Healthcare Realty Trust Incorporated (HR) Q4 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Healthcare Realty Trust Fourth Quarter Analyst Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. David Emery, Chairman and CEO. Mr. Emery, the floor is yours, sir.

Thank you. Good morning, everyone. Joining us today on the call today are Scott Holmes; Doug Whitman; Todd Meredith; and Carla Baca; and Bethany Mancini. And Ms. Baca will read the disclaimer.

Thank you. Except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These risks are more specifically discussed in our Form 10-K filed with the SEC for the year ended December 31, 2012. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. The matters discussed in this call may also contain certain non-GAAP financial measures such as: funds from operations, FFO or FFO per share; funds available for distribution, FAD or FAD per share. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the fourth quarter ended December 31, 2012. The company's earnings press release, supplemental information, Forms 10-Q and 10-K are available on the company's website. David?

Thank you, Carla. We're pleased to report another solid quarter and marked progress for the year 2012 and a positive outlook for 2013. Healthcare Realty completed $104 million in acquisitions by yearend, slightly above our expectations. And we saw a steady performance from our core portfolio, generating strong gains and same-store NOI growth as the company remains advantaged by the limited supply and healthy demand at our markets. We also continue to be pleased with leasing momentum, assisted by a more favorable outlook among physicians and hospitals. Rising tenant competence has advanced relocation and expansion decisions, and even more so, now that providers are looking to position themselves to take advantage of reform opportunities and to protect themselves against tighter reimbursement rates. Looking ahead, the company will bring online 2 fully leased Mercy Health properties later this year and with our expected progress and the stabilizing properties, the company enters 2013 in a solid position for accelerating FFO growth into 2014. In fact, we view the current sentiment to be as updated as it's been in quite some time. Regarding investments, we're currently see more of low-risk, high-quality properties that meet our criteria and pricing expectations. The company's sale of 9.2 million shares in the third quarter, along with the recent renewal of our $700 million line of credit, positions us well to fund new opportunities and existing commitments. We expect consolidation in the healthcare industry will require capital and new facilities and cost-effective, centralized locations, which will further the trend towards on-campus outpatient care. Healthcare Realty remains focused on investments that we believe will prosper in this new environment. Accordingly, the underlying credit of our health system partners is proving more and more valuable to the company's low-risk position going forward. Over the last few years, Healthcare Realty's real estate investment strategy has diligently focused on health system relationships with embedded opportunities, enhancing the intrinsic value of the company's portfolio. With nearly 60% of our $3 billion in properties aligned with investment-grade rated health systems, the company benefits from a higher certainty of renewal, market stability and long-term values, because of the property's integral role within the health systems. The consistent performance of our asset base throughout the economic recession affirms our belief in the company's positive fundamentals and its low business risk profile. We see the future as increasingly bright for the company's prospects, given the size of the industry and of course, the booming demand. We believe our investment strategy will continue to produce solid near-term operating results, decreased leverage and foster strong, long-term growth. Now, I'd like to hand it over to Ms. Mancini to summarize our views on current events and trends in the healthcare industry. Bethany?

