Healthpeak Properties, Inc. (DOC) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Fourth Quarter and Year-End 2012 HCP Earnings Conference Call. My name is Lashonda, and I will be your coordinator today. [Operator Instructions] Now I would like to turn today's presentation over to your host for today's conference call, John Lu, Senior Vice President. You may go ahead, sir.

Thank you, Lashonda. Good afternoon, and good morning. Today's conference call will contain forward-looking statements, including those about our guidance and the financial position and operations of our tenants. These statements are made as of today's date and reflect the company's good faith beliefs and best judgment based upon currently available information. The statements are subject to the risks, uncertainties and assumptions that are described from time to time in the company's press releases and SEC filings, including our annual report on Form 10-K for the year ended 2012. Forward-looking statements are not guarantees of future performance. Actual results and financial condition may differ materially from those indicated in these forward-looking statements. Further, some of these statements may include projections of financial measures that may not be updated until the next earnings announcement or at all. Events prior to the company's next earnings announcement could render the forward-looking statements untrue, and the company expressly disclaims any obligation to update earlier statements as a result of new information. Additionally, certain non-GAAP financial measures will be discussed during the course of this call. We have provided reconciliations of these measures to the most comparable GAAP measures, as well as certain related disclosures in our supplemental information package and earnings release, each of which has been furnished to the SEC today and is available on our website at www.hcpi.com. I will now turn the call over to our Chairman and CEO, Jay Flaherty.

Thanks, John. Welcome to HCP's 2012 Fourth Quarter Earnings Conference Call. Joining me in Long Beach this morning are HCP's Executive Vice President, Chief Investment Officer, Paul Gallagher; and HCP's Executive Vice President, Chief Financial Officer, Tim Schoen. We will begin with a review of the results announced earlier today. And for that, I turn the call over to Tim.

Thank you, Jay. 2012 was another excellent year for HCP. One, we generated cash same property growth of 4.2% over 2011; two, we closed on $2.6 billion of accretive investments led by our $1.7 billion senior housing portfolio acquisition of The Blackstone JV; three, we raised $3.5 billion of debt and equity capital and significantly improved the pricing on our $1.5 billion revolver; four, we received credit rating upgrades from Moody's and S&P; five, we achieved substantial success in sustainability. With this summary, there are several topics I will cover: Our fourth quarter and full year 2012 results; investment and disposition transactions; financing activities and balance sheet; and finally, our 2013 guidance and dividend. Let me start with our fourth quarter results. Cash NOI from our same-store portfolio increased 4.3% compared to the fourth quarter last year. Paul will discuss our results by segment in a few minutes. For the quarter, we reported FFO of $0.71 per share, which included transaction costs related to our $1.7 billion Blackstone JV acquisition. Excluding the transaction cost, FFO as adjusted for the quarter was $0.72 per share and FAD was $0.57 per share, which represent increases of 7% and 14% year-over-year, respectively. Turning to our full year 2012 results. Cash Same Property Performance increased 4.2% over 2011, in line with the midpoint of our last guidance. The results were favorably impacted by a $4 million onetime rent payment from Google in the first quarter of 2012. Absent this, our year-over-year cash SPP increased 3.8%. We reported full year 2012 FFO of $2.72 per share, which reflected the combined impact of $0.06 per share from noncash charges related to our preferred stock redemption and land sale impairment and transaction expenses for our Blackstone JV acquisition. Excluding these items, FFO as adjusted for 2012 was $2.78 per share and FAD was $2.22 per share, increases of 3.3% and 3.7% over 2011, respectively. The results were driven by same-store performance and accretive acquisitions closed during the second half of 2012. Recall that full year 2012 growth is moderated by a $35 million or $0.09 per share gain in 2011 from the early par payoff of our Genesis debt investment. Absent this onetime gain in 2011, we achieved year-over-year per share growth rates of 6.9% and 8.3% for FFO as adjusted and FAD. Our 2012 cash dividend of $2 per share resulted in a FFO as adjusted payout ratio of 72% and FAD payout ratio of 90%. We achieved a 21% reduction in our non-stabilized assets in 2012, reducing the pool of assets from $1.1 billion in January to $850 million at year end. 2012 stabilizations included a substantial pay-down of our Delphis debt investment, sale and development of our landholdings in Poway and reaching stable occupancy on 8 life science and medical office buildings. Investment in disposition transactions. During 2012, we invested $2.6 billion as follows: first, a $1.7 billion acquisition of the Blackstone JV portfolio, comprised of 129 senior housing communities master leased to Emeritus; second, $280 million of on-campus MOB portfolios representing 1.2 million square feet; third, $315 million of post-acute debt investments, consisting of $215 million in U.K.-based Four Seasons Health Care and $100 million first tranche funding as part of a $205 million mezzanine loan facility with Tandem Health Care; fourth, $110 million of senior housing debt investments, including fundings of $58 million related to our development loan program and a secured loan of $52 million provided to Emeritus as part of the Blackstone JV transaction; fifth, $61 million of pre-leased life science redevelopment projects to build out lab space for the AA-rated and #2-ranked Duke University, and $183 million for other real estate acquisitions, development and capital improvements. During the year, we sold 4 properties and a land parcel for $150 million, generating a net gain of $24 million. Fourth quarter disposition activities included 2 senior housing communities in Alabama for $111 million in connection with a tenant purchase option that resulted in the properties being valued at a 7.1% cap rate, generating a gain of $17 million. Our financing activities and balance sheet. During 2012, we raised $3.5 billion of debt and equity in the capital markets to fund accretive acquisitions and refinance higher interest rate debt and preferred securities. Proceeds raised during the fourth quarter totaled $1.8 billion, consisting of $979 million in common stock and $800 million of 2 5/8% senior unsecured notes due 2020. We used these proceeds to finance the Blackstone JV acquisition, consistent with our long term capital structure of 40-parts debt and 60-parts equity. We achieved more attractive financing terms than those initially projected, and as a result, the Blackstone JV acquisition on a full year basis is $0.10 and $0.07 per share accretive to FFO and FAD, respectively, exceeding our underwriting by $0.02 per share for each metric. We ended the year with $248 million of unrestricted cash, including proceeds from the fourth quarter asset sales mentioned earlier and excess proceeds from our November bond issuance after funding the Blackstone JV acquisition. We intend to use cash on hand to repay $150 million of 5 5/8% senior unsecured notes, maturing on February 28. Our remaining 2013 debt maturities total $695 million, with an average interest rate of 6%, representing attractive refinancing opportunities in the second half of this year. We have no outstanding balance on our $1.5 billion revolver at year end, and less than 1% of our debt obligations are subject to floating interest rates. With respect to our improved credit metrics, at year end, our financial leverage remained at 40%. The secured debt ratio improved to 8.3x -- 8.3%. Fixed charge coverage for 2012 increased to 3.6x, and for the fourth quarter, improved to 3.8x. Net debt to EBITDA for the year was 5.3x and improving to 5.0x for the quarter. Recognizing the significant positive momentum in our credit profile, during the fourth quarter, both Moody's and S&P upgraded our credit ratings to Baa1 and BBB+. Our full year 2013 guidance. Our guidance does not include the impact of any future acquisitions and reflects the following: Cash Same Property Performance is projected to range from 2.5% to 3.5% on a full year basis, and we expect the growth to accelerate as we move through the year. Excluding the onetime Google rent payment in the first quarter of 2012, cash same-store is projected to increase from 3% to 3.3% at the midpoint. 2013 FFO is projected to range from $2.92 to $2.98 per share, which at the midpoint represents 6.1% growth compared to our 2012 FFO as adjusted. The growth is driven by the accretive benefit from 2012 acquisitions and forecasted same-store growth on a GAAP basis. 2013 FAD is projected to range from $2.39 to $2.45 per share, representing year-over-year growth of 9% at the midpoint, driven by 2012 acquisitions and forecasted cash same-store performance. Our business plan assumes the continued monetization of non-stabilized assets, with projected stabilizations of $200 million in 2013. Let me quickly run through a few other detailed assumptions related to our guidance. G&A is forecasted to be $85 million, including amortization of stock-based compensation of $23 million; amortization of below market lease intangibles and deferred revenues of $2 million; amortization of debt premiums, discounts and issuance costs of $18 million; straight-line rents of $60 million; DFL accretion totaling $152 million, of which $91 million is reported in income from direct financing leases with the remaining $61 million accounted for as income from joint ventures as a result of our minority ownership in HCR ManorCare OpCo; DFL depreciation of $14 million; leasing costs and second-generation tenant and capital expenditures of $63 million; development, redevelopment and first-generation capital funding of $182 million, including capitalized interest of $15 million [ph]; and projected funding of $30 million related to our senior housing development loan program and assumes Tandem Health Care draws $105 million related to the second tranche funding of our loan commitment. I'll conclude with a few words on our 2013 dividend. Last month, we increased our quarterly dividend from $0.50 to $0.525 per share, marking the 28th consecutive year of dividend increases for HCP. The annualized dividend of $2.10 per share represents an increase of 5% or $0.10 per share over 2012. And based on the midpoint of our guidance, the projected 2013 FFO and FAD payout ratios will improve to 71% and 87%. Finally, HCP continues as the only REIT included in the S&P 500 Dividend Aristocrats index. With that, I'll now turn the call over to Paul. Paul?

