Welltower Inc. (WELL) Q1 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the First Quarter 2013 Health Care REIT Earnings Conference Call. My name is Brooke, and I will be your operator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. Now I would like turn the call over to Jeff Miller, Executive Vice President, Operations and General Counsel. Please go ahead, sir.

Thank you, Brooke. Good morning, everyone, and thank you for joining us today for Health Care REIT's First Quarter 2013 Conference Call. If you did not receive a copy of the news release distributed this morning, you may access it via the company's website at hcreit.com. We are holding a live webcast of today's call, which may be accessed through the company's website. Certain statements made during this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Health Care REIT believes results projected in any forward-looking statements are based on reasonable assumptions, the company can give no assurance that its projected results will be obtained. Factors and risks that could cause actual results to differ materially from those in the forward-looking statements are detailed in the news release and from time to time in the company's filings with the SEC. I will now turn the call over to George Chapman, Chairman, CEO and President of Health Care REIT. George?

Thanks very much, Jeff, and good morning. Our particular focus this quarter has been on the execution of our investment, integration and infrastructure objectives, and I think the positive results for the quarter attest to the fact that we are successfully managing our growth during this period of exceptional dynamism in the health care market. First, let me comment on our investments for the quarter. Our investment team has a well-deserved reputation for efficiently executing well-structured transactions that meet our strategic objectives. During this quarter, that ability to execute efficiently was evidenced by the timely completion of the Sunrise transaction and the closing of additional investments with other strategic operators. We have sourced excellent investment opportunities and have capitalized on them. There remain a number of high-quality portfolios in strong markets in which we have core strengths and where the pricing is attractive, and the growth opportunities are promising, we will continue to deploy capital for the best facilities and with the best operators. Accordingly, we expect strong, external investment growth to be a natural complement to our drive to increase same-store results. Moreover, during the last 4 quarters, 84% percent of our investments have been made with existing relationships. These relationship investments will continue to be the core of our investment program. Given the size of our operating portfolio, execution by our partners and our own internal team is of paramount importance. The quarter has been successful in this respect, as well. Internally, we have focused on people, processes and technology. We have always had talented and experienced capital markets, accounting and property management teams. We have strengthened our teams by selectively hiring highly qualified individuals with critical skill sets. These teams are at or near full strength. For those of you who know me, I do not tolerate bureaucracy. However, we encourage -- I encourage process improvements that allow rapid, efficient and uncountable execution with the right checks and balances in place. So whether it is stocks compliance by our operators or leased up by our MOB management team, by the way, they turned in an excellent performance this quarter, we have the processes in place that foster predictable and consistent performance. Finally, we have aggressively improved our technology systems to handle increased demands we have placed on them. Our proprietary asset management system was already among the best in the industry, but we have relentlessly improved all of our systems. Our RIDEA partners have also similarly improved their infrastructure and processes, and they continue to do an outstanding job providing best-in-class care while increasing revenue, managing expenses and improving occupancy in their markets. The results demonstrate our success. This quarter, we had over $2.6 billion of gross investments, $255 million of non-core dispositions, same-store NOI growth year-over-year of 3.5% overall, including 5.6% in our senior housing operating portfolio and 3.2% in our medical office portfolio. And I should note, this performance came amid continuing uncertainty on reimbursement, a slow economic recovery, and an unusually difficult flu season. Additional details will be provided later in our call, but the key takeaways at our internal and external teams have been performing very well. I want to conclude my remarks by reflecting more broadly on the transformation of the senior housing industry and our role in that process. Over the past several years, it has become increasingly apparent that all Health Care REITs, as well as the operators, need to be actively involved in shaping the industry so that higher quality care can be delivered in more cost-effective settings. We have led the execution of this broader imperative. Chuck Herman and his team, along with many of our RIDEA partners and our longtime operators, play an essential role in a number of industry organizations and have interacted intensively with regulators at all levels, in all jurisdictions to properly and efficiently and effectively address important issues of the day. We also work with some of the premier educational institutions of the country to assure that the next generation of managers and entrepreneurs in this sector is well-prepared. These efforts will continue the process of educating the public, regulator and investors, as to the strength and resiliency of health care generally, with senior housing specifically. And at this time, I will now turn the call over to Scott Brinker who will give more detail on our portfolio performance this quarter, and following his remarks, Scott Estes will provide comments on our financial performance. Scott?