Thank you, David. With the start of the new year, we were pleased to see the continuation of a positive shift in outlook amongst physicians and hospitals as the election is now behind us and many are looking to position their services and facilities to tackle implementation of the Affordable Care Act. We saw over a year ago among Healthcare Realty's tenants that providers were ready to digest healthcare reform and move on with new strategies to contain costs and improve patient care, a trend which should continue to benefit leasing at our facilities. In 2013, leading health systems are expected to further efforts to establish infrastructure, acquire physician practices, expand market share, collaborate on care and control costs to meet the demands of more insured patients in 2014 and aging demographics. Hospitals will increasingly look to extract positive returns from investment in improved quality of care, which should enhance focus on lower-cost outpatient settings and bring more physicians under their employment to ensure compliance among all providers who coordinate care and share risk within their system. We believe Healthcare Realty is uniquely positioned to partner with providers to execute their strategies and meet their expanding real estate needs. The ongoing fiscal uncertainty in Congress and mounting pressure on Medicare payment rates have dominated recent headlines. However, we remain confident that our tenants expect potential rate cuts or benefit changes at this point to be manageable when paired with operational changes to manage expenses and increase revenues, and they should not imperil solid rental coverages. In January, Congress reached a deal to avoid budget-wide 2% sequestration cuts thru the end of this month and provided for stable Medicare payment rates to physicians through the end of 2013. The American Taxpayer Relief Act of 2012, however, did not address other looming fiscal concerns, namely entitlement spending, the debt ceiling and the need for continuing federal budget resolution for 2013, all of which now pressure Congress along with the re-approaching sequestration cuts. Whether or not the latter can be avoided, the political wrangling over federal entitlements and healthcare spending is likely here to stay. We believe the risk to Healthcare Realty's tenants of fiscal austerity and reimbursement policy in general, remains low. Our medical office buildings are comprised of a diverse mix of primary care physicians, hospital outpatient operations and physician offices from over 30 specialties, with each practice varying in Medicare and Medicaid case mix, the average physician office receiving only 30% of revenues from these programs. We remain confident in the increasing demand for healthcare services and the steadily rising employment in hospitals and physician offices to ensure the stability of the company's real estate investments and secure opportunities for future growth. Since January 2008, the U.S. economy have lost over 3 million jobs for a 2% decline, while the healthcare sector added 1.3 million jobs for a 10% increase with an emphasis on medical office and outpatient care setting. Any increase in the number of physicians, with each requiring on average 1,500 square feet of office space, will translate into additional development of medical office facilities. Furthermore, Healthcare Realty's strong cash flow and solid balance sheet should position the company well to grow against the backdrop of rising demand for healthcare services while being insulated from direct exposure to government reimbursement policy. David?

Thank you, Bethany. Now on to Mr. Whitman to give us an update on balance sheet, capital markets, and other stuff [ph] . Doug?

Thank you, David. First, a brief comment on recent capital market activity. The company completed a $201 million follow-on equity offering at the end of the third quarter to fund the completion of the 2 Mercy Health projects and an anticipated $50 million of fourth quarter acquisition. With the company's closing $71.4 million of acquisitions in the fourth quarter, $16.2 million acquisition in late January and a mortgage payoff of $14.7 million this month, the company activated its existing ATM program in January. During the month, the company issued 1.6 million shares at an average gross price of $25.19 per share and generated net proceeds of $39.7 million. Looking ahead, the company may, from time to time, use its ATM to match funds to small to midsize acquisitions. Last week, the company closed on an extension of its revolving credit facility with 15 banks, all of them participants from our original October 2011 facility. The overall facility size remained unchanged at $700 million and we extended the term until April 2017. In addition, the company has the option to add an additional year, which would extend the maturity until April 2018. Pricing for this credit facility also improved. The annual facility fee for the revolver will decline from 35 to 30 basis points and the LIBOR spread will fall from 150 to 140 basis points. As a result, the company will pay lower fees and less interest each year and gain 18 months of additional term. Now I'd like to direct your attention to our supplemental schedule. We have modified and enhanced our disclosures to provide investors and analysts with more insight into the characteristics of our portfolio and certain corporate financial measures. For example, in the summary of indebtedness table on Page 6, we now detailed the credit facility fees and deferred financing cost that were often overlooked by investors in estimating interest expense. In addition, as the healthcare landscape continues to evolve and the importance of working with the right healthcare system is critical, we have begun, on Page 11, to provide additional detail on the scope of our relationships with health systems, including their credit rating. Nearly 80% of our portfolio is associated with a credit-rated provider and nearly 60% with an investment-grade health system. This past year, we added a new table to the supplemental entitled, Components of NAV, which sought to provide investors not only with a common framework for valuing the company, but also with greater clarity into those parts of the company whose value was often misunderstood or overlooked. Following up on that addition, we have added a new schedule entitled, Components of Expected 2013 FFO. This schedule, found on Page 17 of our supplemental, will guide investors and analysts in their financial modeling by providing ranges and estimates of several key operating and financial metrics for the upcoming year. In addition, in our investor presentation, which is available on our website, we have updated and added several slides. For example, we added a chart to Page 8 that compares overall U.S. employment with several employment categories related to outpatient medical care. While the broader U.S. jobs picture remains murky, we continue to see steady job growth in areas such as physician’s office and outpatient medical centers. Page 24 of the presentation highlights our cash releasing yields. This slide illustrates how a common real estate metric, cash releasing spreads, only focuses on one aspect of a lease renewal, namely the change in the rental rate. However, that measure ignores several other factors that contribute to the overall economics of a lease renewal, such as future rental increases, the amount of tenant improvement dollars and the length of the lease term. Taken together, these factors, along with others, provide a more comprehensive measure of the lease renewal's overall impact. In the fourth quarter, our cash releasing spread for our multi-tenant properties was 1%, generally in line with recent quarters. And our releasing yields on 2012 renewals increased 22 basis points from 10.16% to 10.38%, which is also in keeping with our historical range. Finally, Page 25 of the presentation looks at a common debt metric, debt-to-EBITDA, and how our safer but lower yielding property type, MOBs, can paradoxically compare less favorably to other higher-risk healthcare property types. For example, within the healthcare REIT sector, there are several companies with similar debt-to-EBITDA ratios with significantly different balance sheets. We will be attending a pair of investor conferences in New York next week and in early April and expect to see many of you there. David?

