Good morning, and welcome to the HCP First Quarter Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Andrew Johns, Vice President, Finance and Investor Relations. Please go ahead.

Welcome to HCP's first quarter financial results conference call. Today's conference will contain certain forward-looking statements. Although, we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks and risk factors are described in our press release and including in our financial filings with the SEC. We do not undertake any duty to update forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on the call and Exhibit 3 of the Form 8-K will be refurnished with the SEC today. We reconciled our non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. We have also provided a reconciliation of these measures to the most comparable GAAP measures in our quarterly report on Form 10-Q, which has been filed today with the SEC and is available on our website at www.hcpi.com. I will now turn the call over to our Chief Executive Officer, Tom Herzog.

Thank you, Andrew. And welcome to HCP's first quarter earnings call. Joining me on the call today are Pete Scott, CFO; and Justin Hutchens, President. Also in the room and available for the Q&A portion of the call are Mike McKee, Executive Chairman; Senior Managing Directors, Jon Bergschneider, Life Science; Tom Klaritch, MOBs, and Kendall Young, Senior Housing; and our General Counsel, Troy McHenry. Let me start by saying that the first quarter was very positive and productive in advancing our strategic initiatives. Our cash same-property performance for the quarter was 4.0% and we reaffirm the guidance range for both same-property performance and FFO as adjusted. We signed a new lease with a life science tenant at The Cove, bringing Phases I and Phases II of The Cove to 100% leased. We sold $1.8 billion of non-core assets during the quarter, including the completion of the previously discussed Brookdale 64 transaction for $1.125 billion, and the RIDEA II transaction for $480 million net. These sales are critical steps in advancing our stated goals of reducing leverage and Brookdale concentration. We executed the disposition of our troubled Four Seasons mezzanine and senior debt positions for $136 million, which resulted in a $51 million partial reversal of 2015 impairments. This converted a substantially non-earning asset into proceeds that can be engaged in core real estate. Although, this investment did not meet our expectations over its life, we did earn a modest positive return of approximately 4% IRR. Lastly, we generated proceeds of $121 million from the sale of six other non-core assets, including four life science properties in Salt Lake City. We used the proceeds from these sales to delever and continue moving our balance sheet toward BBB+/Baa1 credit metrics. HCP's total portfolio is now 95% private pay, and we're excited about…

Thanks, Tom. Let's start with first quarter results. We reported FFO as adjusted of $0.51 per share, which was in line with our expectations. Our total portfolio delivered solid same-store cash NOI growth of 4% in the first quarter, with growth across all of our core lines of business. Looking at our individual sectors, our SHOP platform generated same-store cash NOI growth of 2.9% in the quarter, which was driven by 3.5% rate growth and lower than expected expense growth, partially offset by a decline in occupancy, which came down 60 basis points sequentially reflecting typical seasonality and down 130 basis points from the prior year. The year-over-year occupancy decline was impacted by a stronger flu season this year, recent competition coming online, as well as some units being taken offline due to revenue enhancing renovation projects. We experienced growth within all three SHOP segments: independent living, assisted living, and CCRCs. While we are pleased with the performance of this quarter, we continue to monitor occupancy trends industry-wide, given our first quarter performance was driven primarily through rate growth and increased margins. For our Senior Housing triple-net portfolio, same-store cash NOI grew 5.1% in the first quarter, reflecting rent steps and higher contribution from our Sunrise portfolio. Adjusting for the positive Sunrise impacts and some negative impact from the Brookdale rent reallocation, as we previously disclosed, normalized cash NOI growth will be more in-line with expected triple-net growth of 2.5% to 3%. Turning to Life Science, our same-store portfolio remains 97% leased and delivered year-over-year cash NOI growth of 4.7% in the first quarter, consistent with last quarter's performance, driven by lease escalators, strong leasing activity and positive mark-to-market on lease renewals. For Medical Office, occupancy remained steady at 92% and same-store cash NOI grew 4.4% over the prior year,…

Thank you, Pete. I've spent eight and a half years in the Health Care REIT sector, including my two years here at HCP. Although, there was never a timetable established, I've always thought for the right opportunity, I'd return to the senior care operating side of the business, where I spent 15 years previously. I've accepted an exciting offer to join HC-One, a prominent care home operator, where, as the CEO of the company, I will have the honor of passionately leading over 13,000 highly-experienced senior health and social care professionals, as they execute the critically importantly duty of delivering the kind of care and services to residents in 230 locations throughout the United Kingdom. Although, I'm very excited about my new role, it was a difficult decision to leave HCP. I've truly enjoyed my eventful and exciting time here over the past couple of years, working alongside a talented group of people, as we tackled the opportunity to significantly reposition the company, which is in great hands with the gifted and dedicated team of professionals. And since HCP is a capital partner at HC-One, I look forward to our ongoing relationship. I wish Mike, Tom and the rest of the board and management team the very best as they continue to differentiate HCP as a high-quality, industry-leading and diversified health care REIT. With that, I'll turn the call back over to Tom.

Thank you, Justin. And with that, operator, we will take the first question.

Thank you. We will now begin the question-and-answer session. The first question will come from Juan Sanabria with Bank of America. Please go ahead.

Hi, good morning. If I could just first ask on the CIO role post Justin's departure. What skill sets are you looking to fill, kind of background you're hoping for and timeframe for filling the seat?

Hey, Juan. It's Tom Herzog. Yeah, so we have undergone a search as I indicated in the remarks with Russell Reynolds. We're well underway. We're seeing a lot of high quality candidates. We've been pleased with what we're seeing. We do – we really are working toward taking somebody with private pay healthcare real estate experience, so that's something we're focused on. So, we'll where that plays but we've had a good start on it at this point.

And any sort of sense of timing and/or do you want somebody with operational expertise or not necessarily?