Thank you, Tim. Now let me review the fourth quarter results and provide 2013 Same Property Performance guidance by segment. Senior housing. As of September 30, 2012, our same property senior housing occupancy was 86.2%, a 90 basis point sequential increase over the prior quarter and an 80 basis point increase versus the prior year. Included in this, occupancy for our RIDEA JV was 86%. For the fourth quarter, our RIDEA JV's occupancy increased 120 basis points to 87.2%. Same-store cash flow coverage for the portfolio declined [ph] 1 basis point from the prior quarter to 1.11x, driven by outsized fixed rent bumps on our transitioned assets. Current quarter year-over-year same property cash NOI was up 6%. Growth was driven by rent steps, including higher rents for assets transitioned to new operators and additional rents earned in our Sunrise portfolio. Full year 2012 senior housing Same Property Performance was up 3.5%. For 2013, we expect senior housing Same Property Performance to increase by 3.75% to 4.75%. There are no lease expirations in our senior housing portfolio for 2013. Post-acute/skilled nursing. Coverage metrics in our post-acute skilled nursing portfolio now reflect 4 quarters of lower reimbursement rates under RUGs-IV. For the period ending September 30, 2012, HCR's normalized fixed charge coverage was 1.29x. Rolling forward 3 months to December 31, 2012, normalized fixed charge coverage remains unchanged at 1.29x. This normalized fixed charge coverage excludes $95 million in reserves accrued for prior period liability claims, of which $69 million was accrued in the fourth quarter. Including these reserves, the trailing 12 month fourth quarter coverage is 1.10x. CMS' 2011 cuts for skilled nursing facilities had the impact of reducing HCR's reimbursement and increasing therapy costs by $225 million. However, HCR was successful in mitigating over $100 million of that impact through: one, a cost reduction program; two, growth in home, health and hospice; and three, new revenue from developments and expansions placed into service. As a result, the company continues to generate significant cash flow after our rent payment, and in fiscal year 2012, funded $100 million of investments in maintenance CapEx, physical plant upgrades, expansions of our facilities and the development of new facilities. Same property cash flow coverage in our non-HCR portfolio was 1.45x, a 7 basis point decrease versus the prior quarter and a 43 basis point decrease versus the prior year. Year-over-year same property cash NOI in our post-acute/skilled nursing portfolio for the fourth quarter increased 3.6%, primarily driven by HCR's annual rent steps. Full year 2012 post-acute/skilled nursing Same Property Performance was up 3.7%. For 2013, Same Property Performance for post-acute/skilled nursing is expected to increase by 3% to 4%. There are no lease expirations in our post-acute/skilled nursing portfolio in 2013. Hospitals. Same property cash flow coverage increased 19 basis points to 5.02x, with our 3 tenant hospitals increasing 17 basis points to 4.51x. Year-over-year same property cash NOI for the quarter increased 2.4%. Full year 2012 Same Property Performance was up 3.6%. For 2013, hospital Same Property Performance is expected to increase by 3.5% to 4.5%. During the quarter, Cirrus Health completed the sale of its interest in 2 of the surgical hospitals in HCP's loan collateral pool. HCP received $38 million in repayments, reducing our carrying value of our Cirrus loan from $68.8 million to $30.7 million at year end. There is 1 lease expiration in our hospital portfolio in 2013, with annual rent of $2.7 million or 0.2% of HCP's annual revenues. The lease is subject to a fair market value purchase option, which has been exercised by the tenant. The sale will occur in May 2013. Next week, Tenet Healthcare must provide notice of their intent to renew their below market lease for 5 years or exercise their purchase options on each of the 3 HCP-owned hospitals. The renewal option would take our Hickory, North Carolina, hospital's rent to fair market. While the remaining 2 hospital's rent structure would remain unchanged for 5 years. If Tenet elects to exercise their purchase options on the 3 hospitals, the price would be at fair market value. If the purchase options are exercised, HCP will realize a significant gain on sale, where proceeds can be redeployed into higher growth assets. The renewal or purchase will be effective in February 2014. Medical Office Buildings. Same property cash NOI for the fourth quarter was up 1.9%. The growth was the result in normal rent steps, coupled with increased occupancy versus the fourth quarter 2011. Full year 2012 MOB Same Property Performance was up 2.7%, with 2013 same-store growth expected to increase by 3.25% to 4.25%. Our MOB occupancy for the fourth quarter increased 50 basis points to 92%, the highest MOB occupancy in 6 years. During the quarter, tenants representing 465,000 square feet took occupancy, of which 313,000 square feet related to previously occupied space. Our 2012 average retention rate first was 79%. Renewals for the fourth quarter occurred at 0.9% higher mark-to-market rents, with an average term for new and renewal leases of over 5 years. For 2013, we have 2.4 million square feet of scheduled expirations, including 348,000 square feet of month-to-month leases. Our pipeline remains strong with 190,000 square feet of executed leases that have yet to commence and 900,000 square feet in active negotiation. Life science. Same property NOI was up 5.3% in the fourth quarter. Full year 2012 Same Property Performance for the life science portfolio was up 7%, favorably impacted by the onetime $4 million payment from Google received in the first quarter 2012 and the expansion and rent increase from LinkedIn, which commenced January 2012. The life science 2013 Same Property Performance will be lower due to these onetime items and the expiration in January 2013 of a large, above market lease in South San Francisco. The Same Property Performance is projected to decline by 1.5% to minus 2.5%. Excluding the Google payment and the above market lease expiration, 2013 Same Property Performance would increase by 1% to 2%. Occupancy for our life science portfolio increased 130 basis points to 91.3%, the highest portfolio occupancy in 5 years, with nearly 1 million square feet of leasing achieved for each of the last 3 years. For the quarter, we completed 171,000 square feet of leasing, bringing the year-to-date total to 978,000 square feet, with a retention rate of 87.7%. Renewals for the quarter occurred at 4.7% higher mark-to-market rents, with an average lease term for new and renewal leases of 6.5 years. For 2013, we have 410,000 square feet of scheduled expirations, representing just 0.6% of HCP's annualized revenues. The life science development pipeline consists of 3 redevelopment projects, currently 72% pre-leased, totaling 166,000 square feet, and 2 100% pre-leased development projects, totaling 185,000 square feet, with a total remaining funding requirement projected to be at $45 million. We also completed the sale of 18.6 acres of vacant land in Poway to General Atomics that we announced on our third quarter call. The transaction was part of a larger blend and extend and build-to-suit lease transaction, reducing our total remaining land held for development in Poway by 40%. Positive strategic developments with our life science tenants include Alexza Pharmaceuticals, a tenant on our Mountain View campus, receiving FDA approval for ADASUVE, its leading drug candidate. Additionally, 2 of HCP's tenants on our Redwood City campus were acquired by stronger credits. Verinata was acquired by Illumina, and Incline pharmaceuticals was acquired by The Medicines Company. Also, 2 of our publicly traded tenants, Rigel Pharmaceuticals and Cytori Therapeutics raised a combined $150 million in equity capital. Sustainability. In November, we received NAREIT's Leader in the Light Award for the health care sector, which honors companies that have demonstrated superior portfolio-wide energy conservation practices and sustainability initiatives. In December, we published our inaugural Sustainability Report based on the internationally recognized Global Reporting Initiative framework, which includes our sustainability achievements, as well as key indicators of our environmental, social and governance efforts. The report is available on our newly-designed website at www.hcpi.com. During the fourth quarter, we received an additional 11 ENERGY STAR labels, bringing HCP's total ENERGY STAR labels awarded during the year to 35. This includes an industry-leading 20 labels in our MOB category for the year. Our Soledad Business Park in Sorrento Mesa, California, in the life science portfolio, was named Best Core and Shell LEED project by the San Diego Green Building Council. In addition, we were awarded LEED Gold certification at our 1030 Mass Avenue property in Cambridge, Massachusetts. We established the HCP Social Responsibility Committee during the quarter, which is charged with identifying and implementing employee volunteering and corporate philanthropic initiatives. And finally, the implementation of our best practices and investments in energy-saving technology continue to provide positive economic results. On a same property basis, utility expense savings were $124,000 versus the fourth quarter 2011, and $1.3 million for the full year. I will now turn it back to Jay.

