties in the portfolio, and our asset management group is constantly badgering them with questions about their performance and the executive directors and competition in the area, and so on. So, I think we feel we have a pretty good handle on the actual assets themselves. I think the - obviously, as a company they've gone through a fair amount with the new competition and a lot of moving parts. I think - and implemented a number of programs that should help them on both the marketing and pricing side of things. But also, I think the Number 1 problem in our industry that's kind of a byproduct of the new construction is the constant need for filling Executive Director and sales personnel positions. And a Five Star head has successfully recruited a number of those positions, but they've also lost some of those positions, and that's usually the way you see it on a property-specific basis. Also, we talked about, during the prepared remarks, that they're incurring significant costs implementing electronic and medical records, and that's all being expensed. Once that's complete, that should significantly improve the SNF performance or skilled nursing performance in the CCRCs as well as standalone ones. So - and then in the interim, we also look at the fact that Five Star itself has $100 million line of credit that is virtually untapped. They do have 25 assets that they own on their balance sheet. So, I think they have a number of resources that are available to them, which gives us comfort that they will continue to pay the rent.

Awesome, thank you so much. That’s it from me.

Okay, thank you.

Your next question comes from Bryan Maher with FBR Capital Markets.

Good morning guys. Two questions really. Can you drill a little bit deeper on what you're seeing with salary and wage expense, particularly as it relates, to not just the directors, but also kind of line employees given the tight labor market? And then secondarily, the property tax expense, you said it was in a handful of markets. Can you tell us what those markets were?

Sure. Actually, with regards to the wages and benefits, we have not seen substantial increase in wages, I'd say, more in line with inflation. Overall, in the portfolio, our managed portfolio, salaries and benefits were up 1%. So that’s not - and which I would say is really a netting of an increase in wages and a reduction in benefit costs. We are seeing somewhat more wage pressures out in California, but again, most of our employees continue to exceed any minimum-wage requirements in the various states. So, I guess we have yet to see meaningful impact to the wage pressures. Rick can comment on the real estate taxes.

Yes, just to comment on the three properties Dave called out are near Dallas and then the other two are in Maryland and Illinois. So, we're hopeful to be successful with the appeals process but we've got to go through that process.

And then just back on the wages and benefits for one second. When it comes to these directors being wooed away to newer properties, what's going on there with respect to it? I mean, are there bidding wars for these types of people? Are you doing something special to keep them from leaving to go to other properties? Can you give us a little more color there? And that's it.

Sure. I mean, it's a constant battle fought by the HR teams and the regional operators around the country. But like - one, for instance, anecdotally, there's a property we have in Wisconsin that we bought, it was 95% or so occupied at the time we bought it and had been running very well. And then a developer built one facility in the same town and lured away our Executive Director by promising them equity in the new venture. So that's really not something we could match. But I will tell you that over the course of six months, it resulted in a drop of about $500,000 in revenue. So clearly, that Executive Director was worth paying a premium for to retain, but that's what the battle's going on out in the field. And I always believe that, we talk a lot about the NIC data and standard for different statistics for around the country, but at the end of the day, if you have a very good Executive Director, marketing and sales team and good physical plant that you're going to outperform anything in the new market, even new construction. So that's the key to it all. Five Star has a program, in their case, and I know Sunrise doesn't and several of the other operators, where they have a rising star program to develop executive directors internally by giving them mentors and on-the-job experiences to bring them up through the ranks and promote them and so on, and that's probably the best type of program you can have to compete in this world.

Thanks, that’s helpful.

Your next question comes from Juan Sanabria with Bank of America.

Hi Juan.

Mr. Sanabria your line is one.

This is Kevin [ph] here in for Juan Sanabria. So I just had a question referring to the average monthly rate. So it increased about 1.3% year-over-year. Is that kind of the expected kind of run rate moving forward? Or could we see it kind of increase out until possibly 2018 once the renovations are being completed?

Well, first of all, I think in general, we would expect the rates to continue to increase at the various properties. One of the things that I think is a bit misleading about the average monthly rate calculation in and of itself is the fact that skilled nursing skews the numbers significantly. And we figure an average resident is paying $10,000 to $12,000 a month in a skilled nursing unit, while assisted living or independent living might be paying $3,500 to $4,000 a month or maybe more. But that independent living resident is much more profitable than that skilled nursing resident. So you might have a margin of, say, 40% or better on that independent living resident, while you may be only earning 10% to 15% on that skilled nursing resident. But your monthly rate is going to look much better higher the more skilled you do. So I think that, that's a little bit misleading on which way that goes. I do think that we've seen typically 2% to 3% increases generally in the independent living and assisted living properties across the country and in our portfolio. And just maybe, there's some discounting in certain markets that pull that down little bit.