Yes, thank you, George, and good morning, everyone. The year's off to an excellent start for the HCN portfolio. Our real estate is best-in-class, we have deep relationships with the industry's leading providers. This combination allows us to produce consistent and resilient internal and external growth, evidenced by our superior same-store NOI growth and substantial follow-on investments with our existing operating partners. Our portfolio of more than 1,100 properties continues to outperform. Same-store NOI increased 3.5% in the first quarter versus the previous year, which is quite impressive in a low growth, low inflation economy. The portfolio, which is more than 80% private pay and trending higher, continues to deliver unique combination of growth and stability. Our high quality RIDEA portfolio as managed by premier operators including Sunrise, Belmont Village, Silverado, Benchmark, Brookdale and Merrill Gardens. In addition to the benefits of diversification, this impressive list of operator relationships positions us for external growth as we've completed follow-on investments which each of them. Our RIDEA portfolio is also firmly positioned for internal growth, with a concentration in wealthy, infill locations along the East and West Coast, and in major metro markets in between. Housing values in our local markets are nearly 60% above the national average. Same-store NOI increased 5.6% from 1 year ago, quite strong given that NOI for this portfolio grew more than 10% in the comparable quarter last year. In addition, largely due to the strong occupancy trends, there's a good chance we'll deliver a growth rate for full year 2013 in excess of our previous guidance of 5%. Our facilities provide need-based hospitality and health care services, in addition to an apartment residence. Demand for these services is less elastic than pure real estate, a key differentiator when comparing the resiliency of senior housing to other real estate asset classes. The rapidly growing senior population adds even more predictability to the demand equation. Turning to triple-net senior housing, same-store NOI grew 2.8% in comparison to last year, in line with our expectations and consistent with our long-term growth expectation for this portfolio due to bundled master leases, contractual rent increases and an average lease maturity of 13 years. Payment coverage is stable at 1.15x after management fees. Triple-net senior housing is the second largest component of our overall portfolio and is well-diversified among the sector's leading operators including Brookdale, Capital Senior Living, Ameritas, Brookdale and Senior Lifestyles. With respect to our triple-net skilled nursing portfolio, same-store NOI grew 3% from 1 year ago, and we expect similar growth going forward due to contractual rate increases. Genesis now accounts for 80% of our skilled nursing portfolio, and the percentage is trending higher. We have a single bundle master lease with Genesis, it doesn't expire for another 16 years, plus a corporate guarantee. Our rental payment from Genesis is well-secured, as we expect 1.3x fixed charge coverage in 2013 with improvement over time due to the company's scale, post-acute platform and synergies from the acquisition of Sun Healthcare. Our portfolio of more than 200 medical office buildings is defined by its stability. New supply in the MOB sector has grown at less than 2% in each of the past several years, which is less than the growth in demand. Set amid these favorable supply-demand fundamentals, our MOB portfolio is particularly well-situated. An average size of 67,000 square feet and an average age of just 11 years, our assets were designed as outpatient health care centers, not simply physician office space. The portfolio is, therefore, well-positioned to benefit from the relentless shift toward outpatient care. In addition, 93% of our portfolio is affiliated with the health system, which in our experience, leads to substantially higher occupancy and rental rates. Same-store NOI in this portfolio grew 3.2% in the first quarter from 1 year ago, slightly above our expectations due to strong leasing activity. We self-manage the vast majority of our MOB portfolio, and our team is successfully building health system relationships and driving NOI growth. Our hospital portfolio continues to produce well-secured triple-net rental income due to healthy, 2.2x payment coverage after management fees, and bundled master leases with corporate guarantees. Same-store NOI grew 2.1% in the first quarter from 1 year ago, in line with our expectations. Same-store NOI in our Life Science portfolio grew 5.6% in comparison to last year, continuing a trend of outsize growth as rent to reset the market, which was our thesis when we made the investment 3 years ago. The entire 1.2 million square foot portfolio is adjacent to the campus of MIT in Cambridge, the world's prominent Life Science market. This is incredibly valuable real estate. Turning to new investments. We invested $2.6 billion in the first quarter with most of the activity related to Sunrise. We expect to complete our Sunrise acquisition in July, at which point our investment will be $4.3 billion, with a yield exceeding 6.5% based on our NOI budget for the second half of the year, which is a remarkable return in the current market given the size, quality and growth prospects of the portfolio. Our teams execution on the joint venture buy-outs has surpassed all expectations with respect to timing and economics. Also included in our first quarter activity was the acquisition of 2 senior housing communities in the Pacific Northwest that we added to our successful partnership with Brookdale. Yet another example of our sector leading ability to do follow-on investments with existing partners. At the external growth, we are reviewing abundant opportunity to cross the continuum of care in our core markets. We're highly selective in allocating capital to new investments, with the focus on high-quality real estate and our deep and often proprietary relationships with leading providers. I'll now turn the call over the Scott Estes, our CFO, who will discuss our financial results.