Thanks, Doug. Now, on to Mr. Meredith to give us more specific information regarding the recent investments and development activities. Todd?

Thank you, David. The company experienced solid leasing volume at its development properties in the fourth quarter. The 12 properties in stabilization in progress or SIP, are 60% leased, in line with our guidance for 2012. The steady pace of leasing throughout 2012 is expected to continue in 2013. The leasing of the 12 properties should reach the mid-60s by the end of the first quarter, around 70% by midyear and 75% to 80% toward the end of 2013. These stabilizing -- these 12 stabilizing properties reached NOI of approximately $1 million in the fourth quarter, meeting our expectations. Occupancy for the 12 properties improved to 41% at yearend. As tenants take occupancy of the 60% now leased throughout the end -- through the end of the third quarter of 2013, quarterly NOI will build to $2.5 million. We estimate the 12 properties will be 65% to 70% occupied by the end of 2013 and generate quarterly NOI of approximately $3 million. With expected leasing of 75% to 85% by the end of 2013, these development properties will be ready to move to the stabilized portfolio. Pro forma NOI will approach $18 million to $20 million on an annualized basis as tenants take occupancy in 2014. For the 2 build-to-suit facilities that are 100% leased at Mercy Health, the company funded $24 million during the quarter through 2 construction mortgages. Of the total budget of $202.6 million, $118.4 million has been funded so far and the remaining $84.2 million will be funded in quarterly increments of approximately $25 million through completion in July and November of this year. When the company assumes ownership of these facilities upon completion, revenue will shift from mortgage interest to rental income, generating an incremental FFO per quarter of over $600,000 when the facilities are fully funded. While the equity issue last quarter to fund these projects has created a temporary drag on FFO, these assets will be accretive and increase net asset value for our shareholders as soon as they come online. Shifting to disposition activity, 3 buildings were sold for $10.1 million in the fourth quarter. In total, the company sold 19 properties for approximately $91.5 million in 2012, in line with our guidance of $80 million to $100 million for the year. On average, these assets were just under 40,000 square feet, 57% occupied and 73% of the square footage was located off-campus. Most of these assets were acquired in years past as part of the larger portfolios. For 2013, we expect disposition activity to be approximately $40 million to $60 million. As part of the company's equity offering in late September, we indicated that in addition to the Mercy Health projects, we plan to acquire up to $50 million of assets by yearend. Since then, we've acquired 5 properties for $87.6 million. These properties totaled 288,000 square feet or 98% leased at closing and they're located in markets we already own and operate properties, including Memphis, Seattle, Des Moines and Austin. Four of these properties are medical office buildings and one property is an in-patient rehab facility. For all of 2012, the company acquired 7 properties for $103.5 million at a blended yield of over 7%. Looking ahead to 2013, we expect acquisition levels to be in our historical range of $100 million to $200 million at a blended cap rate of 7% to 7.25%. This outlook excludes any sizable portfolio opportunities that may arise, given that they're less predictable and infrequent. While the company always evaluates large portfolios when they come to market, we continue to see the individual assets and smaller portfolios ranging from $20 million to $50 million as the company's sweet spot for acquisitions. Our focus is on well-located properties that are aligned with leading health systems in growth markets and that fit well with our existing properties. These type of properties can be acquired at attractive pricing, increasing net asset value and improving the performance of the company's portfolio by generating reliable cash flow, stable occupancy and steady growth. In closing, we're very pleased with the steady progress made in 2012, on development leasing, dispositions and acquisitions. Our outlook for 2013 is positive, given our leasing momentum, completion of the Mercy Health projects later this year and what seems to be an attractive environment for acquisitions. David?

