Diversified Healthcare Trust (DHCNL) Q1 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to the Senior Housing Properties Trust First Quarter 2018 Financial Results 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 that this event is being recorded. I would now like to turn the conference over to Brad Shepherd, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Senior Housing Properties Trust’s call covering the first quarter 2018 results. Joining me on today’s call are Jennifer Francis, 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 without the prior written consent of SNH are strictly prohibited. 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 on SNH’s present beliefs and expectations as of today, Thursday, May 10, 2018. SNH undertakes no obligation to revise or publicly release the results of any revision to 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 components to calculate AFFO, CAD or FAD are available on our supplemental operating and financial data package found on SNH’s 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 Jennifer.

Thank you, Brad, and good morning, everyone. Thank you for joining us on SNH’s first quarter 2018 earnings call. Before we begin, I would like to take a moment to thank David Hegarty for his many years of service at SNH since it’s founding in 1999. His expertise and contributions helped develop SNH into a premier healthcare REIT. I can speak for everyone in saying that we will miss him. Yesterday, we reported normalized FFO per share of $0.45 which was $0.01 less than the normalized FFO per share for the first quarter 2017. The joint venture transaction we completed in late March of last year reduced our quarterly FFO by $0.03 per share for quarter prior to reinvest in the proceeds. We essentially deployed a third of the total proceeds and in the first quarter have made up two of the $0.03 lost in FFO per share through these investments. We have been able to do this by acquiring approximately $300 million in assets over the last year with an average cap rate of over 8.5%. We've been very active on the investment front in the first quarter. We acquired two senior living properties, two life science buildings, and two medical office buildings for an aggregate purchase price of approximately $155 million. This first quarter’s acquisition total surpassed our acquisition volume for all of 2017, yet we were still able to achieve an average cap rate of over 8% for these high quality assets located in attractive markets, such as San Jose and St. Louis. By taking advantage of RMR’s national footprint by buying assets outside of Gateway market and by not limiting ourselves on transaction side, we continue to avoid competition from larger institutional investors and to find excellent returns on quality, healthcare, and real estate. We expect the run rate of these first quarter acquisitions to produce incremental NOI of $1 million in the second quarter which means that we have replaced the FFO loss from the joint venture transactions in a little over a year by redeploying only a third of the total proceeds. This demonstrates the efficacy of our strategy of being patient and selected with our recycling of capital. On the topic of recycling capital, in January we announced that we entered into agreements to sell four senior living assets leased to Sunrise Senior Living for $368 million with expected gain of approximately $308 million. To date, we have sold three of the four communities for $272 million and recognized book gains of $227 million with the final community expected to close in the coming weeks. These properties were sold at a 4% cap rate, so we expect to receive a significant spread on the reinvestment of the proceeds based on our recent acquisition yields. Moving on to our operating results for the quarter. Our total portfolio same-store cash NOI was down less than 20 basis points in the first quarter were essentially flat when compared to the first quarter of last year. Our medical office building and life science portfolios same-store cash NOI decreased 1.9% in the first quarter. Tenant retention was 80% and overall occupancy at the end of the quarter was 95.1%. The 80 basis points decrease year-over-year in the life science portion of our MOB portfolio is the result of the vacancy of the single tenant building that we've mentioned on our last two earnings calls, which is located in the Southwest suburb of Boston. In April, we executed a new 55,000 square foot lease for approximately two thirds of this building for the subsidiary of Johnson & Johnson. We have strong activity on the balance of the building. In our traditional medical office building portfolio, half of the 3% same-store cash NOI decreased as a result of an early termination fee we received from a tenant in the first quarter of 2017. This was a positive story and that we not only received the termination fee last year, but we also released the space to a new tenant for just three days of downtime a below market tenant improvement allowance and a roll up in rent. The majority of the remainder of the decrease is related to one building in Pennsylvania recently vacated by a single tenant where we are planning to reposition the asset. Our triple net lease senior living portfolio continues to produce consistent growth with same-store cash NOI increasing 1.9% in the quarter compared to the first quarter last year. The triple net lease senior living portfolio had rent coverage of 1.2 times for the 12 months ended December 31, 2017 which was down only slightly from the 1.21 times recorded in the prior quarter. Our managed senior living portfolio same-store cash NOI which accounts for only 15% of our portfolio decreased 1.6% in the quarter. As it indicates in recent quarters, our managed portfolios performance was negatively impacted by two of our largest managed properties. Last quarter, we mentioned that our CCRC, Laguna Hills, California was our largest year-over-year decrease and that was the case again this first quarter. The property is currently undergoing a significant multi-million dollar renovation, which of course tenders new moving activity. The work there is not expected to be completed for several months. Our large CCRC in Fort Myers, Florida where a multi-million dollar renovation has recently been completed is once again position to compete in that market. However, it may take some time due to the amount of new supply nearby including a 300 plus unit ILAL community that opened last October just two blocks away. The cash NOI at these two properties decreased a total of $1 billion year-over-year, if we excluded them from our results, our managed portfolio same-store cash NOI would have been close to 3% as we are starting to see grow from communities where we completed significant renovation such as Yonkers and Dallas. I just mentioned a number of properties both in our MOB portfolio and our managed senior living portfolio, where we completed are in the middle off or are about to begin strategically positioning work. We will continue to evaluate our assets to determine where we can improve our returns by strategically investing capital and properties where we believe will grow revenue, grow occupancy and maximize shareholder value. Finally, I'm pleased to be joining the leadership team in SNH in its 19 year as we look to find new ways to build and improve upon companies sold and diverse portfolio of healthcare real estate. While it's well known that the REIT and senior living industries are facing headwinds, I believe that we are poised to come out of this current environment with the portfolio of assets and company that is stronger than before. As I said a number of times to my colleagues and to many of you on this call, SNH is not getting the credit it deserves for our high quality well occupied portfolio, diverse tenant mix in geographic footprint, investment grade rated balance sheet and our track record of delivering shareholder returns. I plan to work in the coming months to emphasize the many positive attributes of our portfolio. I’d like to turn the call over to Rick to provide a more detailed discussion of our financial results for the quarter.