Thanks, Scott, and good morning, everyone. Little has changed from a financial perspective during early 2013 as we have continued to execute on our business plan. Our stock has continued to perform well, providing a 12% total return during the first quarter and a 25% total return year-to-date through yesterday's close. Our relative debt spreads have contracted and our outstanding debt has performed well on the heels of our recent upgrade to BBB flat from S&P. From a financial perspective other than closing $2.4 billion of previously announced Sunrise investments in January, this quarter was generally focused on internal execution for the company. In terms of first quarter financial results, we reported normalized FFO per share of $0.91 and normalized FAD per share of $0.81, representing a 5% and 4% year-over-year increase, respectively. Our results this quarter did come in slightly better than our internal expectations, primarily as a result of completing approximately $110 million of additional acquisitions beyond those on our initial forecast, and slightly lower G&A than originally anticipated. We recently announced the 168th consecutive quarterly cash dividend for the quarter ended March 31 of $0.765 per share or $3.06 annually, representing a 3.4% increase over the dividend paid in 2012 and a current dividend yield of 4.1%. And next, I'll explain the few extraordinary items on the income statement this quarter. First, we incurred $66 million of transaction COGS that were primarily related to the Sunrise investment which closed during the quarter. And we also generated $82.5 million of gains on properties sold in the quarter. And finally, there were 2 smaller items including a $2.3 million expense related to our currency hedges on our Canadian and U.K. investments and a $308,000 gain related to secured debt extinguished during the quarter. In terms of capital and liquidity, as previously discussed, we increased the size of our line of credit during the first quarter through a new $2.25 billion revolver at a lower cost, and funded a $500 million term loan. We also issued 653,000 shares under our Dividend Reinvestment Program generating $40 million in proceeds. As of March 1, we have $710 million borrowed on our lines of credit. Combining the remaining $1.55 billion of line availability, with $270 million of cash and cash equivalents, an additional $140 million of restricted cash in a 1031 account designated for future investments, and approximately $250 million of anticipated disposition throughout the remainder of the year, we continue to have ample liquidity with over $2.2 billion of total capital available through the remainder of 2013. At the end of March, our net debt to undepreciated book capitalization stood at 43.8%, while net debt to adjusted EBITDA was 6.3x. Our trailing 12-month interest and fixed charge coverage at the end of the first quarter remains solid at 3.4x and 2.7x, respectively. We were pleased with the recent rating upgrade received several weeks ago from S&P to BBB flat with a stable outlook, and Moody's recent move from Baa2 with a negative outlook back to Baa2 with a stable outlook which brings our ratings with all 3 agencies to the BBB flat equivalent with a stable outlook. We feel this was an acknowledgment of our larger, more diversified portfolio and perhaps, more importantly, an affirmation of the consistency and resiliency of the seniors housing and health care asset class over the past 3 to 4 years. The immediate benefit to us come in the form of lower relative debt spreads that more closely resemble those of our peers, as well as improved overall pricing. We anticipate that we could price a new senior unsecured note offering today in the 3.4% to 3.5% range in the current market. Finally, I'll provide an update regarding our 2013 guidance and projections through the remainder of the year. There's no change to our 2013 earnings expectations for normalized FFO in the range of $3.70 to $3.80 per diluted share, representing 5% to 8% growth and normalized FAD in the range of $3.25 to $3.35 per diluted share, which also represents a 5% to 8% increase. We continue to forecast 3% same-store cash NOI growth for 2013 which we hope could prove to be a bit conservative in light of strong first quarter results and the continued strength of our seniors housing operating portfolio, which as Scott said, is currently projected to generate same-store NOI growth slightly above 5%. Moving now to our updated 2013 investment forecast. Our future acquisition guidance only includes the additional $745 million of Sunrise-related closings anticipated to occur through July. Although we don't include an assumption for additional investments beyond those already announced, we continue to see opportunities to invest with our relationship partners and will look to capitalize on attractive investment opportunities, primarily in the private pay seniors housing and MOB asset classes. We continue to expect approximately $500 million of dispositions for the year, of which $255 million have been completed year-to-date at a blended yield on sale of 7%, including gains on sales. Our dispositions this year will consist primarily of a combination of non-core skilled nursing and MOB assets, which should allow us to continue to drive our private pay percentage up from the current 82% toward the 85% by the end of this year. First quarter asset sales consisted of $136 million of medical office buildings, $62 million of triple-net seniors housing assets, $15 million of skilled nursing assets and $43 million of loans. I think, most importantly, these asset sales improved our overall portfolio quality, generated over $82 million in gains on sales, and provided a blended unlevered IRR of approximately 11.2% over the life of the investments. And finally, we do project $248 million of development conversions for projects expected to convert this year at an average initial yield of 8.3%. Our capital expenditure forecast remains $73 million for 2013 which is comprised of approximately $54 million associated with the seniors housing operating portfolio with the remaining $19 million coming from our medical office building portfolio, both of which represents levels at or slightly below 10% of projected 2013 NOI within their respective asset categories. And lastly, our G&A forecast for 2013 has declined slightly to approximately $112 million for the full year from the previous expectation of $115 million, due largely to changes in the timing of projected new hires and some accrual items that came in a little lower than anticipated early in the year. At this point, we do anticipate approximately $28 million of G&A per quarter through the remaining 3 quarters of 2013. Operator, that does conclude my prepared remarks. So we'd now like to open the call for questions please.