Well, we'll see. We've got a variety of different skill sets that are coming across to us and we'll evaluate those. As far as, yes, timeframe we'll be patient to make sure we get the right person. This is an extremely important hire for us. So, again, we're off to a good start but we're going to take our time and make the right choice.

Great. And then just on the RIDEA side of the business, you guys noted expenses were a little bit below what you were expecting. What drove that, any worry that if it's staffing that you could see further occupancy slippage if you're pulling back on staffing because of the dip in occupancy? And how should we think about occupancy going forward, it seems like you had some redevelopments starting on taking some units offline, but I think for the year you were expecting units to come back online, so if you could just clarify that, that'd be great?

Yeah. A good question and let me turn that to Kendall Young.

Yeah. So, in regards to our expenses they were managed tightly by Brookdale in the first quarter and that was reflected in the 1.5% growth over the prior year. Included in that is wage growth of approximately 4% and that was offset by – partially offset by lower labor and food cost that were attributable to the lower occupancy.

And on the occupancy front, what are you guys expecting from here in terms of calling back the lost occupancy from the (23:31) redevelopments?

So, maybe I'll just walk through in the entirety, our SHOP performance – in our guidance and I'll help answer that question. And let me first point out that our SHOP represents 20% of HCP's overall cash NOI. So relating to our SHOP Q1 performance, walk you through the components. In the first quarter, we grew 2.9% over the prior year, which was at the high-end of our guidance range of 2% to 3%. The components included year-over-year rate growth of 3.5%, year-over-year occupancy decline of 130 basis points and year-over-year expense growth of 1.5%. For the full year, we are reaffirming our guidance range of 2% to 3%. The components of our full year guidance include rate growth of 3% to 4% and occupancy decline of approximately 100 basis points and expense growth of 2% to 3%. And a little color on our first quarter occupancy, on a sequential basis, occupancy drops 60 basis points, primarily due to seasonality and a stronger flu season. On a year-over-year basis, occupancy is down 130 basis points. This decline is driven by various factors including competitive pressures. We took units offline for – in a few properties for renovation and the flu. And all of these had roughly equal impact on the year-over-year occupancy decline. And this year, the flu spread earlier, lasted longer and had a greater number of cases, which resulted in a higher number of move-outs in our properties and our portfolio was more heavily weighted in areas, where the flu had a more severe impact such as the Southeast. And as the flu lasted longer, we expect further impact in the early part of the second quarter. We talked about expenses. So looking at last year, we invested $35 million of revenue enhancing CapEx and this year, we're investing additional $30 million, which should help support our rate growth and occupancy assumptions.

Great. And then, just maybe on Tandem. So why the comfort in not needing a write-down there, and what are your expectations on getting that debt actually repaid, I think there's a prepayment – ability to prepay that at some point. Is that something you guys think could happen or how should we think about cash flows for that loan.

Yeah. I think, as Tom mentioned in his prepared remarks, it's a collateral-dependent loan and the fair value of the collateral exceeds the accounting amount of the loan, we will continue to update that fair value of the collateral going forward but at the moment we don't believe there's a need to a take a write-down on that. With regards to just Tandem generally, a few other points I would make as I talked about in my prepared remarks. That's been a bit of a bumpy ride and this loan is our last highly levered mezz loan and really our last direct exposure to the SNF business. But generally, it's a small amount of our overall business. It's 1% of our enterprise value. The forbearance agreement that we signed with Tandem gives them a short-term breathing room basically to execute on some of these recapitalization initiatives. And I think depending upon how those play out, we'll know more about what will ultimately happen with disposition but it's too soon to say at this point in time.

Thank you.

Thanks, Juan.

The next question will come from Nick Yulico with UBS. Please go ahead.

Thanks. Just going back to Tandem. I just want to make sure I understood this. So the guidance for the year assumes that you're going to have that investment income in place for the entire year?

Yes. Although as I've mentioned some of these non-core sales to the extent they are successful in getting done, we will get a portion of our loan repaid. So, we have not assumed the full amount for the entire year, we've assumed a smaller amount subsequent to some of these initiatives.

Okay. So, just I mean from a modeling standpoint, does that impact starts in third quarter then that loan balance maybe goes down?

Yeah, yeah.

Yeah. I'd say, Nick – I'll just add to what Pete saying is that it's too early to tell. The loan is still current, there is sufficient collateral value and we're working through alternatives and may have a number of alternatives that they are considering that could be favorable. So, it's too early to tell at this point, but even if there was an issue with it on a cash basis, this thing has got coverage that still produces cash flow that would serve us all or the majority of the debt. So, we'll see where that plays out, more to come on that.

Okay. And then just on senior housing topic of supply impact. I'm wondering if it's – I don't know if it's Scott or Kendall or someone else who can maybe talk a little bit about where you think the supply impact is getting worse over the next year, I mean we started to hear stories of some buildings that can't lease up, not yours, but competitors and they're offering three-year rate locks and it is pretty enticing for some people to move especially if they are more IL type of tenants who can move more easily. I mean is that – have you heard of that type of issue before in the sector, a three-year rate lock, just curious on the historical perspective what that looks like?