Thank you, Paul. For those of you affected by Storm Nemo, we hope things get back to normal soon. On our Q3 call last November, Hurricane Sandy's impact was in the process of being sorted out. Today, I'm pleased to report that all of HCP's properties are functioning fine and HCP's economic exposure, net of insurance recoveries, is de minimis. 2012 was a very good year for HCP. Unquestionably, the most complete year in company history. I'll elaborate on this in a few minutes. But first, I want to emphasize the following: HCP's investment portfolios strong 4.2% Same Property Performance enjoyed substantial contributions from each of our 5 property types. 2012's performance drove year-over-year increases of 6.9% in FFO and 8.3% in FAD, adjusted for the 2011 onetime $35 million windfall from our Genesis debt investment. 2012's $2.4 billion of accretive acquisitions incorporated 4 of our 5 property types and 4 of our 5 investment products. Importantly, 87% of this acquisition volume was repeat business with existing partners, and 88% of the transactions were structured as contractual income streams, either triple-net leases or mezzanine debt investments. We also made very good progress with our non-stabilized assets, reducing this pool by $220 million or 21% during 2012. As of year end, non-stabilized assets now represent just 4% of HCP's portfolio. Moving from the left side to the right side of our balance sheet. In the past 2-plus years, HCP has received 6 positive rating actions from the 3 agencies that cover the company. This unprecedented credit profile improvement has materially reduced HCP's cost of capital. With our current Baa1, BBB+, BBB+ ratings, there are now only 3 REITs with ratings superior to HCP. One of the REITs, Public Storage, has a unique capital structure, that while we admire, HCP cannot realistically hope to emulate. The 2 remaining REITs, rated above HCP, with single A ratings, have leverage, fixed charge coverage and secured debt metrics that are inferior to those of HCP's. I mentioned previously that 2012 was HCP's most complete year in its corporate history. On top of our acquisition, asset management and balance sheet accomplishments, HCP established new, all-time bests in operating efficiency, sustainability and occupancy for our life science and medical office sectors. Capitalizing on our fully builtout business model, HCP's G&A expense amounted to just 32 basis points of assets under management in 2012. HCP's multitude of sustainability successes culminated with the company's November 2012 recognition by NAREIT as the top-ranked health care REIT and winner of its annual Leader in the Light Award. And at year end, our life science portfolio was 91.3% occupied, and our medical office portfolio was 92% occupied. Squeezing more juice out of our existing portfolio through prudent overhead management, a continued commitment to sustainability and occupancy gains, on top of attractive Same Property Performance, creates significant operating momentum for HCP and allows us to remain completely opportunistic when it comes to incremental acquisitions. I want to acknowledge the significant contributions made by each of HCP's 150 employees to these important accomplishments. Speaking of these 150 HCP employees, at our current enterprise value of $31 billion, that works out to over $200 million of market cap per employee. Now that's productivity. Turning to 2013, the double-barreled engine of strong profit performance and last year's accretive acquisitions position the company's Board of Directors to raise HCP's dividend by 5% 3 weeks ago, the largest increase in over 10 years. As important, at the midpoint of our 2013 FAD guidance, we forecast a FAD payout ratio of 87%, the lowest in HCP's history. And it is with enormous pride that we move ahead into another year as the only REIT included in the prestigious S&P 500 Dividend Aristocrat index. HCP's projected Same Property Performance guidance of 3%, levered at 40% debt, 60% equity, and combined with 2012's accretive acquisition activity, will produce a 9-plus percent increase in 2013 FAD. This assumes no acquisitions for the year. The positive recent operating trends at HCR, HCA, Brookdale, LinkedIn and Google, as well as the significant milestones achieved by a number of our life science tenants, bode well for 2013. Strong investor demand for yield assets in the current low interest rate environment and the emerging residential housing recovery have created attractive HCP shareholder value from our Four Seasons, Tandem and Brookdale investments relative to our entry prices. And finally, we are encouraged by the current level of deal dialogue as it relates to prospective 2013 transaction activity. Before opening up for Q&A, I want to knowledge Bill Sheriff, whose retirement as CEO from Brookdale was announced yesterday. Bill is an inspirational leader and a man of unquestioned integrity. Bill may not have always waxed eloquent on earnings conference calls, but Bill always, always took care of the seniors that resided in his communities. We wish Bill and Sharon, all the best in their retirement, and we congratulate Andy Smith, who we have gotten to know over the past 5 years, and look forward to working with Andy and the rest of the Brookdale team going forward. That concludes our prepared remarks. We are delighted to take your questions at this time. Loshanda?

[Operator Instructions] Your first question comes from the line of Jeff Theiler with Green Street Advisors.

Just a couple of quick ones. Do you have any update on the Sunwest portfolio in terms of how their lease-up's progressing, how much of their CapEx program they've gone through since you last gave us an update, I guess, back in October?

Well, when we last gave the update, we hadn't closed the transaction yet, Jeff. We've now closed on 129 of the 133. We still have 4 properties that were waiting to come in once we clear some consents. So it's early days yet. But based on 2 months of actual data, EBITDAR is up relative to both where it was at the time of closing but more importantly up relative to our underwriting, which obviously is accretive to the coverage ratio.

Okay. And any update on the lease-up in particular? Are they getting those properties leased-up at the rate that you expected?

They are up just a little bit over where we had underwritten. So they're performing ahead of schedule.

Okay. And then just moving on to HCR ManorCare, continued drop in coverage as we expected as the cuts work through the system. Just wondering what your thoughts were on the facility-level coverage as we look out a year. I mean, HCR ManorCare spent a tremendous amount of capital on these facilities. The coverage has been overwhelmed by the Medicare impact. But as you look out over the next year, how do you see those rebounding?