Thanks, Todd. Now, onto Scott to give us an overview of operations and other financial reporting matters. Mr. Holmes?

2012 was a year of notable improvement for Healthcare Realty. Over the course of 2012, total revenues grew 8.5% to $316 million, while the related property operating expenses increased only 4.1%. G&A expense decreased in 2012 and interest expense decreased slightly by 1.3%. As a result, NAREIT-defined FFO increased to $104.7 million. For the full year 2012, NAREIT-defined FFO per share was $1.31, also an increase over each of the 2 previous years. The per share results for the quarter, the fourth quarter, were negatively affected by approximately $0.03 because of the 9.2 million shares issued at the end of the third quarter, primarily to fund the Mercy Health properties under construction. This interim dilution will reverse to accretion as the properties are completed in the second half of 2013. The third quarter seasonal increase in utility expense returned to normal in the fourth quarter, but this benefit was offset primarily by a decrease in capitalized interest, which held normalized FFO dollars in the fourth quarter to an increase of about $800,000, which is mainly the NOI from the fourth quarter acquisitions and fourth quarter improvement in NOI on the stabilizing properties. The fourth quarter produced a normalized FFO per diluted share of $0.31 and normalized FAD of $0.33. Normalized FFO increased in the fourth quarter to $26.6 million from $25.7 million in the third quarter. The normalizing items in the fourth quarter included fourth quarter acquisition costs for real estate assets closed in the fourth quarter and amounts paid in the fourth quarter to settle a brokerage claim on a 2010 real estate acquisition. The dividend payout percentage on normalized FAD for the fourth quarter is 90.9%. One additional item of note is discussed more fully in the Form 10-K in footnote 5 to the financial statements. In the fourth quarter, we reclassified a group of 6 fully occupied skilled nursing facilities from assets held for sale to real estate held for use in the balance sheet and from discontinued operations to continuing operations for all periods in the statements of operations because the tenant decided to renew the leases rather than acquire the properties. The reclassification required recognition of an additional $1.1 million in catch-up depreciation expense in the fourth quarter and caused the occupancy for the other category of real estate properties to increase from 76% to 83%. Now a few comments on selected operating metrics. In the 4 -- excuse, in the same store portfolio, occupancy held steady in the fourth quarter at 90%, which is 88% for the multi-tenant properties and 100% for the single-tenant net leased properties. Same-store NOI dollars grew from $43.5 million in the third quarter to $45.1 million in the fourth quarter due to the fourth quarter decrease in utilities of $1.3 million, combined with fourth quarter contractual rent increases. As a result, the fourth quarter same-store NOI grew 3.8% over the same quarter last year and also grew 3.8% sequentially, as compared to the previous quarter. Lease rate increases were also strong in the fourth quarter. The contractual increases for in-place leases or the so-called annual bumps for the multi-tenant properties were consistent with previous quarters at 3.1% and for the single-tenant net leased properties were at 2.1%. Increases for newly executed leases or the so-called cash leasing spread were 1.0% in the fourth quarter compared to 0.4% in the previous quarter. As Doug just noted, the cash releasing yields also improved for the leases renewed during the quarter. And tenant retention also held steady at 76.4% in the fourth quarter, in line with historical range. The leasing and property management teams continued to deliver consistent and improving leasing metrics, NOI and operating results from the existing portfolio, with the acquisition and development teams providing positive growth opportunities as we go forward into 2013. David?

Thanks, Scott. Operator, we are ready for the question-and-answer period.

[Operator Instructions] And the first question we have comes from Rich Anderson of BMO Capital Markets.

So I'm looking just at the new disclosure and some legacy disclosure, I did notice first of all, the increase same-store disclosure was quite good too, so thank you for that. On the SIP, it looks like you had remaining to fund in the third quarter of $14.5 million, if I'm seeing it right, and now you're -- are you saying $40 million remaining to fund? Is that -- am I reading that correctly? Have you increased your CapEx spend on that portfolio to get it up and running?

