Healthpeak Properties, Inc. (DOC) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Year-End 2013 HCP Earnings Conference Call. My name is Darla, and I will be your coordinator today. [Operator Instructions] Now I would like to turn the presentation over to your host for today's conference call, John Lu, Senior Vice President. You may go ahead, sir. [Technical Difficulty]

Thank you, Darla. Today's conference call will contain certain 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 on current information. These statements are subject to the risks, uncertainties and assumptions that are described in our press releases and SEC filings, including our annual report on Form 10-K for the year ended 2013. 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. Future events 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 on this call. We have provided reconciliations of these measures to the most comparable GAAP measures in our supplemental information package and earnings release, both of which have been furnished to the SEC today and are available on our website at www.hcpi.com. Also during the call, we will discuss certain operating metrics, including occupancy, cash flow coverage and same-property performance. These metrics and other related terms are defined in our supplemental information package. I will now turn the call over to our CEO, Lauralee Martin.

Thank you, John, and welcome to HCP's 2013 Fourth Quarter Earnings Conference Call. Joining me this morning, in addition to John Lu, Investor Relations, are Chief Investment Officer Paul Gallagher; and 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, Lauralee. 2013 was another productive year for HCP. One, we generated cash same-store growth of 3.1% over 2012; two, increased FFO as adjusted by 8% year-over-year to $3.01 per share and FAD by 14% to $2.52 per share, both above the midpoint of our last guidance; three, completed $598 million of accretive investments, sold $111 million of real estate and reduced our nonstabilized asset pool by $137 million; four, improved our sector-leading, investment-grade balance sheet in key credit metrics; and five, achieved continued success and sustainability. With this summary, there are several topics I will cover: Our fourth quarter and full year 2013 results, investment and disposition transactions, financing activities and balance sheet and finally, our 2014 guidance and dividend. Let me start with our fourth quarter results. Our same-property portfolio generated strong year-over-year cash NOI growth of 3.5%. This marks the third consecutive quarter we achieved same-store growth at or above 3.5%, a level we expect to continue into 2014. Paul will discuss our results by segment in a few minutes. For the quarter, FFO as adjusted -- for the quarter, we reported FFO as adjusted of $0.76 per share and FAD of $0.61 per share, representing growth rates of 5.6% and 7% compared to the fourth quarter last year. As discussed on our last call, results for the quarter included a $0.01 per share gain for monetizing a portion of our equity interest in Hyde Park, a newly developed Class A senior housing property located in Tampa, Florida. Also during the quarter, we extended leases with Tenet Healthcare related to 3 acute care hospitals, allowing us to retain $23 million of annual rent from these previously held-for-sale assets. Turning to our full year 2013 results. Cash same-property performance increased 3.1%, representing the fifth consecutive year we achieved cash same-store growth above 3%. We reported full year 2013 FFO of $2.95 per share, which included severance-related charges of $0.06 per share recognized in the third quarter. Excluding these severance-related charges, FFO as adjusted was $3.01 per share and FAD, $2.52 per share, representing year-over-year growth rates of 8% and 14% and are $0.01 higher than the midpoint of our last guidance for both metrics. Our 2013 cash dividends of $2.10 per share resulted in an FFO as adjusted payout ratio of 70% and an FAD payout ratio of 83%, continuing our decade-long trend of improving the payout ratio while simultaneously increasing the dividend. Our strong earnings performance in 2013 was driven primarily by recurring same-store growth and accretive acquisitions. In addition, the results benefited from several favorable onetime items, which equated to a positive $0.07 per share per FFO as adjusted and a positive $0.10 per share for FAD. Before taking into account these favorable onetime items, our year-over-year FAD per share growth remained robust at 9%, and our FAD dividend payout ratio was 87%. Let me quickly recap the $0.10 onetime items in our 2013 FAD results, which included $0.05 per share income from our U.K. Barchester debt investment, $0.03 in gains from monetizing our Brookdale stock and a portion of our equity interest in Hyde Park and $0.02 from several other small items. We achieved a 17% reduction in our nonstabilized assets in 2013, reducing the pool from $840 million in January to $700 million at year end. 2013 stabilizations included additional paydown of our Delphis debt investment, sale of Brookdale stock and reaching stable occupancy on 10 life science and medical office buildings. This pool of assets now represents only 3.5% of our portfolio, down from 6% 2 years ago. Moving on to investment and disposition transactions. During 2013, we invested $598 million consisting of: first, a $198 million debt investment in U.K.