Yeah. Specifically to that question, we've not heard of at least in any of our buildings having to offer those three-year rate locks, I'm sure that occurs out there. I don't know how widely spread that is, we haven't heard about that. So maybe just talk about new supply and our thoughts on the market and how it impacts our – how new supplies impacted our properties. So if you look at the NIC data, it shows that construction starts have slowed since the peak and in the fourth quarter of 2015, so that rate peaked at 4.5% and is 3.2% currently and again that's construction starts. Most of the current pending deliveries, so the under construction currently, we think will occur in 2017 and into early 2018. So we expect softness in the senior housing fundamentals through 2017 into mid-2018 as the new completions are absorbed looking at units that are currently under construction about 5% of our total company NOI is exposed to new supply within a five-mile radius of our SHOP portfolio. This is roughly evenly split between assisted living and independent living. We think our properties have strong demand drivers in their markets, including affordability and we are proactively investing CapEx into properties that are facing new supply in order to keep them competitive. So now looking at our – the impact on our portfolio starting with our independent living and our independent living portfolios over 60% of our SHOP portfolio, and the growth of new supply in independent living has been much lower than the growth rate in assisted living. Houston was our only independent living market impacted by new openings over the past 24 months and that was three properties, three openings and while our Houston properties did experience decline in occupancy, we did outperform the NIC average for both occupancy and rate in that market. Looking at our assisted living portfolio, we did have greater exposure to new supply with 17 communities impacted by new openings over the past two years, of which four are in our top 10 markets and in these four markets, again our occupancy and revenue growth both outpaced the NIC averages for supply and revenue growth. While there has been an impact from new supply, we've been able to outperform the NIC averages through investing in our assets and collectively the properties that saw new supply in the past two years have had positive NOI growth of approximately 2%, and we believe this is due to the CapEx that we've invested and also our rates in our properties are typically below the market price leaders.

Hey, Nick, this is Herzog again. I'll just add, I guess, something more general to Kendall's remarks. I think it's important to note that we view from a SHOP perspective, senior housing perspective, some of these headwinds to be short-term, new supply, wage pressures, et cetera. Over the long-term, we still feel very favorable about this business and the – for a couple of reasons. First, the supply deliveries are going to start to normalize beginning in 2018, looking at what all the experts say and what we've looked at. Second, everybody is aware that baby boomers are turning 75 and they're hitting in about 2020, that's about 2.5 years from now. That 75-plus population is going to grow by almost 50% over a decade and that's going to be a massive opportunity. So, when we look at the top 99 NIC markets and the average penetration we see a huge opportunity in front of us and we do plan to be well-positioned to capture our share of this growth. So despite the facts we've got a few things we'll work through over the next couple years, we think we're pretty well-positioned. I'll repeat what Kendall said. We've – almost two-thirds of our SHOP business is in IL rather than AL, which has been less exposed to new supplies. So we're feeling pretty good from where we sit right now.

Thanks, Tom.

Thanks, Nick.

The next question will be from Rich Anderson of Mizuho. Please go ahead.

Hey. Thanks. Good morning. So in light of your sale of Four Seasons, I'm curious what the longer-term or the strategy might be for the UK in general and specifically HC-One. I'm just curious how you feel about that investment long-term. I know you guys love each other, but conflicts of interest potentially being an issue, no offense just and I mean – is that something that's on your mind, just curious how you look at that investment today if both of that are in the equity?

I'll save Justin from answering that and I'll take that one. This is Tom. Yeah. With the sale of Four Seasons, we – that was good to monetize that I think for us. HC-One – we've been aware and we've had built into our guidance that there is likely to be a prepayment of that loan. We're in no hurry to get prepaid on it. It's got lots of collateral value behind it. We feel good about it. It's earning about 8% or just a little north of an 8%, but if – it probably get prepaid in the next month or two. And as to Europe as a whole, we're still looking at taking a pause on Europe. So when HC-One does get repaid assuming it does in the near-term prepaid, we'll repatriate those funds in the United States. So, that's our current plans. And as to – again, as to the UK portfolio, we will be assessing that over the next period of time.

Okay. Is there anything to do with kind of the move – the Justin move or is it just your general view of...

No. Yeah. It's the opposite. The Justin move might have caused us to hang on longer.

Okay.

No. It's a – we've had – there was a change in tax rule and that took the effective tax rate and gets kind of complicated. I won't go into the details. But it took it from an effective 5% to an effective 13% taxes and we coupled that with the hedging that we have to do and the fact that we had to have the infrastructure over there. We made a decision to discontinue expanding that portfolio and absolutely Justin's move from our perspective having a friend over in Europe is a plus, but we're still assessing the UK.

Okay. Fair enough. And then what's your perspective on the Duke-HTA transaction, the MOBs? How does that change your thought process about your disposition strategy in MOBs if you get fore-handle on some of your assets? Is that something that you might start to consider given the price point discovery that was just made recently?

Yeah. Rich, this is Mike McKee. Let me take that. Of course, we look as others did and participated in the process on Duke. I think that the result is indicative of the strong demand that we have seen in the MOB space. And it puts a spotlight on the cap rate compression that we've seen in recent months as you've noted. Having said that, when you step back, we also think that the transaction validates for us the repositioning we've done with a big specialty office focus, when you combine our MOB portfolio and our life science platforms. So after the HTA purchase itself, it's probably best, I think, to let the market decide how that actually works out as they go through the execution. It certainly was a bold move at that pricing. We think we have as good or better a platform than anyone in the country today here. And we're going to continue to prioritize that area for growth. And in terms of harvesting, I must say that we have longer-term plans to grow it. We're deep into the relationships that we have. I don't think we have any near-term plans to harvest. But in terms of just validating the value of these portfolios that are at scale, yesterday was a very interesting day.

Fair enough. Thank you.

Thanks, Rich.

Our next question comes from Smedes Rose with Citi. Please go ahead.

Hi. Thanks. I wanted to ask you mentioned reducing or continuing to reduce your exposure to Brookdale. I was just wondering if you had any updated thoughts around where you'd like that exposure to end up. And then you also mentioned that it sounds like you're kind of bullish on the RIDEA industry portfolio longer-term. What sort of percentage exposure would you expect to end up having in that area?