Rich, this is Todd. No. We -- actually, that number was from the original budgets from some of the projects that go back to 2008. So really, that was just the budgets of core and shell and just the TI allowance. What happened is you obviously go through the leasing as you spend more on TI as you do each lease. Some tenants end up amortizing overages into their lease. And so what happens is, we would book those amounts in, and so it would consume more of the budget than -- but it wasn't an actual increase in the budget, it was just related to extra TI. So it's really not an addition. We've been saying for some time that we had, I think, last quarter and the quarter before, $40 million to $50 million to spend. That's down a little bit now because we've obviously just spent over $10 million last quarter. So it's not a change, it's the same amount. It's all, at this point, related to TI.

Okay. What was the -- you said the NOI run rate looks like just shy of $1 million for the fourth quarter -- per quarter, $1 million per quarter. What was it running at last quarter?

I think it was breakeven just over 0, breakeven last quarter.

About $100,000.

Yes, about $100,000 last quarter.

And just reviewing what you said last quarter, you said you expected it to exceed 60% leased, not to split hairs, but you nailed 60%. I mean, is there anything, is there any kind of slowdown going on or is that just kind of timing factor based on how long it takes to finalize lease negotiations?

Yes, I mean, obviously, leasing is all about timing, and sometimes, you get the lease signed by the end of the quarter, sometimes you don't. We don't have any concerns. Our progress from 54% to 60% is a 6% move. That's at the upper end of what we've seen in the past years. So we're very positive about that, and we see, those kinds of numbers continuing to 2013 and beyond.

A question maybe for David, can you define for me, you've said 60% of the portfolios with investment-grade tenants, does that mean directly or maybe providers that have affiliations with investment grade, what does 60% mean?

Well, I think some of it is direct, some of it is not. I think it's an indication of kind of who you're doing business with, either directly or not directly. Yes, that number refers to you. It could be hospitals or health systems who have direct leases in our buildings, or those are buildings that we have -- buildings on their campus or adjacent to their campus or somehow affiliated, so you may be adjacent to a Baylor facility, Baylor may take 40%, 50% of the space and the balance of it may be taken by third-party physician groups.

Okay. But the whole asset is in that 60% number, kind of, so to speak?

Yes. It's under aegis of the hospital.

Okay the aegis. And last question for me is...

I had to use that word.

Last question for me is, you have 0 under construction -- construction in progress right now. You did $87 million of acquisitions in the -- since the beginning of the fourth quarter. How should we read -- it seems like a little bit of a change, right? You're seeing more opportunities from an acquisition standpoint that meet your criteria, but coincidentally, it won't disrupt this SIP progress that you're making by bringing new construction progress in line. Are both of those factors playing a role in the fact that you have no construction in progress? Or just kind of frame what's going on in the market from an investment standpoint for me.

Rich, this is Todd again. I would say that for us, we're always talking with health systems and developers and others about development. It has been slower, I think, in recent periods, and I think it's just a reflection of all that's been going on in the economy and more importantly, with healthcare reform. But I think you just haven't seen as much of that, and we certainly haven't seen as many opportunities. But it's been increasing and the dialogue has certainly been growing on that front. I think for us, it's just been a function of the market and obviously, seeing acquisitions has just been a shift in the market in the last couple of quarters. So obviously, we're just -- we're following those trends, and we do have a fair -- we've been focused on the development lease ups. So we've been careful, too, about adding of any lease-up risk necessarily to the development side of the business.

Do you think you'll be more inclined to -- assuming that there's something out there to be done from a developer standpoint, once you kind of get closer to the end of the SIP lease-up process?

Yes, and we're not in a position where we won't start a development. We may very well -- I mean, we have several discussions ongoing that could lead to some development starts towards probably the latter half of this year. Most of those would be significantly leased. I mean, we see development, at the end of the day, as a very effective way to achieve a better growth, better yields and better assets in the long run. So it will continue to be a part of our story. It's just, the complexion of that is changing a little as healthcare has evolved.

Understood. And just really quickly, last one. For Mercy, they'll just -- that will just be a situation where they hand you the keys once it's all done, right? There's no cost and -- to transfer from an interest income to a rental income stream?