-based Barchester Healthcare purchased at a discount, which was subsequently paid off at par; second, $145 million of real estate and other acquisitions, primarily in senior housing; third, $102 million second tranche funding of a mezzanine loan facility provided to Tandem Health Care; and fourth, $173 million for development and other capital improvements. During the year, we sold 13 properties for total proceeds of $111 million, generating a gain of $68 million. Switching to financing activities and balance sheet. During the quarter, we raised $800 million of 10-year senior unsecured notes at an attractive 4.25% coupon. Proceeds were used to repay $400 million of 5.65% bonds that matured in December, with the remainder to prefund a portion of our first quarter 2014 debt maturities. At year end, we had $1.8 billion of immediate liquidity from $300 million of unrestricted cash, including proceeds from the fourth quarter bond offering and asset sales mentioned earlier, and full availability under our undrawn $1.5 billion revolver. We achieved substantial improvement in all of our key credit metrics during 2013, demonstrating our continued long-term commitment to a strong balance sheet. Our financial leverage improved 100 basis points, ending the year at 39.2%. Secured debt ratio was low at 6.8%, representing 150-basis-point reduction as a result of our strategy to refinance existing mortgages with unsecured notes at a lower cost. Fixed charge coverage improved to 4x in 2013, up from 3.6x a year ago, and net debt to EBITDA at 4.7x compares favorably to 5.3x in 2012. Next, our full year 2014 guidance and dividend. Our guidance does not include the impact of any future acquisitions and reflects the following: cash same-property performance is projected to range from 3% to 4% this year, with the same-store portfolio capturing 98% of our operating real estate. Our cash same-property performance is a direct growth driver of FAD per share, which strips out noncash items embedded in FFO, mainly straight-line rent and DFL accretion and includes the impact of recurring capital expenditures required to maintain the quality of our operating portfolio. That said, 2014 FAD is projected to range from $2.47 to $2.53 per share, which at the midpoint represents a slight decline year-over-year due to the 2013 favorable onetime items mentioned earlier. Excluding the $0.10 onetime benefit in prior year's results, 2014 FAD per share growth increases to 3.3% at the midpoint, driven by cash same-store growth, partially offset by higher second-generation leasing CapEx as we are forecasted to increase occupancy in our life science and medical office portfolio, along with the fourth quarter sale of the Kindred SNF portfolio mentioned earlier. 2014 FFO is projected to range from $2.96 to $3.02 per share, which at the midpoint is slightly lower than 2013 FFO as adjusted due to the $0.07 positive onetime items recognized in our 2013 results. Absent these, 2014 FFO per share at the midpoint is projected to increase 1.7% year-over-year. Our 2014 business plan reflects an additional $130 million on assets reaching stabilization as we continue to reduce our nonstabilized asset pool. Let me quickly run through a few other detailed assumptions related to our 2014 guidance. Interest income is projected to be $68 million, primarily from debt investments in Four Seasons, Tandem Health Care and senior housing development loans. The extended hospital leases with Tenet mentioned earlier are now accounted for as direct financing leases, starting in the fourth quarter of 2013. G&A is forecasted to be $86 million, including amortization of stock-based compensation of $22 million; development, redevelopment and first-generation capital funding of $160 million, including capitalized interest of $8 million; funding of $15 million related to our senior housing development loan program, which had $117 million outstanding across 7 projects at the end of 2013. Turning now to noncash items and recurring CapEx to compute FAD. We have assumed amortization of below-market lease intangibles and deferred revenue income of $3 million; amortization of debt premiums, discounts and issuance cost of $18 million; straight-line rents of $42 million; DFL accretion totaling $140 million, of which $77 million is reported in income from direct financing leases, with the remaining $63 million reported as income from joint ventures because of our minority ownership interest in HCR ManorCare OpCo; DFL depreciation of $16 million; and leasing costs and second-generation tenant and capital expenditures, $68 million. Regarding our 2014 dividend. Last month, we increased our quarterly dividend from $0.525 to $0.545 per share, marking the 29th consecutive year of dividend increases and ensuring HCP's continued representation as the only REIT included in the S&P 500 Dividend Aristocrats Index. The annualized dividend of $2.18 per share represents an increase of 3.8%, or $0.08 per share over 2013. After taking into account this growth in the dividend and based on the midpoint of our guidance, the projected 2014 FFO and FAD payout ratios remain low at 73% and 87%, respectively, and we expect to retain $160 million in cash flow after dividends and recurring capital expenditures to continue growing the portfolio. Let me end with a quick word on our quarterly supplemental package. As you may have noticed, this quarter, we improved our supplemental disclosure document. In addition to many design and layout changes, we streamlined certain information and now present a document with a simplified quarterly focus to better align with our earnings calls. I'd like to thank our operational accounting team for an extraordinary effort the last couple of months to produce this retooled package, making it easier to read and navigate, while keeping it equally informative. With that, I will now turn the call over to Paul. Paul?