Thank you, Jennifer, and good morning, everyone. I’d like to quickly touch on some of the first quarter financial highlights beyond what Jennifer just covered. In February, we issued $500 million or 4.75% senior unsecured notes and we're pleased with the execution. The net proceeds from this offering, we used to reduce the amounts outstanding under our floating rate revolving credit facility. We ended the quarter with just $55 million strong on our $1 billion revolver. Our debt-to-adjusted EBITDA was 5.8 times and debt to gross assets was 41.4% at quarter end. Between our borrowing capacity on the revolver and another $96 million of proceeds expected from the sale of our last Sunrise Senior Living Community. We have ample liquidity and are well positioned for growth. In addition to the accretive, external growth Jennifer discussed, we continue to invest in our existing portfolio. In the first quarter, we spent $12.4 million on capital expenditures of which $7 million as considered to recurring and include building improvement, recent costs and tenant improvements at our MOBs and managed senior living communities. $2.2 million was our funding of projects within our triple net lease senior living portfolio, which will increase the annual rents due from our tenants. The remaining portion of our capital expenditures, $3.2 million was invested in development and redevelopment capital project, the majority of which was spent on our managed senior living portfolio. This amount was uncharacteristically low for redevelopments spend for one quarter as we have been averaging approximately $7 million per quarter or about $28 million annually for the past two years. We expect expansions and renovations to ramp up through the rest of the year, and could spend $40 million on development at our managed senior living community and another $10 million redeveloping a few of our MOBs in 2018. For example last quarter, we mentioned one of the properties we purchased in Five Star located in Tennessee has started an expansion for 91 unit independent living building, which is already 50% prerelease. This project continues to move forward and it could account for approximately half of our full-year expected manage senior living development and redevelopment expenditures. We are also awaiting final approval to begin construction of a 24 unit memory care expansion at our assisted-living community and Walnut Creek California, and we have two renovation projects planned for later in the year in New Jersey and Arizona. Within our MOB portfolio, we have planned to reposition one of our multitenant medical office buildings in Washington, D.C. We expect these capital investments to help us grow revenue, grow occupancy and generate strong returns. Subsequent to quarter end we declared another $0.39 per share dividend for the first quarter of 2018 and with the yield now over 9% we think SNH provides a compiling investment opportunity. We're very excited about the investments we've been making both internally and externally and look forward to continuing the strategy and demonstrating that our current trading multiple does not reflect the relative value when a conservative risk profile of our high quality, healthcare real estate portfolio. Lastly, I wanted to provide a little more color on two key lines in our income statement. General and administrative expenses for the first quarter included $14.3 million of estimated business management incentive fees. The incentive fee accrued in the first quarter is based on SNH’s total return in comparison to the SNL U.S. REIT Healthcare index from the beginning of 2016 through the end of the first quarter of 2018, SNH’s outperformed the index by 37% since to being of 2018 with a total return of 32% compared to a total return from the index of negative 5%. The incentive fee is capped at 1.5% of our equity market capitalization which equates to an annualized estimated incentive fee for 2018 of $57.4 million have calculated at the end of the first quarter. This incentive fee accrual made increased or decreased over the remainder of the year depending on how SNH performs relative to the index. Excluding the estimated business management incentive fee general and administrative expenses decreased 8.9% this quarter compared to the first quarter of last year. The decrease is a result of our share price throughout the first quarter of 2018 being used to calculate the business management fee paid to RMR which is based on the lower of historical cost of our real estate or our market capitalization. With the March average share price of only $15.82, the market cap based fee results in annual savings to SNH of $4.7 million. Interest expense is flat this quarter compared to the first quarter of 2018. We had a $4.9 million decrease in interest expense as a result of the prepayment of $310 million of mortgage debt in 2017 and 2018 with weighted average interest rate of 6.6%. This was offset by an increase of $1.3 million of interest expense from our line of credit which had weighted borrowings of $451 million or 2.7% this quarter. As well as an increase of $3 million in interest from the $500 million or 4.75% senior secured notes issued in mid-February. That concludes our prepared remarks. Operator please open up the lines for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Drew Babin with Baird. Please go ahead.