[Operator Instructions] Your first question comes from Michael Carroll with RBC Capital Markets.

Yes. I guess, is it fair to say that the growth rate in the senior housing operating portfolio starting to stabilize given the 8% growth that delivered in 2012 versus the 5% growth that's expected in 2013?

Yes, the growth rates that we produced over the last few years will be difficult to replicate. Now at 8-plus percent for the most part, in most quarters. That being said, it's important to keep in mind that the same-store portfolio today is only 118 properties. So it doesn't include portfolios like Sunrise, most of Belmont Village, Brookdale, Chartwell. Our entire RIDEA portfolio is 310 assets. So over the next 15 months, you're going to see sort of the full benefit of some of those higher growth portfolios. And when we look at the entire portfolio today of 310 assets, the occupancy is still in the high 80s, and we feel like low 90s is a conservative estimate. So we still feel like over the next few years, at least, given the supply-demand characteristics that we could continue to produce NOI growth in excess of 5%, yes long-term, we think 4% to 5% is a reasonable estimate for this portfolio.

Do you think that total portfolio could deliver more growth than the same-store portfolio that is comprised right now?

It probably would. It has more fill up assets, I don't have the number offhand, but again, I do know that the Sunrise portfolio, Chartwell and Brookdale are pretty high growth portfolios for the next few years.