Thank you, Tim. Now let me review the portfolio's fourth quarter performance and provide 2014 same-property performance guidance by segment. Senior housing. Occupancy improved from the prior quarter by 70 basis points to 86.2% due to typical seasonal occupancy gains. Occupancies are unchanged from the prior year due to the high number of moveouts that occurred in prior quarters as a result of the severe flu season. Same-property cash flow coverage for the portfolio was 1.11x, a 1-basis decline from the prior quarter, driven by rent steps on transition portfolios. Total portfolio cash flow coverage is 1.10x, and includes the Blackstone portfolio acquired in October 31, 2012, which is performing above underwriting. Same-property performance increased 4.9%, driven by contractual rent steps, including higher rents for assets, transition to new operators and growth in our RIDEA portfolio, where year-over-year occupancy is up 180 basis points and rates are up 4.1%. Same-property growth for the full year 2013 was 5.1%, and 2014 is expected to increase by 3.5% to 4.5%. There are no senior housing leases expirations in 2014. There are 3 CCRCs leased to Brookdale Senior Living that are subject to a fixed-price purchase option exercisable in July 2014. The facilities generate annual rents of $14 million. Post-acute/skilled nursing. HCR's normalized fixed charge coverage for the trailing 12 months ended December 31, 2013, was 1.16x, a decline of 3 basis points from the September 30, 2013, coverage of 1.19x discussed on the last call. The decline resulted from additional reimbursement reductions in 2013, shorter average lengths of stay over the prior year, driven by the industry shift from Medicare to Medicare Advantage and lower admissions experienced by acute care hospitals in 2013, which impacted the entire skilled nursing industry. As we mentioned in the third quarter conference call, HCR commenced new cost savings initiatives in response to the lower census environment, and 1/3 of those savings were realized in 2013. The full year impact of these initiatives, the positive momentum on rates across the board and the continued growth in HCR's hospice and home health businesses should have a positive impact on coverage in the latter half of 2014. Same-property performance for our post-acute SNF portfolio was 3.5% for the quarter and for the full year 2013, driven by rent steps on the HCR portfolio. Same-property growth for 2014 is expected to range from 3% to 4%. During the quarter, we entered into an agreement with Kindred to sell 9 skilled nursing facilities, which they operated under a master lease expiring in early 2017. The portfolio had an average age of 37 years and a cash flow coverage of 0.66x. The sale of 7 of the facilities closed in December, and the remaining 2 closed this morning. The portfolio's sale price of $82.5 million represents a 7.6% cap rate on trailing 12-month EBITDAR. The transaction, together with a hospital facility swap executed in the third quarter of 2013, provided an excellent opportunity for HCP to reshape our portfolio around Kindred's strategic markets and provided a platform for growing the relationship going forward. There are no post-acute SNF lease expirations or assets subject to purchase options in 2014. Hospitals. Cash flow coverage was 5.49x, a decline of 4 basis points from the prior quarter and a 29-basis-point increase over the prior year, driven by our HCA Medical City Dallas facility. Same-property performance increased 2.1%, driven by increased cash rents on our recently repositioned Plano, Texas, facility, which also drove 2013 full year growth of 3.7%. Full year same-property growth for 2014 is expected to range from 1.5% to 2.5%. In November, we reached an agreement with Tenet Healthcare to modify and extend 3 acute care hospital leases. The leases were extended at current rent levels and now contain annual CPI-based escalators under staggered terms from 3 to 8 years, with 4- or 5-year renewal options and purchase options exercisable for a fixed price at the end of each term. There are no hospital lease expirations or hospitals subject to purchase options in 2014. Medical office buildings. Same-property growth for the quarter and the full year 2013 increased 2.4% and 2.3%, respectively, driven by rent steps and occupancy, which increased 40 basis points from the prior year to 92.3%, the highest same-property occupancy since 2007. Same-property growth for 2014 is projected to range from 2.75% to 3.75%. During the quarter, tenants representing 641,000 square feet took occupancy, bringing the 2013 leasing total to 2.1 million square feet and increasing overall occupancy by 190 basis points from the prior quarter to 91.7%. The average term for new and renewal leases was 68 months, and the 2013 retention rate was 74%. We have 2.5 million square feet of scheduled expirations in 2014, including 489,000 square feet of month-to-month leases. We have executed 330,000 square feet of leases that have yet to commence and have an active leasing pipeline of 1.2 million square feet. Life science. Same-property performance grew 1.8% in the quarter, driven by rent steps and increased leasing activity, partially offset by mark-to-market rent reductions and vacancy associated with the downsizing and consolidation of Takeda's South San Francisco operations into one of our San Diego properties earlier this year. The full year 2013 same-property performance declined 1.6% as a result of the items mentioned above and a $4 million payment received from Google in the first quarter 2012. Same-property performance for 2014 is expected to range from 2% to 3%. Occupancy for our life science portfolio increased 10 basis points from the prior quarter and 110 basis points from the prior year to 92.4%, establishing an all-time high occupancy for the portfolio. For the quarter, we completed 176,000 square feet of leasing, bringing the 2013 total to 545,000 square feet and a retention rate of 77%. During the quarter, we executed an 8-year 69,000 square foot new lease with genomic diagnostic tenant CardioDx at our Redwood City, California, life science campus. The lease with CardioDx will anchor 75% of the redevelopment HCP repositioned in 2011. Turning towards 2014, the life science portfolio has 420,000 square feet of scheduled expirations, where we already re-leased 21% of the space. The expirations include 160,000 square feet in Redwood City that was vacated by an office tenant in January. We have re-leased 40,000 square feet in this building to Pearl Therapeutics, an AstraZeneca company, for 11 years. In addition, we have executed 190,000 square feet of new leases, all commencing in 2014. During the quarter, we completed the first phase of redevelopment totaling 61,000 square feet at our 2 North Carolina facilities and commenced redevelopment on an additional 77,000 square feet at those same facilities that are 100% leased to Duke University for a 15-year term. Life science development activity also includes a 115,000 square foot building in Poway, California, that is 100% preleased and a 78,000 square foot redevelopment in Cambridge, Massachusetts, that's 58% leased. Total remaining funding requirements for the development pipeline are $35 million. Overall, we have seen a pickup in demand from life science users over the last few quarters across all of our markets, most notably the San Francisco Bay area, where we are in active discussions with a number of tenants for new leases. Additionally, our portfolio tenants continued to demonstrate throughout last year an ability to successfully tap both the private and public capital markets to support future operations and growth. Sustainability. HCP was named Healthcare Leader in the Light by NAREIT for the second consecutive year. HCP has received NAREIT's Leader in the Light Award for 6 of the past 7 years. During the quarter, we received another 19 ENERGY STAR certifications for an annual total of 37. HCP has received 130 ENERGY STAR certifications as of December 2013. With that, I'd like to turn it over to Lauralee.