This is Tom again. As to Brookdale, your question was what kind of exposure would we like to have to Brookdale. We're currently – pro forma the 25 assets that are held-for-sale right now, we'd be at about 27% concentration. And our intent is to work together with Brookdale and bring that down to probably somewhere in the 20% range or below. So, that's kind of plan that we've had for a while. As to RIDEA, we haven't set a target on that yet. We've got a good amount of senior housing exposure as it is happens to be today, there's a fair amount of it in triple-net, which feels pretty good to us right now. There's fewer triple-net deals to do in the future. So we'll probably see more RIDEA and less triple-net. But as far as the blend between MOBs and life science and senior housing, that is yet to be determined exactly where that falls out. So, we certainly will also want to see our exposure built further in MOBs and in life science as well, more vertically in life science in San Francisco and San Diego. And at some point, we'll probably get our opportunity to look at Boston as well. Those are the three great markets in our opinion and that's how we're thinking about the three portfolios.

Great. Thank you.

Thanks.

The next question is from Vikram Malhotra, Morgan Stanley. Vikram Malhotra - Morgan Stanley & Co. LLC: Thank you. Just on the SHOP portfolio, you had I think 3% same-store growth in AL and 1.8% in IL. Can you maybe just break that down for us in terms of occupancy and rate? And then in the guidance, is the growth assumed in both those segments very different?

So if you look at the difference in the SPP growth, it was mainly due to occupancy, so both the IL and assisted living rate growth was around 4% and then the difference in the NOI growth was in the – there were two independent living properties that were taken offline due to revenue-enhancing CapEx projects. So if you exclude those two projects – properties, the SPP growth for independent living would have been 3.2%.

So pretty well in line with our expectations I guess. Vikram Malhotra - Morgan Stanley & Co. LLC: Yeah. And in the guidance as the growth is somewhat similar?

Yeah, I think, Kendall, you gave the guidance for the growth in total, but for IL versus AL...

We don't typically...

Yeah, we don't typically lay that out. So I'll think we will pass on that part of the question. Thanks. Vikram Malhotra - Morgan Stanley & Co. LLC: Okay. And then just in your triple-net portfolio, can you just update us on plans of where you are in reducing – the additional properties that you had outlined and specifically just on the triple-net side, I think there is a Capital Senior Living and remaining where rent coverage is, I think, 1.05x or lower. Can you maybe just update us on what those are and if there are any plans for disposition there?

So on the Brookdale 25, we are in the process of selling most of those properties, we're in discussions with various parties and there has been significant interest, and we do expect to sell those by the end of the year. On the question of Capital Senior Living, the lease – there are – I think it is a lease that has six or so properties in it. Capital Senior Living is addressing the performance issue and we do have a corporate guarantee on that lease which we consider a pretty good credit. Vikram Malhotra - Morgan Stanley & Co. LLC: Okay. And sorry, just last, what is on the – what is in the remaining bucket?

Is that in the remaining... Vikram Malhotra - Morgan Stanley & Co. LLC: In your triple-net, senior housing triple-net where the rent coverage is 0.81.

Okay. So, there – in the – I'll tell you what we've got – we have that right now. We had that brokenized...

Yeah. So, there are three groups in there, they are – two of them have very strong credits and the other group is something that they will be coming upon a lease expiration and we will likely transition those properties to a new operator. Vikram Malhotra - Morgan Stanley & Co. LLC: Okay. Great. And then just last one if I may, just on the – going back to the MOB question, I would have thought if, for example, you had – you did win out on the two portfolio that would help you reduce Brookdale, but are there other portfolios in your knowledge just out there that are sizable and given the pricing we've seen, do you expect more to come to market?

Tom Klaritch.

Yeah. We – the transaction volume actually has been pretty typical this year of what it's been in the past. Without the Duke portfolio, it's about $10 billion a year, we're seeing something kind of in that range and normally we see one or two sizeable transactions per year. I think there is talk of a couple of that size, kind of in the $300 million to $500 million range. There is no details on them right now, but we would anticipate a large portfolio sometime during the year. Vikram Malhotra - Morgan Stanley & Co. LLC: Okay. Thank you.

Thanks, Vikram.

The next question will come from Jordan Sadler with KeyBanc Capital Markets. Please go ahead.

Thanks. I guess, my first question is really back to SHOP. I'm looking at the full-year guidance, I'm sorry, if you addressed this, but it looks to me, it did sequentially there was a 3.2% cash same store NOI growth and the occupancy obviously dipped 60 basis points. So I'm curious if you can give us a sense of what the rent increase was and how that sort of played versus the expansion sequentially and then if you are at 2.9% year-over-year in the first quarter, is it a little bit difficult to get to the midpoint of the NOI range for the full year in SHOP or are you on track?

So, let's first address the sequential growth and so we had – our rate growth was around that 3.5% to 4% and we had the expense controls that allowed us to have a lower expense growth, and then the...

Well, just to back up, that if we – Jordan, if we came in at 2.9% in the first quarter, and we're still guiding to...

2% to 3%

...to the midpoint of 2.5%, we're looking at rate growth during the year of 3% to 4%. We have factored in now occupancy declining 100 basis points, and then we have expense growth coming in at 2% to 3% for some of the reasons that we described earlier. That actually gives us just a little bit of cushion for the remaining three quarters of the year being we started out the first quarter at 2.9%, we're guiding to 2.5%. So I might have missed the detail of your question, but...

No, I recognize that you're ahead in 1Q, my question was more relating to the continued wage pressure, which you contained well in the first half, but also the elongated impact of the flu, and of course, the increase of deliveries Kendall discussed throughout the rest of the year and into mid-2018. So maybe does it get more difficult throughout the year?