Well, let me say -- let me make a couple of comments here. First of all, looking backwards, HCR has come through a very challenging 18 months. They've had the triple whammy, if you will, of the RUGs-IV cuts, changes to therapy reimbursement, which made it difficult for HCR to affect some of the cost reductions that they otherwise would have hoped to achieve. And then you've got the GL/PL litigation environment, which resulted in the reassessment by third-party actuaries of the company's potential liabilities for services provided in the prior 6 years. So that's kind of the context of the environment that they've been operating in. We now go -- we always like to look forward and, Jeff, you recall that about 18 months ago on our November '11 call when we were reporting the June 30, '11 coverage results, I had indicated that notwithstanding the fact that you would see the next couple of quarters reported by HCP of HCR coverage continue to go up. In fact, that was going to be a delayed reaction to the August 2011 CMS cuts, where that, in fact, has occurred. And now we're at the next inflection point, which is, you're now going to see these coverages rebound. So I take you to the fourth quarter results, which were quite strong for HCR. Admissions, 90% of which come from hospital discharges, and that's very significant for another reason, which we'll discuss in a minute, were up 3.2% in Q4 2012 versus Q4 2011. In 2012, HCR had its best year ever for patient quality and outcomes. And the Q4 census for each of HCR's 3 lines of business: skilled nursing, assisted living -- recall that 20% of our investment is in the assisted living, specifically the dementia memory care sector; and then their third line of business, home, health and hospice, were all quite strong. The company finished the year with 121 -- $120 million of cash on hand. That's projected to be at $145 million cash on hand at the end of 2013. They have got $100 million of availability of the line of credit. And in 2012, after the rent to HCP, after interest expense and after CapEx, they were positive cash flow to the tune of $50 million. So you're starting to see the lift that we had anticipated on the prior call. I think, in fact, on the prior call, I'd indicated that I expected Q3 2012 results to be a trough quarter were you to look at solely just the fourth quarter results for HCR. So not the trailing 12 months ending 12/31/12, which Paul just cited, but specifically the fourth quarter on a normalized basis, you would see that fixed charge coverage ratio as having increased versus the third quarter fixed charge coverage. So again, as we had indicated. Bringing it back to the overall headline, Jeff, we would expect in 2013 that fixed charge coverage ratio to be in excess of what the -- the 1.29 that was achieved in 2012. So that's a little bit about how we look at the -- a portion of our HCR investment.

Right. Just any sense of the magnitude of how much it would be in excess of that? Just trying to gauge whether we're looking at 0.1 turns or 0.2 turns there, just in that.

I think we've got perfect information for the first quarter of fiscal 2013, which is the fourth quarter of calendar 2012. I think we're going to want to see another quarter or 2 before we get definitive on that. But not surprisingly, the trend, directionally, are going the way we anticipated them. Perhaps much more importantly, because we've also got our OpCo investment that we watch, and I want to bring you back to the comment about 90% of the admissions for HCR come out of hospitals. With what's going on in health care reform, at least as it relates to health care reform being -- taking place in the marketplace, you got some very, very positive developments here. You've got increasing acceptance on the part of both the hospitals and the payers towards risk sharing reimbursement. And when you've got a company like HCR that's got a fully built-out model with market concentrations, you take those cluster markets and they are the beneficiary right now of several CMS-sponsored pilot concepts, which are teaming and partnering HCR with large, managed care companies to create new reimbursement paradigms that are risk sharing in nature. And you'll start to hear more later this year, but perhaps probably more importantly 2014, you'll start to hear concepts like site neutral reimbursement and bundling. And all of these become wind at the back of the HCR platform that generates best outcomes for the lowest cost.

Your next question comes from the line of Rob Mains with Stifel, Nicolaus. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Looking at discussion of HCR ManorCare, one question, and it's just a number -- I didn't -- I want to make sure I got it right. The total accrual for the prior period reserve adjustments?

For the prior 12 months? Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Yes.

$95 million.

That's for the entire 12 months ending...

That's for the prior 12 months ending December 31.

That would be in Paul's remarks, consistent with Paul's remarks. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Right. Okay. And then the [indiscernible] the $59 million was in the fourth quarter. Do you have the '12...

$69 million, Rob. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: $69 million, okay. And then do you have the '12 for the period ending 9/30?

Yes, it was in the 30 -- $38 million. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Jay, you spoke about feeling positive about the pipeline. When you look out at what's available, have we kind of seen -- continue to see cap rate compression or are the assets you've been looking at sort of in the range of -- well, I'll stop the question there.

So what's the question? Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: The question's, what do you see, when you look at your pipeline, are valuations stabilizing, continuing to go up, what -- how would you kind of characterize things overall?

Again, I stand by my comments. The deal pipeline is quite robust. Good news for HCP. It cuts from left to right through our 5x5 model and from up to down through our 5x5 model. So we've got a number of opportunities that we're currently either diligence-ing or in dialogue on. I would say the following: I would say relative to a couple of years ago, there are more opportunities presenting themselves. And more in the case -- in the sense of A, absolute dollar value. More in the sense of B, just absolute number of transactions. And interestingly enough, C, more in the sense of different types of transactions. So that, again, I think that augurs well, given we've got our 5x5 model that cuts across a number of different property types in ways that HCP can in fact deploy our shareholders' capital. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just focusing in a little bit on life science. You seem to -- you're doing some new construction. Are you seeing kind of a pickup in demand there?

I would say we're seeing -- we're having very good leasing results. Witness our all-time high occupancy at 12/31, which obviously is expected to, rolling forward 12 months, be at an even higher occupancy by the end of '13. I would say the demand is not the intensity or fever pitch demand that we saw kind of back in '06 and '07. I think a lot of these corporations are being a little more measured in terms of, A, how much space they want and B, where they want that space. So I would say it's -- I would say it's muted. It's positive, but it's muted, would be the way I'd describe it. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And your development in Cambridge, would you kind of view that as planting a flag on the East Coast from which you can expand or is it kind of more opportunistic?

Well, it's clearly opportunistic. I guess you could say it's planting a flag, but I'd hasten to make the point that it's quite a small flag. The total building is how many square feet?

It's 70,000 square feet.

Yes. So we'll see. We're very pleased with that opportunity. It was very opportunistic, but in the context of a platform or a flag or a stake in the ground, I think people ought to understand the overall size of it.

Yes, it's more on the latter, it's more an opportunistic opportunity.

Your next question comes from the line of Paul Morgan with Morgan Stanley.

Just kind of sticking with the life science question there, maybe you could just -- in the context of your much bigger project in Oyster Point, I know you're kind of working through entitlements and everything now, but can you maybe talk a little bit about that? I mean, you are having discussions with anchors, is there any possibility given -- maybe it's not quite as active as you'd like that it would not go life sciences given the strength of the market for traditional office out here?

Yes, Tim, why don't you maybe talk about where we are with the zoning on the -- this is The Cove property, Paul, you're referring to? And then maybe talk a little bit about the demand.

Yes, Paul, obviously, the property you mentioned is adjacent to our existing Oyster Point project. It can go either office. Currently, first of all, it's in the entitlement process. We anticipate completing that midyear. And we can do either office or lab in those buildings, as you know the makeup of that building -- the makeup of that type of the building is generally suburban office. It can go either way. So we continue to look at opportunities, both on the office and the life science side, and we'll be entitled for both in about -- in size-wise about 850,000 to 900,000 feet.

Great. On the same-store performance, maybe just give me a little bit of color, so the adjusted NOI growth sequentially was 6.6%? You added, it looks like the Brookdale assets to the same-store pool. Give me a sense of some of the composition of that sequential growth, whether it is very strong growth from the newly added assets or step bumps from the existing assets that were already in the pool?

You going sequential quarter-over-quarter, Paul?

Well, you've got 6.6% [indiscernible].

Right. Right. It was primarily driven by our -- in senior housing by our transitioned assets that we transitioned away from Sunrise as well as performance in our Sunrise portfolio.

Okay. I mean, given that, it seems like I mean, you do have pretty strong growth in the -- in your same-store guidance for senior housing for 2013. But maybe that was a pretty big step on a sequential basis or I mean, could we even see -- what would it take to even see above the high end of that?