Thank you, Paul. And let me apologize in advance for a very raspy voice this morning, the remaining symptom of a weekend cold. I'm hopeful my dialogue with you this morning will not overtax my recovering voice strength. As highlighted by Tim and Paul, we closed out 2013 with solid financial results, demonstrated by significant year-over-year growth in both FFO and FAD per share. These results came from a strong performance from our operating portfolio, a number of onetime profit items, which Tim covered in detail, and the benefits of our 2012 and 2013 investments. As we enter 2014, we find ourselves providing relatively flat year-over-year financial guidance, the result of the strong 2013 onetime profit items impacting the year-over-year comparisons, but also due to the limited investment activity in the second half of last year. Several reasons account for our second half investment pause, including the Federal Reserve's May interest rate comments that put a pause on overall market transactions; the intense effort and commitment of resources we put into the pursuit of the acquisition of the Barchester real estate portfolio; and our management transition in the fourth quarter. I can assure you we are very focused on delivering consistent long-term growth performance and are already taking actions. What are we doing to increase investment activity? We have recently visited the majority of our key operators to discuss with them changes to their strategies arising from health care reform and how we can provide capital to support their success. Operators across the entire health care spectrum from acute care hospitals to senior housing companies are being challenged to deliver quality care at more affordable prices, which is prompting them to assess strategic and capital investment priorities. We are already seeing business combinations and strategic alliances among operators as they create more efficient integrated delivery models. While the rapid changes in today's health care marketplace have introduced an element of uncertainty, we believe the opportunities for HCP as a leading real estate owner and capital provider are even greater. For example, our significant national medical office building portfolio being primarily on campus or affiliated with the major hospital systems gives us a constant communication touch point into most major hospital systems at the C-suite level. As hospital CEOs wrestle strategically with the transition actions required to move from a fee-for-service model to an integrated delivery model tied to bundle payments, we are a part of the discussions. These conversations offer the best opportunity for both bid and off-market transactions. As validation of this potential, in 2012, 87% of our $2.4 billion of acquisitions arose from strategic discussions with our existing relationships. We are adding to our asset management capabilities to allow our seasoned P&L leaders to focus more on acquisitions, and also adding investment professionals to several key areas, most notably medical office. Our relationships with intermediaries and our reputation for capital strength and responsive underwriting ensures we see and are active in the bid process for the larger marketed transactions. We have revisited the European marketplace, leveraging off of our Barchester and Four Seasons experience. In visiting the markets, I found our reputation is one of a knowledgeable and respected health care capital source, with solid relationships with both operators and investors. The market has a need for investment capital, and our underwriting continues to validate that the U.K. offers attractive investment potential, particularly in the care home space. With all of these actions, we are actively looking at transactions across all our product categories, using both equity and debt investment structures. Consistent with the past, we do not comment on pipeline or deal specifics until transactions are completed. So in conclusion, in addition to pursuing new investment opportunities both in the U.S. and abroad, we will be working our existing portfolio to continue its strong performance, maximizing our development pipeline for new opportunities, as well as seeking monetization of existing investments. We are focused on being the leading organization in the health care real estate space, leading being measured by doing smart, accretive investments on a risk-adjusted basis, delivering top performance for our shareholders and in remaining an S&P 500 Dividend Aristocrat. Thank you for your support, and we look forward to performing for you in 2014. Operator, we are now ready for your questions.