Good morning. This is [Alex Kovachek] for Drew this morning. On your 1Q life science in MOB acquisitions I know if you guys are listing your major tenants? Are those single tenants are there other minor tenants in the buildings. And also want to if you could just give us more color on these tenant kind of you know if you got what you prospects you see with them and additionally one small thing a signature health services in any way affiliated with signature healthcare that we know is experiencing financial difficulties?

Okay. So the first question was on our MOB acquisitions and the tenants it's a mix we have - we bought buildings that have single tenants and then that are mix. So if you want to go through each acquisition or if it's very.

Just color on the major tenants are probably be really beneficial?

Yes, so let’s see an overall product the major tenant there is was a company called quintiles it was acquired by [IQBIA] they've got you know nice long-term with us where we're pretty happy about that acquisition. San Jose is the single tenanted buildings complete genomics is the tenant there. What see in our Richmond Virginia that’s Glen Allen that is a multitenant – of the single tenant building up Virginia premier health plans is the tenant there. So again – comfortable with that tenants and Precor is a multitenanted buildings.

Right. And just to add yes the question about signature healthcare. It is totally unrelated to the senior living group down in you have the question I think health care it is totally unrelated to the to the senior living group down in Louisville, Kentucky and this is again fairly affluent suburb of St. Louis. We think it’s great real estate, the building is fully utilized, we're really excited about that acquisition.

Perfect. Thanks for the color. And within that – your managed senior living segment, it appears that the occupancy, the rate and the margins are all fairly stable year-over-year basis. Is that flatness prevailing condition we can expect until the impact of new supply tapers or are we maybe going to see some quarter-to-quarter volatility through 2018, especially as once your guys building improvement initiatives continue to come on line?

Yes. Well actually we talked in prepared remarks about that portfolio is up if you take out two buildings that are undergoing major renovation. I think once those buildings – once those renovations are complete we will see occupancy growth in those buildings as well, so we're pretty comfortable with where we are.

Just to add, I think there's no question new competition and new supply has hurt us, but like Jennifer said, excluding those two construction projects building, we would have been up 3%, and we are encouraged by the results of our spend.

Yes. We've seen great results in some of the buildings where we've completed those projects. We have a project in Dallas that’s up 19% year-over-year. The Yonkers project that was completed is up 49% from Q1 2017, so we're seeing great results in the repositioning of – where we finish those repositioning projects.

Do you have any color on the timing of when those initiatives on those two larger buildings and when you guys intend for those to kind of wrap up and you see some incremental growth?

So Villa Valencia project that we've talked about in California, it’s about 80% complete, so at some point this year, I'd say it would finish up. Deerfield Beach, Florida, it’s about – the way through, and so again, maybe by year end we’ll finish up there.

One of the projects is also in Fort Myers which is a market that has seen a lot of new competition. Again, we think that will take a little bit of time, but we are encouraged, the facility looks fantastic.