That's correct.

And next, we have Michael Carroll with RBC Capital Markets.

Can you talk about the in-patient rehabilitation facility that you purchased during the quarter? Why do you find that asset attractive, and how does it fit into your on-campus MOB strategy?

Well, again, this is Todd, Mike. For us, the rehab business is a business we've been in for a long time. We like that particular -- that asset type. We've had very good experience with it. Our focus has been with HealthSouth over the years, with the portfolio we bought quite a while back. And so, for us, we see it as very linked to the out-patient side of the business. It's sort of the post-acute version, and we like the rent coverage and we've had very good experience through different time periods and we think it's an attractive asset type, and we like that, obviously, the returns are healthy there and our experience has been a good there. So we continue to see -- keeping that as a piece, that smaller piece of our portfolio. And this particular asset is in Austin, a very strong market, very well located and connected on a referral basis to a number of hospitals in that market. So we also, we have -- actually have some MOBs where there's actually rehab -- in-patient rehab facilities within our MOBs because we're on-campus and it's so integral to the hospital there. So we like that piece of our portfolio, we just probably see it as it is a smaller piece of our portfolio.

Okay. Then how should we think about the usage of the ATM, will you need to use it if you achieve your 2013 investment goals? Or will you only need to use this if you actually exceed those goals?

I mean, like I said, we'll use it from time to time, but we don't really need to use it. I mean, if it's -- the acquisition is accretive, based on issuing equity, we would look to that. As with any investment opportunity we're looking at, we'll look at the market conditions at the time and we'll then use that and/or equity, the appropriate levels and be judicious, certainly, in our issuance of equity and be mindful of our balance sheet and ratios as well.

Okay. And my last question is, what type of leasing activity are you seeing across your portfolio? And am I reading your line item guidance correctly that occupancy should decline in 2013?

It's not our intent that it should decline. I think it's -- our intent is that throughout the regular portfolio, it will remain relatively flat throughout the year.

What causes a little noise in that is really some of those repositioned assets and as properties either move to that group or graduate back to the stabilized portfolio, it can create some noise in there, but we don't expect, as Doug said, a decline in the stabilized property.

And some of that repositioned stuff being moved into regular portfolio will be offset by acquisition, as they've been outside the same-store bucket for 5 quarters and then get moved into the same-store, that will help increase the occupancy slightly.

Next, we have Dan Bernstein of Stifel Nicolaus. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: I wanted to get back to the IRFs, looking at the 10-K and there are number of , I guess, 4 IRFs, 2, in which there's purchase options already been exercised. Two might get exercised, I'd assume they're HealthSouth's properties, just say yes or no. But is there, are -- you concerned about the general trend for a hospital operator to buy back its assets? HealthSouth said on the call, they intend to want to buy back assets where they're leasing from a REIT. And so what do you think about that general trend? And then when you look at the single net lease properties that you have expiring in the future, 2014, 2016, 2017, are any of those IRFs as well, or those are just single-tenant MOBs that might convert to multi-tenant?

Dan, this is Todd. I would say, in the case of HealthSouth, you're right. Those are related to HealthSouth because really, the bulk of ours are with HealthSouth. They certainly indicated that they're looking at some opportunities to own some of the assets. So that's their choice, and we have 4 of those this year. You're right, 2 have exercised. Two will be later this year, and we obviously don't know the results of those. Really, 2013 is a bulge in terms of that, we don't have any expectations that in general there's a trend with other operators; this seems to be fairly unique for HealthSouth. We have one expiration in 2014 with them, and then, really, it gets much further out beyond that. In fact, in 2011, they renewed leases on 3 of them and have been renewing in the past. So we don't have a broader concern at all. It just seems to be unique for HealthSouth in these cases.

And not say your -- the other tenants averse, where -- like there are a, few who just bought. You're not too concerned of the general -- no general trend?

No. Not at all. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then the -- I guess the other question I had is, the ATM -- I thought I saw in the 10-K that you canceled or terminated the ATM, is that -- did I read that wrong or...

We terminated that program. It had just about run its course. This is one that was set up back in 2011. We are in the process of reinstituting a new program shortly. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: I was just wondering whether you had a change of heart, something like you're going to do overnight, overnight offerings instead of the ATM?