[Operator Instructions] Your first question comes from the line of Nick Yulico with UBS.

Lauralee, turning back to your commentary on the investment market. I was hoping to get a bit of an update as to how you're viewing the landscape now. You talked about the fourth quarter being a bit of a pause because of -- probably because of what was going on with the Fed. Has that changed for the better now? Or is it getting a little easier for deals to make sense today versus the fourth quarter? Or is the environment still pretty similar?

I would say the biggest thing that has changed is that the marketplace has adjusted that whatever the Fed's actions are, it will be readily absorbed. And therefore, there is not a concern that they need to stop their activity to determine what to do in that period of uncertainty. So I think the marketplace is getting on with what they do quite well, and that is trade assets and grow assets and we're in the middle of that. So we feel comfortable with our cost of capital relative to what's going on in the marketplace. It still is a competitive marketplace, but we feel comfortable in the middle of it.

And then turning back to your discussion about meeting with hospital operators and also spending some time in Europe. What -- I know it's a little early, but what should we envision are some of the possible types of investments that could be made in a world where we are moving to more of a bundled payment system? I mean, what is that -- I think some of us are -- have wrestled with this idea of what exactly does that free up on the real estate side since hospitals really haven't had any need to sell hospitals or much of their real estate in the last couple of years based on a pretty decent cost of capital.

Well, I think the interesting thing is if you have a conversation with 5 CEOs, you would get 5 different answers. That being said, you are seeing that actions are being taken, whether there's hospitals that are merging, whether they're figuring out how to get a very focused footprint where they want to be, knowing that it is going to be about the patient, delivering the highest-quality care at the lowest quality -- the lowest cost price. And so again, that medical office portfolio, which is how they've early on started to deliver into that, becomes a very critical factor.

Okay. And just one last question is I was hoping to get a little update on what went on in the South San Francisco market broadly for life science in the fourth quarter. You talked about, back in May when you did the tour, that vacancy needed to come down a bit, rents needed to improve before you started thinking more about doing the developments there. Where -- what's sort of the latest thinking on that market and your possible future developments there?

Yes, Nick, it's Paul Gallagher. We actually saw a tremendous amount of volume in the fourth quarter, tremendous amount of leasing, and we saw rents improve. Vacancy has -- available space has been taken up. And we're in the process of finalizing our entitlements on The Cove land that we own. So we think that our timing is good on the entitlements there and with what's going on with respect to available space in South San Francisco.

So I mean, just quickly, I mean, what's at this point the earliest you think a development could start there?

I wouldn't hazard a guess. I think we've always looked at having some level of pre-leasing before we want to kick off any development, but vacancies are extremely tight and have been probably it's -- probably not starting for at least another 18 to 24 months, I would suspect.

Your next question comes from the line of Tayo Okusanya with Jefferies.

Just quick question on ManorCare, improvement in coverage this quarter, I may have missed it, but could you give some commentary on what the key driver of that was and what we should expect to see going forward?

Yes, I think that, Tayo, what you saw there was on the -- as reported, the majority of that came from GL/PL reserves coming off. If you look at the normalized, it was down 3 basis points as we mentioned. 2 of that, 2 basis points was a result of lower EBITDAR based on the items that we discussed, and 1 basis point was based on rent steps. So like we mentioned in the last quarter, HCR, they benefited for the first time -- benefited from a first rate increase in 2013 that was not offset by sequestration or other provider therapy cuts since the implementation of RUGs-IV. We talked about the hospital volumes and the shift from Medicare to Medicare Advantage. That's had an impact and a heavy impact on EBITDAR in this particular quarter. But on the positive side, all the business segments are projected to be positive this year. The rate increases should be maintained throughout the year. And the cost savings initiatives that were started in the fourth quarter should be realized over the remainder of the fourth quarter. And as we said, we think that the majority of the positive impact will present itself in the third and fourth quarter of 2014. So we see them continuing on kind of status quo until about the second half of this year.

Great, that's helpful. And then for Brookdale, the 3 assets that you mentioned that there's a right to purchase back sometime in 2014. Do you actually expect them to buy those assets from you? Is that what's built on the guidance?

Yes, yes. We do, Tayo.

Okay, great. And then on -- just one more from me. From the Kindred perspective and the asset sales in the fourth quarter, did you mention that the coverage ratio was at 0.66? And if so, just wondering how coverage got so low in the first place on those assets.