Well, there's rent bumps in that fourth quarter, Paul. So you have a tendency to see more of our senior housing portfolio steps in the fourth quarter. So you have a tendency to see a higher sequential growth rate. So again, quarters are lumpy, but that's why the fourth quarter is a little larger than what you would see for the year.

But Paul, Paul Gallagher, mentioned the spot occupancy increases on our RIDEA JV, which is up 120 basis points, and our Sunrise mansions continue to perform quite well. So -- and then you saw the -- I think some of the summary of the Brookdale results, which came out last night. So again, in terms of positive trends, I don't recall a year feeling this good across the board as this one. You've got nice momentum in senior housing, particularly the metrics that got stronger during 2012 as the year went on. I've already alluded to some of the lift we're seeing at HCR in their fourth quarter results. The HCA results speak for themselves. And then -- so -- and you've got MOB and life science at all-time high occupancies, which are projected to go up from there, so. And again, this is against the backdrop of the 2012 Same Property Performance of 4.2%. In 2011, we were up 4%. And in 2010, we were up 4.8%. So we feel very, very good about not only where we've come from, but where we're going here the next 12, 18, 24 months.

But to give you a little bit more color, Paul, on the senior housing 2013 growth rate, it's contractual rent steps and continued outsized rent steps on our transitioned assets from Sunrise, to give you an idea going forward.

Okay. Great. And just a quick last question on the acquisition/asset sales. I know that acquisitions aren't in guidance, but what are you thinking about it in terms of maybe asset sales over the course of the year?

Nothing aside from the one particular asset in our hospital space that Paul alluded to that's subject to a purchase option that's been exercised.

Your next question comes from the line of Quentin Velleley with Citi.

Just in -- just sticking with asset sales, how many assets sort of have these tenant purchase options in them similar to the Alabama assets?

Right now, we have one portfolio that's subject to a purchase option at the end of 2013. But our guidance takes into account either that's going to get negotiated for an extension or sale proceeds will be redeployed. And if -- no other real material purchase options in the near term.

Okay. And then just going back to life science, it sounds like you've got one major roll down, which will impact same-store results this year. I know you sort of spoke about this muted demand in the life science space. Are there other future roll downs we should be thinking about across some of -- I guess the secondary lifestyle asset -- sorry, life science assets?

No. No, in fact, I mean, if there would be, they'd be in our guidance. So there aren't any, so there aren't any in our guidance. But the January roll down, that was the space we've talked to you previously about, where Takeda came out of one of our South San Francisco properties and we moved them down into San Diego, albeit at a lower, at a rent roll down. So we moved some of that vacancy internally within our portfolio from North to South to accommodate a strategic move on the part of Takeda.

Yes, just to put an order of magnitude on it, they were kind of at an all-time high rental rate in their space in South San Francisco at $5.50 a square foot, and we moved them down into San Diego, into pure office space where they're paying substantially less than that.

Jay, it's Michael Bilerman. Just wanted to come back to your comments sort of on the balance sheet and the credit ratings and certainly congratulations on being able to get the balance sheet and get the agencies to where they are. And I'm just curious as you talked about how your ratios are actually better than, I guess a Simon, EQR or Avalon -- I can't remember which one.

Federal Realty.

Do you have any -- I guess of trying to be opportunistic and wanting to be opportunistic. Do you want your rating to move up and hamper you any way or do you actually prefer to sort of stay where you are and that way if you do, do some transactions you can sort of let leverage creep for a bit before you term it out and not have the hangover potentially of an A- rating?

Well, I think -- I think a couple of things. One, we want our actual metrics to be reflected appropriately with the ratings. So if you take a look right now at things like fixed charge coverage ratio, particularly if you look at the fourth quarter that Tim cuffed at 3.8x and you take a look at fourth quarter debt to EBITDA, which actually was slightly under 5.0, and you take a look at our secured debt ratio at 12/31, which is 8.6%, those are significantly better than the 2 weak single A-rated credit. And if you go back to my last 3 or 4 calls, I've consistently talked about our credit metrics in the context of them being weak single A credit metrics. So that's a fact. Now if the other side of the argument would be yes, but if you take a look at things like tenant concentration, HCP has a tenant concentration that's much more concentrated than the 2 single A-rated REITs that are above us, which I think is a legitimate point. So I think the way we look at it is, we've got tremendous momentum right now with our balance sheet. I think -- I believe that balance sheets are things to take advantage of and create shareholder value from and not things to put on a mantle and admire. And I think the fact that we've got the active deal environment that we're in right now with -- not just a balance sheet, a significant balance sheet capacity, Michael, but if you think about things like capacity to do incremental RIDEA transactions, we've got great, great swath of runway there. If you take a look at things like secured debt, because a lot of times when you make acquisitions, they come with secured debt on them. We're way down on our secured debt metric, and we don't have competing operating platforms in some of these sectors. So we're in a very interesting position on a number of fronts. You mentioned the balance sheet, but there's a number of other more subtle fronts that we're equally well-positioned in.

And then just thinking about sort of raising capital, you did sell some assets this quarter and you talked about LinkedIn and Google. Do you have a desire potentially to sort of monetize what I'd say is non health care-related leases or buildings to harvest and capitalize on that demand for those geographies and that credit?

If the economics were -- made sense for HCP's shareholders, absolutely. But given the absolute dollar amount of rents we've got coming to us from LinkedIn and Google, the escalators in those leases and then the underlying credit, those are very attractive to the extent that we love our assets, but we're not in love with our assets. So economically, it would have to make sense, Michael.

I'm just trying to think about it from raising equity in terms of, as you enlarge the equity base, perhaps there is this continuation of rotating -- just like you sold assets this quarter, pursuing more of that balanced strategy of tapping equity from your assets relative to diluting the entire organization, even if they are accretive transactions, you're obviously enlarging the equity base.

That would certainly be an arrow in our quiver as we look at the strategic universe of opportunities we have in front of us.

Your next question comes from the line of Jack Meehan with Barclays.

Jay, you spoke about 90% of admissions for HCR are coming through hospitals. So with the HCR assets, 90% of admissions coming through hospitals. With your senior housing portfolio, have you looked into any opportunities to help structure ACO relationships across the continuum of care? And then what potential investments could that lead to?

This strategically becomes quite fascinating and while you may be new to our calls, I would just emphasize that our whole strategic direction in terms of the counterparties we want to be interacting with, they absolutely have to have the following 3 criteria: And the first and most important is quality outcomes. The second is critical mass. And that you should interpret that to be market share and local market share. That's why I talk about these cluster markets and density metrics. And then the third criteria is efficient operations, which is another way of margin, i.e., you've got to make money. So we aggressively seek out counterparties that have those 3 criteria, and we aggressively move counterparties that don't have even 1 of those 3 criteria out of our portfolio and off to the side. In a separate conversation, we can bring you up to speed as to who came in and who came out over the last 3 or 4 years. Now, however, we're moving into what I call kind of market-driven health care reform. And this is where footprints like HCR, like Brookdale, particularly with their ancillary revenue platform, like Emeritus, like Genesis, even to a certain extent, like Sunrise, although they're obviously lower acuity. That's where you're going to create some real value here, particularly as you drill into where you've got overlapping concentrations in specific markets. So we, to answer your question, we haven't made some introductions. We are not operators. But we have put a number of the folks in our portfolio together, discussions are ongoing, and I think they tend to be -- they tend to quickly move towards specific markets where there's overlaps, as opposed to entity-wide or enterprise-wide sorts of situations. I will also tell you that the other 2 types of organizations that are involved in those discussions are acute care hospitals, as well as payors, the HMO. So again, I'm -- personally, I'm fascinated to watch all this play out. But when you have a platform like HCR, who has 90% of its admissions coming from hospital discharges, those hospitals, you may have seen an article yesterday, there's an article that came out that talked about the punitive penalties that will come to fruition to the detriment of the acute care hospitals if patients are discharged and then they have to be readmitted. And this is where a quality partner like HCR -- and again, I would -- I have very good things to say about Genesis, too. But certainly, HCR, with their quality, their clinical, their commitment to clinical outcomes and their ability to partner with payors and hospitals in risk sharing schemes, that is really going to drive some value. And that is what will make our OpCo investment worth significantly more than what it is today in the coming years. So that's a little bit of kind of -- that's a '14, '15 sort of a view as to what's going to happen here.