Thanks for the help there. One last question for me. In the supplemental it looks like – specific senior living default on one property, is an impairment likely to be taken or is a broader entity paying the rent?

No, we do have a – we have a security deposit about $600,000 and then we have a one-year guarantee from their parent company, so we’ve been down this road before, we’ll likely take the property back and operated in our TRS. We think it's got high potential, it’s in LA. We're confident in building the long-term success. It’s just a matter of kind of getting through the transition.

Great. Thanks for taking my questions guys.

Thanks.

Our next question comes from Bryan Maher with B. Riley FBR. Please go ahead.

Good morning and welcome Jennifer.

Thank you.

A couple of quick questions. We want to think about your acquisitions going forward, where do you expect to concentrate? Is it really in the MOB? Is it somewhere else? And what are you seeing in the competitive landscape to make those acquisitions?

Well my background, I think a lot of people as you read in the press release, my background is more on the MOB office life science side, so I think we're hoping that will constant around, hoping we’ll concentrate their, we're very opportunistic though. So we're really looking at everything and our acquisitions team really sees everything that hit the market both on life science MOB and the senior living space. So we're going to strike where the iron is hot, I guess is the expression. Again, I have a strong preference to the MOB life science side.

Okay. And we totally agree with what you said about SNH not getting credit, it deserves. Can you tell us kind of in your experience with the company why you think that is and what specifically steps you're going to take to try narrow that valuation discount?

Yes. I mean it's clear, our stock prices is not anywhere near where I think it should be. And so we've got close to 13 million portfolio of MOB life science, 1 million square feet portfolio of MOB life science. We've got really good strong – I've been touring senior living properties around the country and we've got some great senior living properties. My background is asset management and so where – while SNH has an asset management team now, we're going to make that team a bit more robust and really focus on asset level strategic business plans. We already have them on the MOB side. We're going to focus on the senior living side to really make sure that that real estate is poised. We have very strong operators, right. So they're managing the businesses in those senior living portfolios, but we're going to – in buildings, but we’re going to look and at an asset level and make sure we're poised to come out of this strong.

I guess I was thinking with this question a little bit more on the investor outreach side of the story, it just seems like certain investors whether it's SNH or HPT, or SIR, or GOV, they just have a bias for one reason or another, which we disagree with on the external management structure. And so how do you expect to overcome that and really highlight with them what you have and why there shouldn't be a discount?

Brian, I think we agree with you. We definitely are interested in getting out on the road and meeting with more investors. Generally, I think there are some investors that hear about an external management structure and just kind of shutdown, typically when we have the conversation and go through the structure of the formula in order for RMR to earn both the base business management fee and then incentive. Really the interests to shareholders are aligned and the historical owners of RMR are substantial shareholders in SNH. So everyone is on the same side here and if you look at that, we did approve an incentive fees this quarter because we've outperformed the healthcare index by 37%, I mean it's significant. So we think we've got a good secure dividend and we're very comfortable with the formula and the way things are organized. So we want to get out and tell that story and make sure people understand it. Usually when they hear it and think through it, there aren’t a lot of holes they can poke, so that that's certainly a piece of it.

All right, thanks, Rick.

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

Yes, good morning. For the senior housing portfolio, I guess when I take a look at the current rent coverage is slightly above one, you still have a sector where there is a lot of supply concern – concerns about negative same-store NOI growth. I guess how should we be thinking about the safety of the coverage going forward? Is there any kind of tenants issues may be worried about where coverage could go, so no that you may have to deal with rent concessions or rent deferrals or anything of that nature?

Tayo, we apologize for the early morning call. But I think in general, our coverage is fairly strong at 1.20. I mean there has been some drag on the coverage as a result of senior living industry headwinds. We saw our Brookdale coverage tick down a little bit. Brookdale is a great operator. We’re still over two times covered and really the decrease in coverage there is related primarily to the some expansion funding that we've provided to the rented increase. Five Star remained at 1.15 times cover. We still believe they are one of the better senior living operators out there. They’ve got an incredibly strong balance sheet. They still own 20 properties on their own balance sheet that are probably worth up to $400 million or so. Hopefully, everyone can hear us. We're getting a little bit of noise on the line.

Okay, that's helpful. And then Jennifer, I appreciate your comments in regards to asset management and leasing that up. Do you think that that’s again the secret sauce to kind of get your operating metrics to be closer towards your pay over time? Is that like your initial assessment of the company as a President and COO, the one area you thought that there's still work to do or are there other areas you're looking at to kind of start to get your metric kind of closer towards your peer group.