The answer is yes, the coverage was 0.66, and they've been impacted by the RUGS-IV, this being very old SNFs that are not strategic for Kindred, and we worked together to find a way to, for the both of us, to exit those particular assets and focus on their strategic markets.

Your next question comes from the line of Emmanuel Korchman with Citi.

Yes, it's actually Michael Bilerman here with Manny. I thought maybe we can just start on guidance. And I can appreciate some of the onetime securities gains and the interest -- the higher spread on the interest income from Barchester debt clearly has an impact on your '13 results. That makes a comparison to '14 muted with basically no growth. But even if you back that out, you're still at 2%, 2.5% FAD growth. And I guess I'm struggling a little bit to understand what's sort of holding that back. If you're telling us same-store is going to be 3% to 4%, CapEx, all those noncash items look to be the same spread as it was in '13, why is there no growth?

Yes, Michael, I'll take that. As I walked through on my comments, it's actually 3.3% growth from an FAD perspective, and that's being offset by a couple of things. That's being offset by the fact that we're going to spend a little bit more in terms of CapEx as we ramp up occupancy in our life science and medical office portfolio. And then also it's being offset by the sale of the Kindred portfolio that Paul just discussed that had a higher yield on it.

So what's the dollar amount of the Kindred portfolio and the yield on it?

The lease yield was 11%. The sale yield on EBITDAR was around 7.6% and then the -- sorry, what was the other question, Michael?

The dollar...

The proceeds were $82.5 million.

$82.5 million.

You're also getting back the capital from all the things you did last year, right? So that's got to have some return to it. Even with the sale, it still seems light, but I guess it is what it is. Maybe, Lauralee, you talked at the end of your comments about some of the actions that you're taking in terms of visiting with your key operators, adding some key people and then revisiting Europe as a way to get your engine -- investment engine going after a very light second half. I was wondering if you can just expand a little bit in terms of -- I got to assume that the company prior to you taking over to being CEO was meeting with those operators all the time. And so I don't -- what's changed in those conversations or in the approach to the conversations, number one? Number two, are you adding G&A or are you just reallocating some internal people? And maybe, Paul, you can say what -- or, Tim, you can say what sort of G&A forecast is for '14 if you are adding people. And then lastly on Europe, you're a $24 billion enterprise, what are you thinking about in terms of a more longer-term investment in Europe in terms of how much risk you want to take in a currency and other things in a foreign country relative to the base of assets you have in the U.S.?

There's a number of questions in there, so let me see if I can kind of check those off. Let's first of all talk about the people that we have, the talent that we have and what their focus will be. I mean, one of the things that I think comes through very clearly is how the portfolio is performing in a very solid operating way, which means that we do have the capacity to reprioritize our P&L leaders much more into acquisition mode and not put anything at risk. So that has already commenced. So that's a reprioritization. In terms of additions, they're modest, and I wouldn't build anything greatly into the cost structure -- Tim already gave you guidance.

The guidance reflects the [indiscernible]...

It reflects that. And what I would say about the people in general, we've had the relationships. It's a question of who had the green light to pursue them for acquisition. And so I think the enthusiasm to do what our talent is capable of doing and be in acquisition mode is being extremely well received. So that would be the sort of core business. Relative to Europe, I think you've seen we've focused very much on risk-adjusted approach to a new marketplace, to learn it in places we're not as comfortable that we don't know it well enough to be in the equity position, to be in a debt position so that there's equity behind us, selecting very carefully who our operators are, who's going to be winners in the space. What we do know is that, that marketplace has continued to perform quite well. Its difficulties were really created by financial engineering, not market issues. And so as those financial situations need to be corrected, new capital is what does that. So we believe we can be in that market with accretive risk-adjusted positions. They may be equity, they may be debt, but it's a marketplace that we well approach it with care. We will talk with you as we go, but we do think there's opportunity.

And then, I apologize, I may have missed it. What was the G&A forecast for '14?

$86 million.

$86 million, so just an increase over 5% over '13?

Yes. A lot of noise in '13, but we had guided last year at $85 million, so not quite that much of a [indiscernible]...

Your next question comes from the line of Jeff Theiler with Green Street Advisor.

Can you drill down into the same-store senior housing growth a little bit? I'm just trying to understand what the drop-off was from the last couple of quarters to this quarter. Is that -- I know a large part of this triple net was higher than usual rent steps. Can you just walk me through how it went from 7% to 5% this quarter?

That was a result -- there's some seasonality in there, Jeff, but it's -- primarily, it's changes in our RIDEA portfolio and our Sunrise assets.

So the RIDEA portfolio -- what was the growth on the RIDEA portfolio on a same-store [indiscernible]...

For the year, it was about 7%.

Okay. Maybe I'll follow up with you offline about...