We'll set up a new one. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay, okay. And then in terms of the acquisition pipeline, when you say that -- pricing is where you wanted to be. Are those transactions mainly what you're looking at marketed transactions, non-marketed? I would have thought that some of the competition for MOBs have been picking up from pension funds and elsewhere and just maybe, just some more general thoughts about that pipeline in terms of competition and cap rates.

We're not seeing a big change in the competition level. I mean, I think, as we've said, the $20 million to $50 million level, we're just not seeing the type of competition from big pension buyers or even necessarily the other large REITs. So it's -- really, we haven't seen a tremendous change. Certainly, they -- generally, they are marketed. It doesn't mean they're always widely marketed. And we did acquire some properties that were not marketed in 2012. So it's a combination, but we haven't seen a tremendous change for those types of assets. I think the larger portfolio is probably where you're going to see more of that and those just don't happen now often. So you saw a number of those this past year, kind of recaps and portfolio acquisitions that were larger. So that's more where you're going to see more of that competition, from what we see. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then I'm going to echo Rich's comment about the additional disclosure in the supplemental, it's very helpful. In one of those disclosures on the repositioned assets, I assume that's the single-tenant MOBs that have converted to multi-tenant. I just want to understand that transition a little bit further in terms of the CapEx you need to put in, maybe a cost per square foot, how long do you think those take to re-tenant? I guess they've been moving up 3% or 4% a quarter in occupancy. I just want to understand that process and what's involved there to reposition from a single-tenant to multi-tenant.

Those really -- we don't want to have those be thought of as redevelopments. It's not a scope where we're doing major core and shell type of work and putting in a lot of capital expenditures. It's really more of a releasing or positioning for sale, in some cases, if that makes sense. So it's more, the capital would be more related to leasing specifically, which will not necessarily be any type of tremendous spend. It might be a little more than your typical renewal, TI, but not tremendously different. So some of those properties are what you described, they're conversions from single-tenant to multi-tenant, or they may be assets that, for one reason or another, occupancy declined -- occupancy has declined significantly well below 60%, 50% or 60%. And we've deemed it to be repositioned, we'll bring back in to the stabilized properties -- same store properties once it's re-stabilized. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. But I shouldn't think of them as redevelopments? You're not taking down half the building?

That would be a separate discussion if we had a group of properties that we're truly redeveloping.

And next, we have Jeff Theiler of Green Street Advisors.

A question on the purchase options. What are you expecting to get for, I guess, the 2 that are going to be exercised in July?

Well, as you, I'm sure, read, there's a floor on the purchase options. So that's what we know right now. We're obviously beginning to get into a process of determining fair market value. So that remains to be seen. Obviously, we'll try to get higher and they'll try not to. So we'll see where that goes. But we'll obviously update everybody on those as those occur.

Okay. Yes, because that floor is something around, what, a 14 cap rate or something like that? So presumably, it's going to be...

It's a little lower than that, but that's kind of -- yes, they are obviously. We've owned them for a long time. They've grown nicely for years. But you're right, they are high-yielding at this point.

Okay. The other thing, I was wondering -- so, I was reading in your 10-K, you talked about the fact that some physician concerns about potential cuts to Medicare reimbursements caused them to request flat rates in the first year of the lease renewal period. But then, in your presentation, you talked about the rent cushion, which kind of implies that your rents aren't going to be impacted by reimbursement changes as much as other property types. So I'm just trying to figure out, what should I take from that rent cushion? What is that really telling me?

I think, to that point, for us, it's the fact that if you look back on our history, our cash or cash releasing spreads have never been, in our history, been negative. And so I think when you contrast that to other property types, that's pretty significant. Sure, you've seen a little bit of a decline in that statistic, but we're not concerned and I think part of that is because while certainly everybody feels the pressure, the physicians feel pressure on reimbursement all healthcare providers do, there's still a lot of cushion there for -- they're not as sensitive as maybe some other property type, where there's less coverage on the rent.

And next, we have Michael Mueller of JPMorgan. Michael W. Mueller - JP Morgan Chase & Co, Research Division: Just first, on the SIP pipeline. I mean, how balanced is the leasing progress? I mean, is it pretty across the board? Are you seeing similar amount of activity? Or is it more skewed towards certain assets, or some are lagging? I mean, can you characterize that?