I think if you look at – put occupancy and rate growth in the same bucket, and so our overall revenue growth, so we've invested a significant amount of CapEx in our properties last year and continued to do this year, focused on the properties that we'll be facing new competition. We think occupancies will recover following what has been a very severe flu season. If you look at some of the new competition our properties will be facing, especially in the IL, those properties that are coming online won't come online until later 2017 and starting in 2018. The rates we have in our properties are typically below the market leader level. So, while there may be some impact in new supply, it's typically not as great as if you are a price leader in that market. And then if you look at the 20 properties where we've had new competition in the last two years, we've grown the NOI in those properties by approximately 2%. So, some of the things that I mentioned before, like the CapEx, and getting in the face of new competition, getting our property ready to face that new competition, we've still been able to generate growth. So, we think that where we are on our estimates for the year are today we are our best guess of where we will be.

Okay. And if I could quickly follow-up in terms of investment opportunity. Where are you focused now? MOBs look – I don't know if you've been priced out of that market or if everybody, but for one has been priced out of that market today. But where are you going to put your dollars going forward?

Well, it's – we're looking at a number of deals in all three of the segments right now that we have committed to invest in. The first quarter was very busy with transactions, but more making adjustments to our portfolio and that does have a long lead time as you know, and a lot of that culminated in the first quarter of 2017 on the disposition side. At the same time, we've been gearing up and have been working hard on the acquisitions, and we have a number of things that we are looking at in all three segments. So as to being priced out of MOBs, yeah, let's say that over the last several months and Tom Klaritch and I talked about it this morning, there probably has been a 25 basis point pricing adjustment in MOBs across the entire segment. But when we look at purchasing assets, we're looking at how we're trading relative to NAV, if we buy assets and we can buy them with discounted dollars based on what we're trading and invest at the market. From a cost of capital perspective and a current funding perspective, we're definitely not priced out of MOBs or life science, and certainly not senior housing. So we're still wide open for business in all three of those segments on an accretive basis.

And Tom, this is Mike McKee again, I'd just add – I think, you have to be careful extrapolating off of the Duke execution and pricing. There was a lot that went into that paying for a platform over and above what the asset values were. So we'll see where – there is no question as I mentioned earlier there has been cap rate compression, but I wouldn't use Duke as the new market level by any means.

Thanks for the color.

You bet.

Thanks, Jordan.

The next question is from Michael Mueller with JPMorgan.

Yeah. Hi. I guess, just first following up on the prior question. As you think about capital deployment and asset sales on a go-forward basis, I mean, how do you think about like a reasonable base case as to what you'd like to do on the sale side, on the development side, maybe on the acquisition side? So that's the first question. And then the second question is can you just walk through the San Diego land sale that you did and should we expect more of that to come?

Yeah. Okay. So, from a sales side, I think we've outlined our plans, we've got the Brookdale 25; we've got some repayment – prepayment likely to coming on HC-One. We'll be assessing some further Brookdale activity and we'll be assessing Europe, so that's from a sales perspective and we'll see what all transpires in that in 2017. From an acquisition perspective, as we sit here today, we've built kind of a nice arsenal of cash and funds. We've got a little over $0.5 billion that we can invest without raising new funds and that's after spending $350 million on development, so we definitely have plans to complete some acquisitions this year, and I would highly expect that as long as we identify opportunities that we feel the pricing is strong or favorable that we're going to see acquisitions greater than that and as I said, the development that's about $350 million. So, from a sale, acquisition, development perspective, that's how I'd characterize that. Jon Bergschneider is with us and as to the San Diego sale, how are you thinking about land and other types of transactions?

Yeah. Hey, Michael. It's Jon Bergschneider here. The sale in San Diego is actually fairly neat outcome down there, that land parcel was the last remnant of land that was acquired from the Slough acquisition back in 2007. Carlsbad I would call a secondary or tertiary land market in San Diego, so rental rates are fairly muted down there compared to a South San Francisco or Torrey Pines. In the case of that sale, we worked with a buyer, a developer that looked to re-entitle that land to residential and retail. That higher and better use allowed them to rationalize a sales price that was more in line with our above-market land basis. So, we were able to actually execute on that site getting out of our basis, we felt that's a real good execution down there and takes us out of Carlsbad market completely. In terms of other land sales, we do believe that development will be an integral part of our business going forward along with acquisition redevelopment. So, we will continue to look at opportunistic sales where we do see a higher and better use, but right now most of our land sites are concentrated in the core markets where we see integral to our portfolio.

Okay. Thank you.

Thank you.

Next up we have Michael Carroll with RBC Capital Markets. Please go ahead.

Yeah, thanks. Tom, could you give us some more color on your comments earlier regarding your investing in the life science space. How do you plan on competing in these top markets, I know there's a lot of capital chasing deals. I mean should we think about more of stabilized acquisitions or ground-up type developments type of deals you're going to pursue?

I'm going to start, but then I'll turn it to our expert again, Joh. When we look at life science in the two major clusters that we're involved, there just isn't – there isn't a lot of new land and there is a lot of demand coming out that space, I mean that's shown by our 97% approximately occupancy. We love this campus within clusters concept because it allows us to work with major tenants as they grow. And so, we think about as growing vertically within San Francisco and San Diego, we've already got a huge presence in San Francisco and we've got some additional work to do in San Diego, but rather than me get a whole lot deeper, Jon, why don't you expand on that, I think it's a great question.

Yeah. Thanks, Tom. Michael, it's Jon Bergschneider here. Yeah, I think generally we feel really good about the health of the life science industry particularly in those core markets, and where we positioned ourselves with land sales and sizeable mass. We really have the opportunity to grow this portfolio in its organic sense from market-to-market leases, as we roll the portfolio in the next three years. We're about 5% below market since we see those properties come to market. From a lease perspective, we think we can pop rents, our land sites then are well-positioned to also accommodate that growth. So we really have a 1, 2 punch in growing this portfolio. Really where we see opportunity on the development side spreads of 150 basis points to 200 basis points over existing cap rates, we feel is a really solid and attractive premium for the risk-adjusted return that we're taking on development in core markets. So, we don't see that as a tapped out market; plenty of opportunities and really going to rely upon prudent investment, redevelopment and development to grow the business in those core markets.