Yes, I can get you more detail depending on which quarters you want to compare it to. That's a pretty detailed question depending if you're comparing the second quarter to third quarter or third quarter to the fourth quarter.

I was just talking about year-over-year, but okay. On the -- so going back to the heat map, which I think is great, by the way.

Well, hey, Jeff, if you're talking about year-over-year from '13 to '12, it's really driven by our rent steps, 2.3%, and our transitioned assets that were transitioned away from Sunrise and then our RIDEA portfolio. Those are the 3 components in terms of order of magnitude that drive same-store growth for senior housing.

Right. Okay. Maybe this will help, too. So looking at the heat map, which is great, a couple -- I'm just trying to identify some of these leases that are no longer in the heat map. There's one for senior housing, it was 0.5% of your AVR. That was about 2.5 years out or so, maybe 3 years out. It's down from this version versus last quarter. Can you tell me what happened to that lease? I'm just trying to identify it.

Yes, we did have a renewal of one of our leases. Let me see if I can find the pool that we actual renewed there. Did you have another question, Jeff?

I do. Sure, I'll go on to the next one. Talking about the purchase options, I know you talked about the 3 CCRCs already. Looks like you have about $120 million of AVR over the next couple of years. What's your best guess on how much of that gets -- how many of those purchase options are exercised? Do you have any idea?

No, it depends on the time. But right now, the only one set we believe will be executed are the Brookdale purchase options.

Just the Brookdale? Okay.

And I think the portfolio that you're talking about, Jeff, from the heat map, was our -- was one of our senior housing operators that had a renewal of all or none on a pool of assets. So those have been combined into one data point, if you will, on the heat map since it's an all-or-none renewal on a group of assets. That's why you have that change.

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

I have a few questions on HCR ManorCare. So first maybe for Paul. Can you just talk a little bit about the specific measures they're taking to improve the earnings coverage? And as to the set-up [ph], it looks like about 1,350 SNF beds were taken offline in the quarter. Obviously, that boost to occupancy, is that one of the levers since it's a fixed-cost business?

The levers are things that they have done in the past with respect to both taking some of the beds offline, yes, and also with respect to overhead, kind of rightsizing the business based on kind of what the reimbursement scenario is going to look like on a going-forward basis.

Okay. And when you mentioned about 1/3 went into effect in 2013. Is that -- I mean, getting the other 2/3, is that really that just overlapping into 2014? Or are these new things that they're planning on doing in 2014 as well?

It's implementation over the course of the year and getting the full year impact. You're going to see the majority of that pop happen most likely in the third and fourth quarter of '14.

Got you. And then for Lauralee, I understand that you're not contractually bound to offer rent concessions. But now you're in the CEO seat, have you had any conversations with HCR or their sponsor around some sort of win-win solution to the rents? Just as an example, is there a scenario where they could pay you some set amount to buy down their rent obligation and actually help your equity stake as well and improve the coverage?

Well, we have not had those conversations, and at the moment are not planning to. We do have ongoing conversations with HCR on how we increase the coverage on the portfolio, particularly where they have assets where they actually are a cost to them to keep them and whether or not they should exit those assets in order to improve both their profits and our coverage. But no conversations relative to what you're referencing.

Yes, particularly with the fact that they'll have -- as Paul mentioned, they're projected to have growth across their entire portfolio. They've come through a very difficult reimbursement environment over the last 2 years, and they finally got some relief from that in October.

They're spending capital on the assets. They have free cash -- positive cash flow. They're actually, for what they have been through in the past 2 years, in very good position, and we don't see pressure on them from a payment of rent standpoint.

And expect to see growth across not only their post-acute aspect of their portfolio but also their assisted living and continued growth in their home health and hospice business. So as Paul mentioned, positive growth across all 3 major components of their business in 2014.

Yes, got you. Definitely makes sense with the quality of the assets, and it sounds like the admission numbers are good. But you see this general length-of-stay pressure across all skilled nursing. And then I guess just my last thought is, do your operators have any thoughts around the upcoming doc fix? There's been some progress toward a long-term fix, and something needs to happen by the end of March. And then again maybe on the investment side, with better Medicare clarity, would you actually think about starting to make new investments in skilled nursing?

Well, I think from the doc fix, like you said, they've kicked the can down the road for a short period of time. It's our sense that the focus was indicated that it might be impacted on the pay for more with LTACHs. And also we think that there's going to be some deference made to, say, neutral-type payments, which would benefit low-cost providers like HCR ManorCare.

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

Lauralee, how is HCP positioning its portfolio to take advantage of the health care reform? And are you focusing on any potential property type?

I think I referenced that we think we have opportunities across all of the property types because one of the things about health care reform is it focuses on the continuum of care, which really makes you think about the flow of your assets as the patient is involved in them. So our discussions with those that are delivering that care is how they need to either build out that continuum of care, so they stay the premier provider, or what other investment activities they need to take in order to reposition their portfolios.