Okay. And recently, it seems that the company's investment focus has been mainly on senior housing assets. Do you expect that focus to continue on throughout the rest of 2013?

Yes, I think as we indicated in this call and previous calls, we're mainly looking to senior housing and MOBs because we have some really good opportunities in both places. Our goal is to move our private pay toward 85%, and reduce somewhat our exposure to reimbursement issues.

Okay. And then my final question relates to the skilled nursing facility coverage ratios. I think it declined to about 1.3x, which, I believe, we -- you've indicated on previous calls that, that's a good number. But do you expect much improvement over the next 12 months particularly as some of these dispositions start -- are reflected in the numbers?

Yes, this is Scott speaking. There was a small decline this quarter due largely to dispositions. We still think that the 1.3x after management fees is the right range. Today, Genesis accounts for 80% of the portfolio, so that's really what you're talking about when you look at our skilled nursing portfolio. And we do think there's upside over time, whether that occurs next quarter or 12 months from now, we'll see depending upon what happens with reimbursement, but we do expect it to improve over time.

Our next question comes from Jack Meehan with Barclays.

Could you talk about some of the underlying drivers of the NOI growth for the RIDEA portfolio? What -- so I guess, looking at occupancy and pricing. And then how did the occupancy track during the quarter and do you have any -- just a sense of where it stands in April?

Yes, for the same-store portfolio, year-over-year, the occupancy was up about 300 basis points, and rates were up just below 2%. We expect over the course of the year that rate growth should accelerate a little bit, most of our operators do the rate increases on the anniversary date of the residents moving rather than January 1. So you don't see necessarily a huge pick up in the first quarter. And that in terms of quarter-over-quarter changes, occupancy was down but just a little bit, just 20 basis points from the fourth quarter. Mostly because of the tough flu season, but census for that portfolio is already up 110 basis points as of yesterday versus the first quarter, so they've already recaptured all of what they lost and then some.

Got you. And then, I guess looking at some of the geographies within the portfolio, are there any markets that are performing better or worse than the average? And are there any characteristics around those, as more economic or did it look like it was more flu-related in the quarter?

Well, based on our portfolio, the independent living sector outperformed. And I think, part of that is just because of the comparable quarters. The assisted living sector had done extremely strong over the last 2 or 3 years, whereas independent living has done a little bit more challenge. Our portfolio today is about half and half, and the independent living portion really outperformed in the most recent quarter.

Your next question comes from Jeff Theiler with Green Street Advisors.

Obviously, a lot going on this quarter with finishing out the Sunrise transaction or at least most of that. Would you say that you built up a little bit of a backlog potential opportunities with your non-Sunrise operating partners so that maybe next quarter, we see a little bit of a rebound in that activity? Or has that not really been too much of an issue?

Great question, I think, Jeff. We have some development projects going with our existing RIDEA and other senior housing operators that will continue to build our portfolios with the existing. And we are seeing every portfolio or opportunity out there. And -- but I will always say that, until we get home with some of these opportunities, we're not going to comment on them because there's high lease -- there's definitely subject to the whims and caprices at getting deals home. But would there plenty of projects out there for us to bid.

Okay. Just kind of switching gears here. HCP enhanced their disclosure recently, triple-net lease heap map that breaks down those -- some of those summary statistics into more individualized statistics per lease. Any chance that you guys might follow suit on that in the future?

I want Scott and Scott to comment on it, more specifically. But we've already developed some enhanced disclosure that we tried out on the rating agencies. And I think you should anticipate that we'll come out with additional enhancements, perhaps next quarter. Scott or Scott, comment?

Yes, Jeff. We have been proactively looking at ways to enhance our disclosure as well, and I do think it's great for our sector to get more information out there. As George said, I think we had a good bit of success with the agencies and then really the intent is to prove the consistency and the resiliency of seniors housing and health care cash flows over time. So I think the best I can say is stay tuned and we can say we're working to be in a position to provide something, somewhat similar probably including our individual property location information as well within, I would think, the next few quarters.

Your next question comes from Nic Yulico with Macquarie Capital.