Again, with regard to San Francisco, do you plan on kind of remaining focused on South San Francisco or is there something you can pursue in the city?

Yeah. We've primarily maintained a strong peninsula presence. Historically, we saw that's a very safe and rational bet given where talent and clusters are distributed in the bay area. We absolutely will continue to capitalize on the momentum and success that we saw at The Cove in the first two phases. We've already broken ground and coming out on Phase III, that first mover advantage that we implemented or took advantage of I think has served this well. As far as the city, in terms of Mission Bay, we have not posted a flag there. Generally speaking, we believe a rising tide raises all ships and successively over-arching bay area, market will continue to truck along and we'll selectively develop in South San Francisco, maybe look at some opportunities on the peninsula going forward.

Great. Thank you.

Sure.

Thank you.

The next question will come from Sheila McGrath with Evercore ISI.

Yes. Good morning. You mentioned a deceleration in life science and MOB in second quarter given some lease expirations. I'm wondering if you could give a little more detail on those expirations on your progress back filling the space and where the rents are versus market.

Tom, do you want to start?

Yeah. Our re-leasing – you know, our leasing pipeline is actually very good this year, where for renewals we're – we already have a pipeline that's executed or commenced, that's half of what our target was for the year. And the mark-to-market on those renewals is generally in the kind of 1% range for the quarter, it was 0.6%, but we had a large basement space that re-leased this quarter that drove the number down a little bit. But we see – in general, that's kind of where we're going to – where we expect renewals to occur. Even on the new leasing side, we're seeing again our pipeline is about 40% of where we expected to be for the year, so way ahead of where we should be in the first quarter. So we're pretty confident with our activity.

And Jon Bergschneider?

Yeah. Sheila, it's Jon. In terms of life sciences, we have about 700,000 square feet of remaining expirations, a real big driver in the downtick on the same-stores, really a long-term lease with a client in South San Francisco, that's expiring off of a 15-year term. So we have a pretty high rent on that number around that lease, about 130,000 feet. The good thing is we have 100% of that space already leased. So we'll roll right into new leases. While there'd be a downtick understandably in the rent, we will not have any downtime from an occupancy perspective which is critical given the importance of that space for our portfolio. And as I said before, generally, above market on 2017, below market in 2018, and below market in total for the next three years, so we're feeling pretty good.

Okay. Great. And just to follow-up on – given the cap rate compression in MOB, I'm just curious if you look at your portfolio MOB versus life science, how you think the internal growth profile compares to one another over the next three years or five years?

You mean as far as investment or just NOI growth over time?

No, just internal growth profile of the two different asset classes over time.

I think internal NOI growth...

MOB versus life science?

Internal NOI growth is probably pretty similar between the two. Guys, would you agree with that?

Yeah. And we've been fairly consistent for the past actually 13 years kind of always in that 2% to 3% range. You might have an odd year we bump above 3% or below 2% but we've been very consistent both in same-store growth and occupancy.

Yeah. I would mirror that comment on life sciences. We generally trend towards fixed rate escalators in the 3% to 4% range. With a little bit of downtime, we tick that down slightly to a range of 2.5% to 3.5% year-over-year. South San Francisco hot markets were 3.5% and up and San Diego more in 3%, so depends on the concentration we got, but we feel pretty good about where we're at and similar to Tom's portfolio.

Okay. Thank you.

Thanks, Sheila.

The next question is from Todd Stender of Wells Fargo.

Hi. Sheila had a great question and I'm going to hopefully piggyback on it. It has to do with the growth. I guess sticking with the MOB same-store growth question, by our measures and a lot of the industry folks look at your percent on campus and then high percentage of multi-tenant versus single-tenant. And when you get the same-store growth guidance of 2% to 3%, it just seems like you're under-punching your way only because we look at the pure play guys of doing 3% same-store growth. Can you guys just talk about maybe what the prospects are of achieving maybe like what's become the benchmark of 3% same-store NOI growth in MOBs?

Well, I think the 3% – if you look at our portfolio, we're probably one of the more mature portfolios in the industry. We've been around for if not the longest, close to the longest time and we have a higher percentage of multi-tenant buildings in our portfolio. If you look at the some of the newer MOB portfolios out there, they have more single-tenant with built-in escalator. So, for a couple of years you'll get that 3% growth, maybe a little higher, but they tend to be binary. So, a single-tenant building is either full or empty. So, as time goes on, you might see some degradation in that. But I think long-term, typical growth rates for MOBs are going to be in the 2% to 3% range unless you have some major occurrence in rate or something that we've just not seen, especially since the recession. So, I think that's a mature portfolio. I think the 2% to 3% range is in line.

How about just on the multi-tenant, just because if you can push rate, we're seeing pretty high re-leasing spreads. How do you think about just the multi-tenant, which is probably pretty good pricing power at this point in the cycle?

Yeah. The multi-tenant, again, we're – we've always seen kind of that 1% to 3% as far as re-leasing spreads. Our retention rate has always been in kind of that 80% range and you've figured 15% of the portfolio rolling with our built-in escalators. That again equates to about a high 2% to 3% range. You've got occupancy and a multi-tenant portfolio with the rollover tends to stay in that kind of 91% to 93% range and that's where we've been.

Hey, Todd, I would add a couple of things. This is Tom Herzog. We think about on-campus, of course, that's irreplaceable property just based on location. It has the redevelopment opportunity that we talked about with an older portfolio. But the other thing is we really do end up having quite sticky tenants in these properties. And one of the things that has to be considered when you're looking at same property performance is the TIs do not get included in the SPP results. And if you've got sticky tenants, you have less TI dollars that are spent. And I think that can often be missed in the calculation of what are your true cash, if you will, same property performance results inclusive of TIs.