It's early on for me still. I spend here a little over a week. But I do think that that beefed up Asset Management Group really looking to understand where we can vision asset to compete. It’s going to be my initial focus. I think I still need to spend some time really digging into the senior living portfolio and maybe next quarter. I'll have more color on that real estate company just really focusing on the real estate is where I see me starting, right.

Great, thank you.

Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Yes, thanks. I just kind of want to take a kind of half of Tayo’s question on the Five Star portfolio. I know coverage is at 115. That still little tight, what’s the prospect of that moving higher? Is there renovations that they're completing? Is there electronic medical records that they've been rolling out for a little while now has that fully been implemented and introduce an uptick from there? I guess what’s the outlook with those assets?

So they are pretty far along in the electronics medical records. I think they’ve got all the skilled nursing facilities up – the standalone skilled nursing facilities are up and running and they’re starting to move that into their assisted living communities as well. So I think that that’s going to help them quite a bit.

Right, I would just add that, I think Five Star is planning to report next week. We do expect the coverage will probably dip a little bit more. Q1 was tough with new supply and the flu and everything else. So I think it will probably get a little bit worse before starts get better, but we are confident that overall the capital project that they've been working on will start to bear fruit in the near future. And again long-term demographics of the industry we're still confident. And so again pricing account a little bit next quarter primarily because the flu and some other things, but again with the five master leases in across the fall, we still view it them as one of the better credits as far senior living operator stuff.

Yes, I know historically you guys have kind of highlighted that there are a few assets within that portfolio that has negative EBITDAR and there was questions that you could possibly sell those assets with Five Star’s approval obviously. I mean has that gone anywhere? Are you still looking at those potential sales?

We are – as part of that strategic asset level business plan that I talked about earlier that will be one of the things that comes out of those plans and so really taking a good look at all of the assets, not just the TRS structures, but all of the assets and coming up with a plan, which part of that plan is a wholesale recommendation. So we will be looking pretty hard at that.

Okay. And then just last question, can you give us a little bit more color on the renovations that you're pursuing. I mean what are the expected yields on these and then could you start providing more details within the supplement on the projects you're currently pursuing.

So the renovations, we've got – on the MOB side, we've got a couple of renovations that are planned for the year, complete risk repositioning of an asset in Washington, D.C. We're expecting mid-teens double-digit returns easily. And then the TRS side, we’ve got Villa Valencia. I think we’ve talked about. We've got a building in Deerfield Beach, Florida where we’re up to $30 million project to complete repositioning. We've got a project that were planning in New Jersey, Teaneck, New Jersey that's about to kick off, also one in Arizona, the $3 million or so project that's going to be kicking off in 2018. We have an expansion in Walnut Creek California that that is also we're hoping to be complete in 2018. So we've got a lot of properties were repositioning the assets that either stay competitive or stay ahead of our competitors in those markets.

Okay. And then the next quarter could you add a supplemental page or a page within your supplement on these projects?

I am a little hesitant add to the supplemental just because it's already fairly expensive. But we can make sure we covered in prepared remarks since lot of things to get that information out there. It's only – again it's a dozen or so project in total. So it’s not that. We can cover it offline or something.

Okay. Thanks.

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

Hi, this is Kevin Speight on for Juan.

Good morning.

Hi.

Good morning. Getting back to those two CCRCs, you mentioned earlier, you mentioned supply, where do you guys anticipating for the lease up times?

For the CCRCs that we talked about in the prepared remarks?

Yes.

Yes, Calusa Harbour is I mean we’ve just toured that property, recently they did a great job, and we’ve got a great executive director down there. The issue that we're having there is that a building, a competitor opened up literally two blocks away and so we're competing head-to-head with them. We're doing quite well there I think. And so I don't know that I can give a timeline on when we'll stabilize. But again, it's a great property. Villa Valencia is the other property we mentioned, it's still under construction and it's pretty heavy duty construction. So I think that most of that is going to have to be done before we start to expect to stabilize that asset.

Okay. Thanks. And then just also regarding the remaining one third of the medical office building and in [indiscernible] of Pennsylvania, I guess is there a timeline for getting those released as well?