Yes. That's really interesting. I guess with health care just around -- with health care reform just around the corner in 2014, especially on the acute hospital side, we're in the camp at least that reform is going to be a major positive next year. Has your thought process changed around adding greater exposure there? Are you seeing any new opportunities in the market? And do think that helps you as you're going around, these changes we're seeing in the market?

Why, I think what helps us is making risk-adjusted accretive transactions. So again, we're -- we don't pretend to be operators. We are delighted to be riding in the passenger seat of a car that's driven by HCA or HCR or Brookdale or Emeritus, Genentech, Amgen. So where we can be helpful, I think, is being a good capital partner for their real estate needs. That's why if you take a look at our 2012 acquisition volume, that's why I made the point of emphasis that 87% of our 2012 acquisition volume was all repeat business with existing customers. So being responsive to the folks that are in our portfolio today and helping them with their real estate needs is absolutely our top priority. There is, quite frankly, a possibility, I think, in a couple of sectors, in acute care hospitals, Jack, is one of them, that you may see more opportunities for real estate exposure to come into the health care REIT domain, and obviously, we'll -- if and when those occur, we would certainly look at those and evaluate those.

You have a follow-up question from the line of Rob Mains with Stifel, Nicolaus. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Yes, just a simple one. The 2 facilities sold for $111 million, I surmise from that dollar amount they are fairly large?

Yes, they were. They were 2 very large senior housing IL and AL facilities. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Roughly, how many units were those?

I want to say about 250 units apiece. They're a fairly good size. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. But they were rental model, they weren't entry fee.

No, it wasn't a CCRC, just large IL, AL.

Your next question comes from the line of Jana Galan, Bank of America Merrill Lynch.

I wanted to ask, now that you've had your RIDEA investment for over a year, can you comment on if performance -- how your performance was versus your initial underwriting, and if the current dynamics within senior housing have you looking to kind of decrease the premium you require for RIDEA versus triple-net?

I think -- at the time we made our -- at the time we bought the joint venture partner out at the 7% cap rate and had moved that over to Brookdale, we indicated it would be -- based on our discussion with Brookdale, an 18-month plus or minus timeframe to transition the properties to Brookdale from Horizon Bay and put the necessary CapEx in that Brookdale felt was appropriate to capitalize on the opportunity. We are now -- I think, we announced that deal, Jana, in September of '11. So we're still a couple of months shy of that 18-month window which we had indicated to The Street would be all about transitioning and getting the portfolio up to speed. We're quite pleased with where we are today. I think Paul cuffed the fourth quarter increase in occupancy for that portfolio, which was 120 basis points. So we would expect in 2013 that, that will have a nice result for our shareholders. But we did experience drag from that portfolio in 2012, which was expected at the time we announced the transaction. So that's the answer to the first part of your question. With respect to the second part of your question, no, I don't think there's anything that we've seen that would cause us to change our underwriting discipline. I think the headline here is that if we can achieve RIDEA-like NOI growth without the RIDEA operating risk, that's first prize. And obviously, we are able to achieve that in a very, very significant measure with our October 31, 2012, closing on the Blackstone JV with Emeritus. We may do some more of that, we may do some more RIDEA, but it will all be in the context of looking at risk-adjusted returns.

And then maybe just on the life science, I was curious in conversations with your tenants and prospective tenants, are they concerned about cuts to NIH funding and is that part of the muted demand outlook?

Let me have our prior head of our life science platform take that question. Tim?

Yes. We have very little exposure to tenants with NIH funding.

Your next question comes from the line of Karin Ford with KeyBanc Capital Markets.

The $0.02 better accretion that you're getting in the Emeritus portfolio, is that solely due to NOI being better than you expected or did better-than-expected financing help that as well?

The latter.

The latter, okay, so...

Karin, -- it's really -- we've only had, I guess what, 60 days of actual results. So even if -- it would be difficult for anything to change just in 60 days, but the financing terms, particularly the debt that we had used to indicate the accretion upon announcement on that transaction, we greatly exceeded to the benefit of HCP shareholders.

Makes sense. Next question is on the MOB portfolio, with occupancy at a 6-year high, is it possible that you might see market rent growth start to accelerate there, given Obamacare and some positive demand dynamics in that business?

Well, I think -- the best -- our best and most current view on that, Karin, would be to have Paul -- what did you have for Same Property Performance guidance for '13 in MOBs? It is up to your point, Karin. Let me hear...

3.25% to 4.25%.

So we're expecting at the midpoint, Same Property Performance MOBs to be 3.75% and that would compare to -- what for all of 2012?

2.7%.

So it's up over 100 basis points right there, Karin. So I think directionally, you're onto something there. And we'll watch that as the year unfolds.

Okay. And then last question, could you just handicap what you think the outcome is likely to be with the 3 Tenet hospitals, whether you think they'll purchase, renew or move on?

We generally don't like to talk about transactions that haven't been announced yet. But that portfolio is an interesting portfolio. Those 3 hospitals were part of the original -- I'm going to date some of you on this call here, get ready. When American Medical International created a REIT in the early 1990s, called American Health Properties, they seeded that REIT with some of their acute care hospital portfolio. In 1999, HCP acquired that REIT, and that is how these 3 hospitals came on to the balance sheet of HCP. These 3 hospitals are subject to leases that were struck back in the early '90s, and at this point, all 3 of these hospitals are generating below market rent. If we really wanted to take a razor-sharp pencil to our non-stabilized pool, you could intellectually make the argument that these 3 hospitals ought to be included in that non-stabilized portfolio. So we view this as a win-win for HCP, either one or more of the hospital rents will be moved to market, which will be accretive to our shareholders, or these 3 hospitals will be acquired by Tenet, and it's at a fair market value purchase option and we'll have the opportunity to reinvest those proceeds in -- and get something that's more equivalent to tuck [ph] -- some market returns. So we're kind of indifferent with respect to the outcome. Tenet has done a nice job of -- on a number of internal and strategic moves, and their cost of capital, like many of our counterparties, has improved. And they did a debt transaction actually just last week. So we're really outcome-indifferent there, but we do think, either way, it's going to be a win-win for HCP shareholders.

Your next question comes from the line of Josh Patinkin with BMO Capital Markets.

Josh Patinkin. Most of my questions have been answered, but I do want to ask you a question, Jay, about just big picture $31 billion enterprise value you mentioned. Is it a fair way of thinking about these -- the largeness of you and some of the others in your sector that you're transitioning from kind of an earnings growth vehicle to a credit enhancement vehicle? And I know it's not all of that, it's somewhere in between. But is that how the sector might transition over the next 5 years as you get bigger and bigger?

I'm not sure. Explain a little bit more what you mean by transitioning. I get -- I understand what earnings growth is. What do you mean by credit enhancing vehicle? I'm not sure I understand it.

You just got upgraded by S&P. I think that's who it was, jotting down my notes here. And so your cost of capital is getting cheaper, and so that thereby you get growth from a cheaper cost of capital as opposed to just pure NOI cap rate type growth.