Good point. Thank you, Tom.

Okay. Thanks, Todd.

The next question will come from Drew Babin of Robert W. Baird. Drew T. Babin - Robert W. Baird & Co., Inc.: Good morning.

Good morning, Drew. Drew T. Babin - Robert W. Baird & Co., Inc.: One question on MOB lease expirations throughout the rest of the year. Are there any big jumpy leases or anything that would be choppy in the way it's modeled? Or, in other words, can you give us kind of a breakdown by quarter of the expirations hitting this year?

The expirations are fairly consistent. There's no really major leases rolling. Our average lease size is kind of in that 3,000 square foot range. We do have some 10,000, 8,000 square foot leases. But we don't have the really large spaces, upwards of 20,000 feet or more that roll. So, we tend to be fairly consistent. Drew T. Babin - Robert W. Baird & Co., Inc.: Okay. That's helpful. And one follow-on on the SHOP supply growth on the independent living side. It looks like Denver and Chicago are seeing new properties – new HCP properties and was hoping you could explain kind of your positioning relative to those assets in those markets and whether those are going to be specific markets where you'll deploy quite a bit of CapEx to keep up?

So, we are evaluating a few projects there to ensure that our properties are competitive. We think we are in a good position to compete in those markets against the new supply. Drew T. Babin - Robert W. Baird & Co., Inc.: Okay. Great. Thank you.

Thank you.

The next question comes from Jeff Pehl with Goldman Sachs. Jeffrey Pehl - Goldman Sachs & Co.: Hi. Good morning.

Good morning. Jeffrey Pehl - Goldman Sachs & Co.: Just a quick one from me on the 25 communities, you're still marking the sale for Brookdale – the Brookdale assets. Do you have a sense of the cap rates or the peering pricing you're seeing on these 25 assets?

Yeah. Yeah. We do. And I don't want to get too specific on that, as you can imagine. But these are probably somewhere – I don't know, call it, low-6s, something like that. And this isn't a large amount of proceeds coming in. So, versus like the Brookdale 64, it's more – and I'm not trying to set pricing as I throw a number out there for proceeds but, if I throw a round number, you're talking like $160 million or $170 million or $150 million, this is not going to be a material outcome to our 2017 results. Jeffrey Pehl - Goldman Sachs & Co.: Great. Thanks.

Thanks.

The next question is from Tayo Okusanya with Jefferies. Please go ahead.

Yes. Good afternoon. First of all, I just wanted to say best of luck to Justin. Although, you're one of the few guys I know that would trade sunny California for rainy London.

Bob, bring in my umbrella. Thank you.

Okay. You better. I just have one quick question. It's actually about London and the Four Seasons transaction. I know a while ago there had been some talk about trying to convert those loans into actual real estate that that could be a pretty attractive play. Just wondering why you didn't go down that route. You went down the route of just kind of selling and getting out of the investments.

Tayo, a good question and one we talked about a lot before we made our decision. One has to weigh the distraction of the journey in that type of a process as to whether it is worth what we're seeking to achieve, especially when there's a lot of risk around it. And we decided to sell the position to a group that are absolute experts in working through these types of transactions and let them work together with the current owners to a favorable outcome.

Got you. All right. Thank you.

Thanks, Tayo.

Next up is Chad Vanacore of Stifel. Chad Vanacore - Stifel, Nicolaus & Co., Inc.: Just a one quick big picture question since we're running low on time. You've been repositioning the portfolio for about a year now, you exited skilled nursing, you've reduced your Brookdale exposure and you've addressed most of issues in that lending platform. So what kind of critical issues are left to address and when do you think you'd consider the portfolio stabilized in most of these major issues in your rearview mirror?

Starting to feel like it's getting pretty stabilized. We're much more playing offense right now than defense as we gear up our investment pipeline and consider about where – consider where we want to grow. As far as the remaining things, again it's just – we've got some work to do on Brookdale, we're assessing the U.K., and then there is just some annual pruning. We've got the HC-One debt that we'll prepay most likely. And, beyond that, we've got then a fair amount of proceeds without having to go to market to invest. And so, we're very optimistic right now as to where we stand and we're ready to start playing offense in a bigger way. Chad Vanacore - Stifel, Nicolaus & Co., Inc.: All right. Thanks for taking the question.

You bet. Thanks.

Next up is John Kim of BMO Capital. Please go ahead.

Thanks. Good morning.

Good morning.

It sounds like your relationship with Justin will likely continue, as he is going to be CEO of one of your partners. I'm wondering if the departure of Kai is also a similar circumstance, where he's also going to a partner of yours.

Well, I won't speak to Kai in that Kai's departure and Justin's are completely unrelated, just in case you're wondering. They both had a desire to get back toward their operating roots. And we're in full support of Kai, he has made us aware of his plans for a while, he has been an absolute true professional in giving us plenty of lead-time, and gracious in helping us with the transition. And, I just think Kai is a real pro from an ops perspective, and hope that where he lands that we're able to do some business together, so that's – we'll see how that all plays out, but that would be our hope.

So it's your expectation that he is going to be working with you as an operating partner?

I have no idea, but we'll find out where Kai lands.