It seems to balance. Each quarter, there's about 5 or 6 properties that will be -- that will comprise the progress. There's 12, as you know, and about 1/2 of them typically have progress each quarter, but it seems to bounce around. We have had a couple of properties that have been slower over time, but frankly, those are looking at lot more positive in the last couple of periods and sort of the outlook from here. So we're pretty pleased with the progress across all of the properties. And in any given quarter, it may be that 2 or 3 may make up half the progress, but we're seeing a lot of activities, really widespread across all the properties. Michael W. Mueller - JP Morgan Chase & Co, Research Division: Got it. And then any specific thoughts on, if we're thinking about acquisitions or dispositions, I know there are couple of mentioned in the K in terms of dispositions, but related to timing, does it feel like acquisitions are typically back-end loaded, and they're going to be that way, dispositions? Is anything closing imminently?

No. I think on acquisitions, I wouldn't say that we're looking at imminent large in terms of percentage as the kind of the expectation for 2012. I think they'll be more balanced through the remainder of the year. So just in terms of thinking about timing, I think it's more of a balanced approach and I would say on dispositions, a similar outlook. Michael W. Mueller - JP Morgan Chase & Co, Research Division: Okay, great. And then last question, anything to note for '13 or '14 in terms of the support agreement or master leases coming to an end?

We just indicated in the K that we've got 6 master lease expirations, single-tenant expirations this year for the HealthSouth, which we've just discussed. There's 2 other properties that the tenant has indicated they'll likely won't renew, and we're in the process of releasing those 2 facilities.

Those are, I think, in total 120,000 square feet, so it's not a huge volume by square footage.

[Operator Instructions] Our next question comes from Michael Gorman of Cowen Group.

I just wanted to go back to the repositioned assets for a minute. Can you just remind what the parameters are there? What's kind of the threshold that a property has to go below to fall into that bucket, and then kind of a threshold to move it back out of that?

Typically, I think we've said earlier that it's properties that are in a conversion process from single-tenant to multi-tenant, or in very select cases, the other way. And then also, it's properties that typically fall below that 60% occupancy that we will be -- either restabilizing, releasing or considering a sale. That's the typical definition for that category.

Okay. And then just looking in the presentation, you sort of -- you classified these as non-core. With the properties that you're looking to lease up, will those then become core again, or those sort of lease up and then sell type of situations?

All right, it could be either, but we're making the attempt to lease it up. In most cases, it would probably become part of the core stabilized property.

Okay. And then, if I could go to the purchase rights that the tenant then backed out and then decided to re-lease in the fourth quarter, do you have a sense for what changed in their thinking there that led them to re-lease it instead of purchase it? And then, can you talk about the terms of the renewal that were put in place?

Yes, I mean, the tenant, I think, waivered -- they exercised their purchase option, but then sort of -- frankly, were dragging their feet for a long time. I think maybe that's an indication that they weren't really committed to repurchasing the facilities and ultimately, ended up renewing them. I believe those facilities were renewed for close to 2 years, a little less than 2 years, I believe.

[indiscernible]

It was just -- the financial transaction is a small piece of their overall investment in this sector, and I think they were just vacillating between buy or lease, and ultimately, decided to chase the lease route.

Got you. And then given that these are skilled nursing, I mean, would these be potential dispositions for you as well, or do you consider these core?

I think, they would be considered potential dispositions.

Okay. And last question, sorry, just a technical one. Can you remind me, the 87.7% occupancy, is that leased and paying or is that just leased?

I mean, it should be leased and paying. You're talking about the overall occupancy number?

Right, yes.

That's lease and paying.

That's leased with rents being paid...

Mr. Emery, ladies and gentlemen, it appears that we have no further questions at this time.

Very good. Well, we appreciate everyone being on the call. All of us will be around today if you need any follow-up. And otherwise, as Doug said, we'll some of you, I guess, next week in New York. Have a good day. Thank you.

And we thank you, sir, for the rest of the management, for your time. We thank you, all, for attending today's presentation. The conference call has now concluded. At this time, you may disconnect your lines. Thank you, and take care.