Scott, I was just wondering how you're thinking of the balance sheet today? I mean, you now have net debt to EBITDA above 6x, and how are you thinking about that in relation to the almost $700 million of cash you need for the remaining Sunrise purchases in July?

I think -- we're thinking about it from a bigger picture perspective. I think both -- I mentioned in my prepared remarks the stock has done well, the debt has done well. And I think though, most importantly, I think everyone should expect the timing of any future capital raises to closely match the timing of any future investment announcements, that's always been our goal. So I feel comfortable with where they're at, I think over time those leverage numbers would come down over the next 12 months as I think we've said. But I think again I'll stick by those comments.

And that leverage number that you had in the supplemental, it's based on annualized EBITDA, that's assuming a full quarter annualized for the recent Sunrise purchase?

Yes, everything in the quarter that has happened in Sunrise within January. So that would capture the vast majority of everything that it close through the first quarter on an annualized basis, yes.

Okay, got you. Just one other question. Can you break out -- you give the blended occupancy of 88.7% for the senior housing operating assets in the first quarter. Could you break out what the occupancy is on the Sunrise assets?

Yes, it's Scott speaking. It's in the high 80s, around 88%, 89%. So it brought down the portfolio average by a bit. There are fair number of newly developed assets in that portfolio that should stabilize over the next 24 months or so.

Okay, and that's what, roughly 30%, 40% of the NOI from the overall senior housing operating is coming from Sunrise at this point?

That sounds like the right range.

Your next question comes from Tayo Okusanya with Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Yes. Sorry to keep going back to the senior housing operating portfolio. I'm just kind of curious, the 5.6% same-store NOI growth this quarter, you did have a meaningful growth in operating expenses of about 5%. Just curious what was driving that?

Yes, it's primarily related to the increase in occupancy. In senior housing, a lot of the expenses are fixed. I think sometimes, people underestimate how important the variable expense component is. And in the down cycle like we saw 3 or 4 years ago, you saw senior housing operators able to substantially grow NOI and, for the most part, maintain margins, even though occupancy was down. That didn't happen in other real estate asset classes because most of their expenses are fixed. In senior housing, a lot of the expenses are variable, so as occupancy goes down, you do have the ability to reduce expense, and therefore, maintain NOI. So we think that the NOI from senior housing is highly resilient and predictable. There are upside -- there is upside, as you increase occupancy to grow margin, but it's not 100% of every additional dollar that falls to the bottom line. So I think that's what you saw. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Okay. It wasn't like a big increase in property tax or anything of that nature?

There are specific locations where real estate taxes are challenging, but there wasn't a specific line item that stood out.

[indiscernible] quickly that margins were fairly stable. They were up 10 basis points in the quarter on a year-over-year basis to 31.8%. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And then just going to Genesis for a quick minute, I think you mentioned you expect the fixed charge cover to ultimately to move somewhat about 1.3x. Is that correct? And if that so, what are kind of some of the key drivers that taken from where it is now to the 1.3 number?

Well, it's about 1.3 now. We think, it's going to go up over time, it's just a matter of how long it takes to get there. It may be a year from now. But we think 1.4 maybe even better over the 2- or 3-year time horizon is absolutely achievable given their scale, geographic concentrations, synergies from the Sun merger. So we're still very positive about not just our rental income, but also our warrant in the operating company. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And then last question for Scott, I mean, congrats on the rating upgrade. Just kind of curious, how you expect that ultimately to lower your cost of capital and by how much? If you can make an estimate of that.

Yes, I think the final move had a specific benefit of, by my estimation, what do you think, 10 to 20 basis points, I think. And then there's been some follow through in just the relative markets rating. So the point is, Tayo, I think we -- our relative debt spreads much more closely match those of our peers, I think we're within about 15 basis points. So that's been a nice improvement. And as I said, we could probably issue a new 10-year unsecured notes in the 3.5% range today or a little bit better, so that's clearly lower than in the longer term.

Your next question comes from Jorel Guilloty with Morgan Stanley.