Well, I think it's probably a bit of both. I think -- where were we? I guess we were down in NAREIT in San Diego in November and I was on a panel with George and Debbie, I'd made the point that I felt that all the health care REITs, not just HCP, but all the health care REITs, were underrated relative to their credit metrics. There's, obviously, been some positive news since I made those comments in November. My guess is there'll be some more positive news in the space. But I don't think -- I don't see that, Rich (sic) [Josh], as an end of itself. I think of that as a means and because now, for every dollar of incremental acquisition, if we have a lower cost of capital, they'll be more accretive to our shareholders. Much like -- I go back to my comments on our operating efficiency and our G&A. We now have a platform that's very well built out. So the incremental dollar of the acquisition volume, we don't need to add a new management team or new sector management or what have you. We've got a lot of critical mass. So if anything, I actually think -- the more I think about your question, Rich (sic) [Josh], I think it actually accelerates the first part, which is the earnings growth as opposed to I think the credit enhancement, more efficient operations, squeezing more juice out of the portfolio, as I mentioned in my prepared remarks, commitment to sustainability. I think all of those things are going to come together to make certainly HCP, as I can't speak for my peers, but certainly HCP's earnings potential that much more attractive.

Okay. And then is there a way, or would you be interested in, if there was a way, to increase your stake in OpCo, HCR ManorCare OpCo? And -- or get more into the operating and management side of the business with the blurring of the lines in real estate that we're seeing today?

Yes. I don't think you want to confuse us with operators. So blurred lines into operations is not kind of our -- I don't think that's where we create value. Timing-wise, it would be -- as I've just taken you through the metrics, I mean, you're at an inflection point, in my view, in the HCR business model, and the 1 or 2 models away from them that share similar sorts of dynamics, which are commitment to clinical, high-quality, clinical outcomes, a large percent -- a disproportionately large percent of your admissions coming from acute care hospitals, things like that. So I think from a timing standpoint, much like I predicted 1.5 years ago, that you're going to see coverages come down. I think now you're on the backside of that cycle. So from a timing standpoint, a think it would be good. I think we are sensitive to REIT rules and things of that nature, which should pretty much keep us at the under the 9.9% number. And I'd also add that, recall that our true economic basis in that investment is effectively 0 because recall that at the time of closing on the HCR transaction, we exercised the call option on the share block that had gone to the private equity firm that we acquired that from. And there was a big pop between the price of the shares at the time we announced the deal versus the time we closed. And we, obviously, exercised that option and the value that we've created there for shareholders for HCP, we effectively reinvested in OpCo. So the true economic basis in that OpCo investment as opposed to the accounting basis is next to nothing.

Last question is you how do you feel about HCN having ownership stake in the management company that runs your Sunrise portfolio?

I'm very relaxed about that. I mean, I think good people do good things. I think our Sunrise Mansions -- I don't know if we have highlighted or called the performance of our mansions out. If it's not, we can think about that maybe in the supplemental. But they're performing quite well. They're north of 91% occupied. And we couldn't be more pleased with the momentum we have in that mansion product. Recall some of our earlier discussions about moving the BGs, the Brighton Gardens and those things to some of our other partners. And George Chapman runs a very good shop, so we're -- and KKR. They're looking to maximize value for the investments. So we're quite relaxed on all those fronts.

Your next question comes from the line of Nic Yulico with Macquarie.

Just had a question on senior housing. I'm wondering how you're thinking about -- particularly related to the Emeritus-type investment you made last year. If generally, senior housing operators seem to be putting up same-store NOI growth that's well in excess of 4%. What is the real capacity out there for you to continue doing more of these triple-net type investments, where you're perhaps putting up 4% plus type escalators?

Well, when you say capacity, from HCP's standpoint, the capacity to do that is just short of unlimited, right? Given the balance sheet, horsepower we've got right now, and given the fact that we've got a de minimis amount of exposure to RIDEA and given the fact that we've got industry-leading, low secured debt exposure. So from our standpoint, the capacity is in the multiples of billions of dollars. It takes 2 to tango, so you'd have to have a counterparty or counterparties, plural, that were prepared to move forward on a similar transaction. And that really remains to be seen. So I think that would be a way to answer that question, Nic.

Yes, I guess I was just wondering as far as -- in relation to operators, whether this is a type -- because we're in still, I think, early stages of senior housing recovery, whether operators these days might be able to -- be willing to absorb higher type of escalation in rents in kind of the next couple of years than we've be traditionally seen?

I think it depends a little bit on the nature of the owner. I think in the transactions that we've reviewed in the last couple of years, I would tell you, I think, the private equity capital is probably a little less willing to accept some of those fixed escalators, where the -- versus the operators, particularly the operators that have well built out platforms and are in some of these markets and maybe are a little closer to what's going on from an operating performance standpoint. I think they're a little more willing to do that. That would be the way I'd kind of -- I kind of bifurcate the pool of prospective sellers into those 2 buckets, Nic.

Your next question comes from the line of Tayo Okusanya with Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Jay, I wanted to go back to Medicare for just a brief second.

Do you mean HCR? Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: I'm sorry, HCR for a brief second. You talked about the recovery [ph] ratios kind of stabilizing from this point on. But I guess what I'm struggling with is, when I look forward and we just kind of went through these therapy cuts from the Tax Relief Act, we possibly have sequestration coming up, 2% cut, possibly there won't be a market basket update this year given the need to balance the budget. I mean, what's the offsetting factor that HCR is going to be doing to kind of offset all these things and still have steady or improving coverage?

Well, let's take them one at a time. Unlike a number of its peers, HCR has very, very little outpatient therapy, Tayo, to start with. So to the extent there's much there, any additional cuts there will be more than offset by continued growth in the other HCR business lines as well as the delay in sequestration. But I think people ask us about the property level coverage versus the entity level coverage. The reason why we are so focused on entity level coverage is there's a lot more here than just the skilled nursing post-acute. You've got 2 other lines of business, one being assisted living, with the Arden Court product, which is positioned to almost exclusively in the dementia memory care. And I think you've got better than most a good idea as to what the demand drivers and performance drivers are in dementia memory care right now. And then you've got home, health and hospice, which had a very, very good year. So you got a lot coming together. Those are very, very helpful, particularly right now. The real driver is going to be when in '14 and in '15, when HCR unveils some of the fully built out tactics and strategies in their cluster markets that they're in the process of doing pilot concepts on right now with United Healths of the world and people like that.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

[indiscernible] RIDEA investments interest you more? Or are you seeing better opportunities in? The ones that are similar to the HCR deal or like the senior housing structure?

Mike, the first part of your question got cut off. Could you take it from the top, and then we can answer.

Yes, sure. What type of RIDEA investments interest you more, or you seeing better opportunities in the ones that are similar to the HCR deal or the senior housing investments?

Okay. Well, HCR is most definitely not a RIDEA transaction, that's a triple net lease with fixed escalators with corporate entity guarantees and things like that. Separate and apart from that, as I just mentioned, we do have a small minority interest in the OpCo. But as I mentioned to you, that came to us effectively in a trade for some economics, so that our economic basis in that investment is next to 0. That is not a RIDEA exposure, that's a triple net exposure. The only true RIDEA exposure we have would be our joint venture with Brookdale. And that concerns 21 properties. And I think Paul talked to you in his formal remarks with some of the momentum we have right there, right now in terms of senior housing gains. So you bring all that back, first prize for us is we get upsized economics with downsized risk, we've been able to do that on some very large transactions in the last couple of years. But we're obviously aware of the market and what's going on there. So we look at everything the same way. We look at everything on a risk-adjusted basis and when the returns are there and they're accretive to FAD so that we can continue to grow the dividend and move into the 29th year next year of dividend increases, we'll pull the trigger.

Okay. And then in your earlier comments, you said transaction activity remains strong. Do you still expect that 2013 activity will exceed the 2012 activity?