Yes. So the building in the suburbs of Boston, we've had great leasing activity. I think that – I don't think that's going to remain vacant for much longer. And on the 55,000 square feet that we did lease up, we signed a lease and the lease commenced I think it was the next day. And so Pennsylvania where the repositioning we're doing is not major, at some facade works and window work putting in a lobby. I think we've also had good activity there, so it's hard to know – I would say you can actually – play in revenue would be 100% occupied, but we've got great activity, it's a good asset, we've got good brokers on it, so I expect it will get that leased up in pretty short time.

Okay. Thanks. And then last question. Where you are seeing your life science tenants, I guess their willingness to kind of move away from Cambridge and downtown Boston outside the more of the suburbs, and noticed some of your peers have noted they are kind aren't willing to move out sort of suburbs, so I just want to get your opinion?

I mean I think that there are plenty of life sciences companies that have moved out of the suburbs Lexington, Waltham are pretty hot markets, we've got a property in Lexington that is well occupied. And any time we hear that a tenant might be doing something, it seems like we've got a list of tenants who are interested in taking that space. So yes, Cambridge is definitely hot, Boston Seaport District, they are the hot life science markets, but there are plenty of tenants who can't stomach the rents that they have to pay in there and move out to the suburbs.

Okay. Thank you.

[Operator Instructions] Our next question comes from Vikram Malhotra with Morgan Stanley. Please go ahead.

Thanks. I was hoping you can give us sort of a timeline/maybe some budgets over the next, call it two years or so, all these capital investments and incremental investments in both MOB and Senior Housing. Can you give us a sense of what's the expected spend over the next two years? And can you give us maybe some more anecdotes about the returns or the improvements that you're seeing in the underlying operations as you spent this money?

I guess I would just say that as a general rule, we as a company don't give guidance. I think in the prepared remarks, we probably provided a little bit more than usual just because of how significant some of the CapEx redevelopment spend is expected to be. In the prepared remarks, we said we could spend up to $40 million or so in the managed senior living portfolio and another $10 million repositioning some of our MOBs. So I think that's probably as much as we would give as far as financial information. As far as additional color, again, Jennifer mentioned the repositioning of the multi-tenanted building in Washington. The senior living assets – each community is unique, Dave always use to say that it’s a very local business and we think that's certainly true. Each community might need a different view or a different take on renovation capital. So we're going to work closely with the management team to make sure we're making a right decision and spending it wisely. But overall, we’re encouraged by the returns that we've seen on the project we’ve taken so far.

Okay, so just hoping that maybe this is going to be sort of ongoing investments would behalf for just get some more rough numbers around like what's the spend going to be over the next a year or two just so we get a sense of the outliers. But Jennifer, maybe from your perspective, you mentioned some of the portfolio being under appreciated. As you've talked to different groups, investors, folks, managing the properties, are you happy with the business mix today and what's your sense on maybe what parts of portfolio are not that well understood by the investor community?

Well, I think we spent so much time. I've noticed in the past six months talking about the senior living portfolio, the skilled nursing portfolio, and we don't spend 50% of the time, talking about our medical office portfolio against 12.6 million square feet over 95% occupied that’s beating, market occupancy across the country. So I think getting the recognition for that portfolio and then just making sure that people understand the value of the assets that we have not only in the MOB portfolio, but also in the senior living portfolio. And our stock – I think incredibly under valued. So, yes, it's getting out. As Rick said, getting out and making sure that we deliver that message and try to prove that to folks.

And so in terms of capital allocation, in terms of the fact that you think there's a big disconnect, how do you view sort of utilizing some of the assets where you can get really attractive pricing, looking at leverage buybacks et cetera. Can you just give us an update there?

Well, I mean as far as capital allocation, I think that that again back to those asset level strategic business plan. I can't say exactly where future capital is going to be spent until we really dug in and taken a look at the properties into the asset level. So time to – there's time to do that.

Okay, I would just add, I mean we put in a press release that we have had substantial capital recycling because again a lot of our assets have been accumulated over years. We historically were not much of a seller, but we’ve already sold about $812 million since last year and we have another $96 million of proceeds to go. So that’s just on our handful of the asset. So we are encouraged. We think portfolio is undervalued. We're going to continue to do what we can and demonstrate the value and try to drive shareholder value.

Okay, thank you. End of Q&A

This concludes our question-and-answer session. I’d like to turn the conference back over Jennifer Francis, for any closing remarks.

Okay, thank you. Thank you for joining us on our first quarter earnings call. I look forward to meeting many of you at our upcoming conferences. Have a great day.

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