So I just have 2 quick questions. One, we've been talking about EBITDAR coverage ratios for this net portfolio and your expectations 1 year out. I was wondering if you can also touch upon the expectations for the Q-mix for that portfolio 1 year out as well because it's currently about 51%.

My view is the way we think about it and I think the way Genesis thinks about it, that's actually a nice opportunity. I think there's skilled mix on a combined basis with Sunrise in the low 28% range, and skilled mix, that's usually the way they think about it. And I think a lot of the growth and focus that they have on driving that skilled mix is really the source of the coverage upside over the next 2 to 3 years. So they've been adding some and we've been helping them grow some specific facility, post-acute focus, partnering with managed care organizations and help systems to reduce rehospitalizations and those facilities specifically are not even licensed to accept Medicaid patients. So again, over time, we think that's a nice opportunity as they continue to roll that out and that's been a big part of their strategy.

But do you have a specific target in terms of the number for maybe this time next year as it go to 55% Q-mix? Or...

I would think you could translate it into a relative Q-mix opportunity. We'd always said it was probably 5 full percentage point, but probably over the next 3 to 5 years. So as I roughly think about that, I forget the exact numbers, I shouldn't say, but there's an immediate cash flow benefit to the extent that each percentage point I get it up over the next few years.

Okay. And then on disposition portfolio, the majority of what you've sold so far this year has been made up of medical office buildings. I have 2 questions related to that. One, what is the makeup of what's left in the pipeline? And two, it seems you've been very successful, I mean you've sold more than half of your guidance in the first quarter. Why not try to re-up the guidance and dispose of any other assets that are part of that potential pipeline?

I'm thinking we can always be proactively looking to prune our portfolio, but into discussions we've had with folks over the last few years, I think the vast majority of the significant disposition listing has been completed, really. I do think we still look opportunistically and it would be much more likely to have a situation like this quarter where we can sell something at a nice return and as I noted, the yield on sale was actually 7%. So including the gains on sales, so it's much -- I would call it roughly earnings neutral if you're able to get attractive prices. And as it relates to your specific question about the mix, the disposition guidance for the $500 million overall, I would still stick by for the year, the breakdown of that $500 million for the full year was about 50% skilled nursing, 25% medical office buildings, and 25% seniors housing. So you can almost just use that for the year and back off the numbers that we completed in the first quarter, and that kind of shows you what's remaining. It's a lot -- some skilled nursing that's actually still remaining in the dispositions through the remainder of the year.

Okay. And you would expect, I guess, the same yields you've seen today on those?

Yes, I think so. Just generally speaking, I don't think there's been any difference in pricing expectations on those versus what had happened so far. You may not have the same absolute level of gains, but again, no difference in terms of our pricing expectation.

Your next question comes from Stephen Mead with Anchor Capital Advisors.

On the actual Sunrise facility, what's the average age of what you required from Sunrise? And compared to what's the average age of the facilities of the existing basis senior housing? And I was just curious in terms of just the cash flow requirements, in terms of maintenance and in keeping the facilities up, how are you handling those expenditures between sort of what's capitalized and what's expense?

Yes. This is Scott speaking. The average age of the Sunrise portfolio is about 8 years. That compares to 12 or 13 years for the RIDEA portfolio, exclusive of Sunrise. So it brought down the average a little bit. In terms of CapEx, one benefit of owning really high-quality buildings is just that CapEx as a percentage of the NOI is low. So for Sunrise, we spend in the neighborhood of $2,000 a unit, which is a lot, it helps them maintain their premium go-to-market position. But as a percentage of NOI, it's typically less than 10%, which we think is more than adequate capital that continue to provide really strong growth in NOI and asset value.

Are you capitalizing that or is that expense?

We capitalize roughly $2,000 per unit for our RIDEA portfolio.

[Operator Instructions] Your next question comes from Rob Mains with Stifel, Nicolaus. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Scott Brinker, I want to make sure I got one of the things you said, right, occupancy on the senior housing RIDEA portfolio, is that -- was down on a same-store basis about -- or same-store was down about 20 basis points Q4 to Q1?