Okay. And then, Paul, with regard to HCR ManorCare, did I hear you correctly that coverage ratios will remain relatively low in the first half of '14, but you'll start to see more improvement in the second half of '14?

Yes, I would characterize them as fairly flat for the first couple of quarters of '14, and then you'll see it pick up towards the latter half of '14.

But remember, the impact of sequestration didn't kick in until April of 2013.

You had sequestration in April. You had occupancy issues in the third quarter. You're going to see the effect of a rate bump and these cost savings initiatives. That'll happen third and fourth quarter of '14.

And then your rental rate bump occurs on April 1?

April 7.

April 7, okay. And then, Tim, I you know you mentioned this in your remarks related to the Tenet Healthcare lease extensions. Was that roughly at the same rate as it was being paid previously?

Yes, it was, $23 million that was renewed.

But we were able to get CPI rate increases where before we had relatively flat increases.

Okay. And then, Paul, on the life science demand that you mentioned that you're starting to see in the Bay Area pick up, is that just solely from life science tenants or you're still seeing a lot of demand from tech tenants?

The majority of that was from life science tenants.

Your next question comes from the line of Rich Anderson from BMO Capital Markets.

Quick one, Tim, what is the GAAP same-store NOI growth relative to the 3% to 4% cash?

Yes, GAAP is 2.2%.

Okay. So then you're still -- you take the CapEx...

At the midpoint. Right.

Right. If you take the CapEx issue out of the equation, then you're still going from 2.2% same-store GAAP to 1.7% FFO, right? And so all of that is the Kindred sale, I guess?

Yes [indiscernible] that's...

Okay. And did you give a cap rate or a proceeds amount from the Brookdale purchase options?

They haven't been exercised yet. We just put that into guidance.

All right. So I know you gave the NOI amount, but what should we -- how should we model it?

It's about 8%.

Okay. And, Lauralee, or anybody I guess, maybe Paul, with senior housing supply picking up, that's kind of the news of the year so far for senior housing, does that make -- what are your views on that, number 1? And number 2, does that make you even less likely to pursue an incremental RIDEA path at this point?

A couple of things. First, let me talk a little bit about the impact on our RIDEA assets and then on our triple net. The majority of our RIDEA assets are independent living, and the NIC data still shows a large gap between starts and absorption, 1.2% versus 1.8%. Our biggest concentration of RIDEA is in Houston where we expect absorption to exceed inventory by 200 basis points. And we spent a lot of money on that whole portfolio. So we've seen fourth quarter sequential occupancy growth about 170 basis points. On the triple-net side, our 3 biggest concentrations are in Washington, New York and Chicago, and we're seeing supply remaining low, between 0.6% and 1.6%. Construction is also low relative to that supply. Revenues are growing. I think from our standpoint, we remain looking at RIDEA assets as opportunistic where there is an occupancy rate or a repositioning-type play, preferably where there is a significant upside and we get a risk-adjusted return. We think that if you buy good assets in good-info locations, and good quality, and allocate capital to reposition them, that there's still a play for RIDEA assets. And at the same time, as long as we can get outsized growth on triple-net-type opportunities, we'll take advantage of those types of structures as well.

Okay. So just to clarify, for assisted living, which is where most of the supply is happening, you would be just as inclined to pursue a RIDEA structure if it met all those hurdles even though you see this uptick in supply happening in front of you?

Yes, especially since you're dealing with new construction, whereas it's going to take 24 to 36 months for a lot of this stuff to kind of come online and then lease up. If I could take advantage of a good-quality asset in good markets where I've got barriers of entry and I can invest some capital and get an outsize risk-adjusted return, I'd be more than happy to do that kind of transaction.

And your final question comes from the line of Juan Sanabria with Bank of America.

Just on the balance sheet, I was wondering if you guys could talk about how much headroom you have to debt finance deals relative to sort of where your target leverage metrics?

We've got -- we're slightly below our target level of 40%. We're at 30%, and we ended the year at 39%. We run the balance sheet on a 60-40 basis, and we'll continue to do that. In terms of -- with your headwinds and rates, we could -- in terms of rates, the unsecured debt market today is still very attractive relative to the weighted average interest rates that we have in place, Juan.

Do you have any opportunities to refinance debt maturing this year that's -- and if so, is it included in guidance?

It's included in guidance and -- number 1. Number 2, there's $667 million coming due this year. Most of that's in the first quarter. It's not -- so relatively muted in terms of our total debt stack of $8.7 billion or something.

Well, thanks for everybody who's joined the call. As I said before, we thank you for your support, and we very much look forward to performing for you in 2014.

This concludes today's Fourth Quarter and Year-End 2013 HCP Earnings Conference Call. You may now disconnect.