Yes, I said transaction -- I don't think I used the transaction, I think I used the words deal environment and I specifically talked about the dialogue. The dialogue, again, which generally tends to be a pretty good leading indicator, I don't think there's any question that the dialogue right now -- the dollar values involved with the acquisition dialogue that's out there are significantly in excess of where they were a year ago. Now what if any of that translates from deal discussion to actual deals remains to be seen. But I was very specific about how I described the current environment.

Your next question comes from the line of James Milam with Sandler O'Neill. James Milam - Sandler O'Neill + Partners, L.P., Research Division: My first question actually, just 2 quick ones on HCR ManorCare. What is the corporate debt structure at ManorCare? I guess how much debt outstanding do they have under the Fixed-or-Floating Rate, do you know?

You've got 2 debt facilities there. You've got a term loan and then you've got a $175 million line of credit. The $175 million line of credit has reserved against it, $75 million of letters of credit. So there's availability there that is meant to support, if needed, $75 million of lines of credit. So $75 million of -- sorry, letters of credit. So you've got an availability of $100 million at 12/31. At 12/31, the company was sitting on $120 million of cash. Away from that, the term loan -- Tim, do you have some details on the term loan?

Yes, they have a $395 million term loan, and that's at 5%. James Milam - Sandler O'Neill + Partners, L.P., Research Division: It's fixed at 5%?

It’s actually LIBOR plus 3.50 but it has a floor. So it's effectively 5%, James. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Got it. Okay. And what's the maturity on that?

I'm going to say, it's up 4, 5 years -- I think 4 or 5 years from today. James Milam - Sandler O'Neill + Partners, L.P., Research Division: Okay. Great. And then, we look at EBITDARM and then also EBITDAR coverage ratios. I guess I'm assuming -- or I'll ask, what do you guys assume for a management fee to get to EBITDAR from EBITDARM and how does that compare to the way you think about HCR ManorCare's corporate overhead? And the real question there is the profitability when we get concerned about the EBITDAR coverage ratio, but what's really the profitability behind that?

We assume a 5% management fee when calculating that EBITDAR number. But they run about 100 basis points lower than that.

They're not running at 32 basis points of G&A but they're pretty lean, mean fighting machine.

Your next question comes from the line of Todd Stender with Wells Fargo.

Guys, you mentioned HCR ManorCare funded $100 million of maintenance CapEx in 2012. Is there a contractual obligation that they'll have to spend this year and are you able to quantify anything like that?

Well, absolutely. It's in -- the lease requires them to fund how much in terms of maintenance?

About $50 million a year, and they've doubled that.

Yes, so the takeaway there, Todd, was that in 2012, they actually funded, double the amount, the required amount that was in our lease and that required amount, that doesn't go away, that's in our lease every year.

And about 1/3 of that capital, Todd, was to expand the existing portfolio and expand their operations.

Okay. So anything above $50 million is discretionary on their part?

That's right.

With an eye towards building out their portfolio in anticipation of some of these strategic opportunities that they expect will present themselves with some of the themes I've already talked on this call.

Okay, I think that's a good point. They have obviously, have good visibility on where their business is going.

They've been doing it for 3 decades. They know what they're doing.

Just lastly, any update on the potential timing of when you'll make the Tandem Health Care loan, I think, it's $105 million, that could be as early as next month.

No, I think -- that's all contractual. I think it's August, right?

Right. That's right.

Is it August, or is it [indiscernible].

Is it not as early as March?

They can take it down early, but they have until August of this year.

If they elect to take it down.

At all. Okay. And does the interest rate change on that throughout this year or was that rate locked when you made the commitment?

Yes, the rate was locked when we made the commitment. The second tranche was funded 14%.

Your next question comes from the line of Michael Mueller with JPMorgan. Michael W. Mueller - JP Morgan Chase & Co, Research Division: Just a couple of quick ones here. On -- if we're looking at the medical office portfolio and life sciences, what's embedded in your outlook for occupancy change and lease spreads?

I don't think we disclosed our projected occupancies, Michael. We do -- just for Michael's benefit, the same product performance for medical office, we've cuffed this year at a range between 3.25% and 4.25%, so you got a midpoint there, Michael, of up 3.75% for medical office and for life science, if you assume, you've got to counteract a lot of the onetime positive developments that happened in '12. If you want to take this out, you're looking at up 1% to up 2%, same product performance in life science. I would tell you that we anticipate both those portfolios having higher occupancy at 12/31/2013 than they certainly had at 12/31/2012.

Your next question comes from the line of Tom Trizulio [ph] with Bank of America.

I appreciate the comments and response to Michael Bilerman's question on leverage. You mentioned that you have some excess RIDEA capacity, some excess secured debt capacity. That kind of leads me to think of Brookdale, and listening to their call today, much of that call was spent on a potential real estate transaction. Given your current relationship with them, do you think that puts you at any type of significant advantage versus other potential buyers if the transaction were to move forward?

Tom, I appreciate the question, I appreciate why you're asking the question, but we have kind of a long-standing policy. We just don't comment on -- we're delighted to kind of take you through chapter and verse on any deals that we've announced, but we just do not comment at all on prospective transaction activity.

Okay. And you talked about the work you've done to the balance sheet, which has been pretty dramatic and obviously, has resulted in much tighter spreads on your debt as well. But in addition to the metrics you mentioned, I think that lack of RIDEA, or the excess RIDEA capacity as you put it, is one of the big credit benefits that fixed-income investors see in your credit. Can you talk about kind of weighing that versus a potential -- potentially expanding that and taking advantage of some of the market movements you talked about earlier?

Yes. I mean, we would definitely. These credit rating upgrades are -- they don't roll-off the table easily. So I think we're very sensitive about the progress we've made there, and kind of detailed. And you probably got a better sense than almost anybody in this call, Tom, as to how much better those credit metrics are than a composite of BBB+ rated grade [ph] credits, which is why I've been talking about weak single A metrics. But certainly, we would take all that into consideration, and again, we like RIDEA-type returns without the RIDEA-type risks. So as jumping off point, that's step one, to the extent we go down the RIDEA route, it would have to compensate us for all the risks, which include, but don't stop at operating risk but also to the extent anything would change in our capital structure. But I think it's very unlikely you're going to see us do anything dramatic to our balance sheet. We are -- everything we underwrite is at a 40 parts debt, 60 parts equity capital structure. So we're not big fans of secured debt. Sometimes you got to bring it on as part of a transaction. But you saw what we did with the Blackstone JV where all that secured debt went away at closing. So we're pretty sensitive about our credit metrics.

Great. And then one quick follow-on, I think the increased prevalence of these RIDEA deals getting done says something about your peers', your competitors', whatever you want to call them, outlook on senior housing and willing to take on more risk. Do you think the inverse can be said about the operators, in that maybe doing RIDEA deals as opposed to fixed rate increase, triple net lease deals says something about their outlook on their business?

Well, again, I don't think you can generalize. I think every deal dynamic has its own unique set of statistics. I have described in the past the Nirvana scenario for a private equity investor that had an existing investment in a senior housing portfolio. And Nirvana was -- able -- the ability to bifurcate the existing C corp investment into PropCo, OpCo, monetize to PropCo at an attractive valuation, but monetize it at an attractive valuation without the existence of a triple net lease, which requires, Tom, not only the fixed escalators that you've talked about, but also requires them to shoulder the liability for the CapEx. Whereas in a RIDEA, I think people oftentimes focus on just the escalators. But that CapEx liability journals over to the balance sheet from the operator to the landlord in a RIDEA structure. So that's why we look at all those with all those factors involved. But again, I think it's -- I wouldn't start generalizing. I think every deal has got its own sort of pace and unique set of characteristics. I think you got to look at them on a one-off basis.

I will now like to turn today's call back over to Jay Flaherty, Chairman and CEO, for closing remarks.

Okay. Thanks, everybody for your time. I know today was a busy earnings day, so happy Valentine's Day, and we'll be seeing a number of you shortly on the conference circuit. Take care. Thank you.