This is Mike McKee. Let me add something there. He is – one of the phenomenons that is going on here and I need to stay very general when I say this, but these are two of the best-known operators at scale that are living today, Justin and Kai. They are very popular in terms of their skill sets and their backgrounds and they have been quite attractively approached for a number of months now. We've known that. We appreciate that and I think it speaks a lot to the needs in the industry to get to people who can operate at scale. So when you kind of feel it from the inside, this is very natural and understandable. And the kinds of offers or inquiries that have come at them, it's not my place or our place to talk specifically about that. But I think as a broad stroke, I would just note that they are considerable, they are compelling, and hard to turnaround when you've got the kind of background that they have. Luckily, as Tom said in his opening, they have left us a much better place in terms of how we look at things, the infrastructure we have in place with Kendall and Paul we have – we're very comfortable that we're covered in the senior housing space, we'll add some additional folks underneath them, but the ones we have are well-trained and able to move us forward. And I think – generally speaking, I think, it's highly likely, because I think the personal relationship we have built with these folks and I would say – and Justin has been effusive and gracious in how he's described this, I think we will have a long relationship here. It's hard to be specific, because we don't know among the many offers being considered where a client might land, but I think the personal relationship is deep and will be throughout our mutual careers, would be my comment on it.

Okay. Best of luck to you, Justin. Hope to hear you with that British accent next time around.

Oh, I hope so, too. Thanks.

On the – my second question is on the redevelopments, the $49 million – in your – all in your MOB portfolio, can you just give us some color on what you're doing to these assets to get to that 9% to 12% return?

Yeah, this is Tom, I'll take that. Really, it's a complete redo of the asset. We go into the building and we have our portfolio ranked as to who are the best candidates from a occupancy upside, rate upside, age of building standpoint and then we go in and look at every major system in the building, the window system, the electrical system, the HVAC, all the common areas and bathrooms and we completely redo the building, including upgrades to the facades. So these are fairly long-lived assets and it repositions the building almost as it's a new asset.

Okay. Great. Thank you.

The next question is a follow-up from Smedes Rose with Citi. Please go ahead.

Hey, it's Michael Bilerman with Smedes. Mike, I was wondering if I can stick with you just sort of on the management changes and can you go back the past couple of years, you made a pretty big deal about trying to bring in this new management team, the hiring of Tom, the hiring of Justin, the hiring of Kai and some other people. And you also gave a lot of reassurances about bringing that team and providing them the opportunity at HCP, and I recognize there's always other people trying to poach people away. But I guess what confidence can you give your investors that your future hires and your most recent hires are in this, are in the company for the longer term? And perhaps what do you think went wrong other than for people to choose something else other than just monitory concerns or go back to operating routes. What is it about HCP that wasn't there for them that you could provide that where the confidence you had in telling the Street that this is the new team, failed?

Well, Michael, I don't feel we have failed at all. I think if you were around these hallways and watching this team work and have the opportunity that I have to watch them day in and day out, you would see an excitement and camaraderie and a sense of teamwork that is what we aspire to. When we started this journey, we talked about – I talked about HCP 3.0. I've been here as of yesterday one year and we have gone through a hell of a lot. I think that the recovery of this company, the turnaround of this company, the repositioning of this company is well-known and well documented and these things have to shake themselves out over time. We are building a new team, you don't build a world champion just in six months or in three decisions or four decisions, you do it a step at a time. I just mentioned a minute ago, and I'll just incorporate it by reference, the story around Justin and Kai and you know them well, I encourage you to talk to them face-to-face and ask the question about why they are moving. But I said, it's very natural and it feels very natural. So the world is changing. Brookdale, the largest in the space, has got – I've been looking for strategic options, people are rotating around, you hear lots of things about some of the private equity investments in senior housing that are maturing and maybe turning over and maybe coming out eventually for sale. So there's a lot of movement in this space, but we just finished a board meeting and a strategic session last week, and our board left town saying they could not be more pleased with the progress that we have made and the…

That's helpful color. Maybe you can talk a little bit about how you guys evaluated the Duke MOB portfolio, sort of what your pricing level where you've got comfortable at whether that was with a capital partner or without, and how that may have affected your decision in terms of pricing? How you thought about your equity as capital or selling assets to fund that purchase, just to get an understanding of your investment mindset presented with opportunities?

Yeah. Michael, this is Tom Herzog. I'll answer that in part I can't obviously go too deep in that. But, yeah, we looked at the deal with the potential of a partner or not a partner. We underwrote it based on what we thought the value of the real estate was, and as with consideration to some of the benefits of the platform, and as said, it is a very nice portfolio and a strong team and there are a lot of good things to say about it. And we asses that as we consider pricing. We looked at what it would do for HCP. And one of the things that we had to – that we strongly took into consideration is that it is somewhat duplicative, it makes us larger. And we wanted to be careful it didn't turn into just an asset purchase. So it had to do additional things, because we've got one of the great MOB platforms and teams in healthcare REIT space. We've got development capabilities. We've got some of the best relationships. So when we look at it from a pricing perspective, we needed to be very careful to draw the line at a place where we thought that we were doing something that, in some matter, would be accretive and expand our capabilities. And those are the types of things we looked at when we considered pricing and when we considered the deal.

Did you have a capital partner in the transaction?

We did not – I'll actually answer that – we did not start with a capital partner and whether we would have ended up with one or not was to be determined, but we could have done that deal easily without a partner if we would have chosen to.

And how would you have thought about funding that, just given the size almost $3 billion, would you have considered equity in that case or would you have accelerated asset sales?

We had about three different alternatives in ways that we could fund it with minimal equity, if we had done a deal of that size, we obviously would not be levering up at HCP to do that deal. So we had – we had modeled it out with a certain amount of equity as one of the alternatives. And we do have some assets that some of which I've spoken to that would have created some additional funding that could have been utilized. So, again, we had options on that.

Right, okay. That's helpful color. Thanks, Tom.

You bet. Thanks, Michael.

This concludes and question-and-answer session. I would like to turn the conference back over to Tom Herzog for any closing remarks.

Thank you, operator. I'll close by saying we appreciate your participation and interest in HCP. I thank all of you for joining us and look forward to talking to you all soon. Thanks so much. Bye, bye.

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