That's right. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay, and then did you say it was up 110 to date in the second quarter?

Yes, if you compare occupancy as of yesterday to the occupancy average in the first quarter, it was up 110 basis points. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then on the fifth coverage, if the decline there was primarily due to assets that you no longer have, can we surmise then that was pretty much flat for the Genesis portfolio?

Yes.

Yes. Robert M. Mains - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then in the consolidated RIDEA statistics, there's a RevPAR figure that you give out of 56 25 which is up a ton from where it was in the fourth quarter. I assume that's because of the addition of Sunrise. Given that you had Sunrise for most of the quarter, is that probably a good number to use going forward, assuming no other additions to the portfolio?

Yes, that will be substantially higher, I think it's 40% above the national average. Again, our portfolio is just sort of premium quality across the board, Sunrise in particular. So they were the major reason for that big increase.

Our final question comes from Rich Anderson with BMO Capital Markets.

So I think it appears to us like the market is applying a kind of do no wrong mentality towards your stock in terms of valuation. And frankly, you guys have earned that, you and your peers have done a very good job, no question. But you're charging old people maximum rents, you just said 40% above the average. And when we're talking about occupancy declines, we're mainly talking about people passing away. So not to make light of that at all, but the fact that this is not what one consider typical real estate circumstances. So my question is, with some unknowns and a lack of a long operating history, what gives you comfort that you didn't build your idea portfolio right at the peak growth conditions and that the 8% last year goes to 4 to 5 this year and then to 2% or less in further years, particularly after capturing all your occupancy upside? So I'm just curious, that's probably not the trend that you're looking for, and how do we know that, that's not going to be the trajectory that will kind of be coming down the path?

Rich, this is Chapman. Let me make a general comment and turn it back to Scott Brinker briefly. One, let's keep in mind that RevPAR relates a little bit to the markets in which these facilities are, and we purposely gone out to invest in the top markets in the country with the top communities as well. So if you look at 93% of that -- our RIDEA portfolio, 93% of it are in the top markets in the country. Everything fits, household incomes, housing values, et cetera. But in terms of your more looking-forward issues, Scott, you want to comment on that?

Well, it's a private day business so people are paying for the value they're getting. But the excess against the national average is definitely being driven by the locations as much as the quality of the services that are being provided. Whether we invested at a -- during the high point of the cycle, we started to feel it's the opposite. We closed most of these transactions 2 and 3 years ago. We're sort of the trough of the senior housing operating performance. So occupancies have gone up in the interim period, REITs have been positive and there's still room to grow relative to the historical averages. So we feel long-term that this is actually a pretty good portfolio to own, in general, because we like senior housing, but more particularly, the quality of these particular assets and operators.

Do you think then that you're kind of always be at some significant premium growth rate versus inflation? Or what's the kind of call 15 year operating history of assisted living and independent living. How bad can it get and what's kind of in your crystal ball?

Yes. It's typically been more resilient than most of the other asset classes that we looked at. We have done those types of comparisons over multiple years and in different points in the cycle. And the key difference, as I noted in my remarks, with senior housing, you don't just have an apartment residence, you also have sort of need-based hospital and health care services, and we tend to get premium pricing on those. So we actually do think that this is a sector that can provide growth in excess of what most other asset classes can deliver and they can do it on a more resilient and consistent basis.

Okay. And then just a follow-up to that, how would you characterize your exposure in the event of some type of litigious activity, are you more exposed as a RIDEA structure or less or equally exposed as a triple-net structure?

Let me try to answer that. We don't think that there is much additional exposure at all from a substance standpoint, whether or not the trial bar would be more apt to bringing action because we're more involved on operations through RIDEA. No one knows. So that hasn't happened so far. And even if it did, we feel very, very immune from liability. In any case, given what our role is and what our role isn't, in terms of providing the operating -- operations and providing the care.

That was our last question. This concludes today's First Quarter 2013 Health Care REIT Earnings Conference Call. You may now disconnect.