I guess I would just add that in some of the buildings where we are spending a fair amount of capital and doing renovations, to Dave's point earlier, it is certainly easier to push rates there because the residents see that they're getting more for their rent, their monthly rent checks. But new competition is obviously impacting the average rate. And again, the dynamic pricing model and making sure that you're pricing appropriately given supply and demand all factors in. So it's hard to say where it'll go, but we're hopeful.

Alright. Thanks guys. That’s all I had.

You’re welcome.

Your next question comes from Jonathan Hughes with Raymond James.

Hi guys, thanks for taking my questions. I apologize if I missed this, but could you just talk about the MOB rent per square foot on leases in the quarter versus last year? I know those aren't same-store, but I mean, they've trended down, and I would've thought they would maybe be flat to slightly up. If you could just talk about that, that would be helpful.

Sure. Well, like you said, they're not same store, so it's a little bit challenging to make the comparison. I think our rates are really running around $31 a foot this past quarter. And this compares very favorable to our peers. I think it all depends, too, on the type of building that it is. So - and again, we have a very broad portfolio, and I think - I know about you and others would benefit from the fact that we did post on the website today a property listing and - with the street addresses and the type of property, if it's life science or medical office and so on. So that would kind of give you -- you could drill down as much as you'd like on that. But if we're doing Cedars-Sinai renewals, they're all between $75 and, say, $82 a square foot, while we may have some other properties that are - a medical equipment manufacturer that might be at $26 or $30 a foot. So it does depend on the mix of what is in that renewal. I'll tell you in this one, we had a significant renewal that was skewing the numbers with AbbVie. We had two properties that are leased to them, and they have threatened to consolidate their locations, and we were nervous about losing them and they - our team's done a great job of renewing them for certainly another five-year period, but that was pretty much at flat to a little bit down in rent, which skews this number.

Right. I would just add that from like a releasing spreads. This quarter, if you take out that one renewal Dave just mentioned, we were up about 6% versus old leases. And if you look back to Q1, again, it was only 230 something thousand square feet, but I think our spreads were about 8% in Q1. So the leasing activity varies quarter-to-quarter because of just the size of the portfolio and the relatively small number of leases expiring at any time.

Sure. Okay. Yes, I'll definitely check on that property list, I appreciate that. I think it may actually be in there, but what percentage of your MOBs are on campus and affiliated with health care systems?

Let's see. Well, that's a...

I guess one way to slice it first, that within our MOB portfolio, about half of it is actually like life science-related. So our kind of patient care properties or a subset of that - of the other half. And then, again, it's hard to define, everybody uses a slightly different definition, but it's a pretty good chunk.

I was about to say 80% of the medical office is leased to - is a health care system affiliate occupied building. So like [indiscernible] at Wisconsin, Cedars obviously, but we also have a number here of that Reliant Medical Group here in Massachusetts and so on. So the number of - we target properties that have a - anchor as a health care system. And it may be a multi-tenanted or might be individual.

Great. And do you have any plans to split out life science from MOBs? They're kind of different in terms of drivers. I mean, I think that would be something we would all find useful, just a suggestion from our standpoint.

It's growing to become a more meaningful part of our portfolio, so I would imagine that we will split it out for information and purposes so you can evaluate that. Again, Vertex is such a huge piece of it, that's a major piece, but we also have obviously quite a bit down in La Jolla and around the Greater Boston market.

Okay. And then just one more for me. Looking at the cap rates on the recent MOB deals does look pretty favorable versus some recent larger portfolio transactions we've seen. Can you just talk about those properties, single versus multitenant in lease terms, and just how you were able to achieve that pricing?

Right. Well, the one that we've disclosed in the supplemental and so on is - it is an attractive lease rate, and that's because it's a multi-tenanted life science property in the Maryland area, and it - one of the key factors is that there's less than four years left on the lease for an average lease term. And as a result, many - based on the size of the property, it's not attracting the major players in Alexandria. But because it's less than a four-year lease - average lease term, a lot of parties bidding on it cannot obtain financing for it. So, we're not so much competing against private equity either. So, I think there are very few qualified bidders in that particular case, and that's why we believe we were able to attain - with the certainty of closure, we were able to obtain such a favorable return. And we would not have - knowing the lease term is only about four years on average, we, part of our diligence processes is to thoroughly vet out the likelihood of renewal and/or replacement tenant in that marketplace, and we feel very strong about the renewal possibilities there, and the leases are below market. So, we're taking that approach of, you know, if you find a unique situation that our downside is covered and hopefully some upside, and we'll bid as we think appropriate. We just are not going to be bidding on the 5 and 6 cap rate transactions.

Right. And you mentioned Alexandria. I mean, is that more of a life science building than what we would call traditional medical office?

This one is, yes.

Okay, that’s it from me. Thanks for taking my questions.

Okay, you’re welcome.

This concludes our question-and-answer session. I would now like to hand the conference back to Mr. Dave Hegarty for any closing remarks.

Thank you very much for joining us today and hope you enjoy the rest of the summer. Thank you.