Q3 2019 Earnings Call
Good day, everyone and welcome to peak properties third quarter financial results Conference call.
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At this time I'd like to turn the call let's call it over to be about Rogers head of Investor Relations you may begin.
Thank you and welcome to help peaks third quarter financial results Conference call. Today's conference call will contain certain forward looking statements. Although we believe the expectations reflect any forward looking statements are based on reasonable assumptions are forward looking statements are subject to risks and uncertainties that may cause actual results could differ materially from our expectation.
After the earthquake are included in our press release a detailed.
Well the FCC, we do not undertake no duty to update any forward looking statement certain non-GAAP financial measure somebody to stop on this call and exhibit B <unk> C. B today, we reconcile all non-GAAP financial measure so the most directly comparable GAAP measure and of course I'd like to your apartment.
He said it is also available on our website at Www Dot housekeeper Dotcom I'll now turn the call over to our President and Chief Executive Officer Tom.
Thank you bought back and good morning, everyone.
With me today are pit, Scott or Chief Financial Officer, Scott Brinker, Our Chief investment Officer.
Also here and available for the Q and a portion of the color Tom clerks, our chief development that operating officer and trying to generate our general counsel Chief legal officer.
Today, we're excited to announce the we're changing our name to help <unk> property effective immediately.
When stock will begin trading under our new tech or peak and the New York Stock Exchange, that's the startup trading on November Phil.
Also redesigned our corporate website, which can find health peak dot com.
You'll find the sites more user friendly and easier to navigate.
The information about the company and our portfolio.
Well I know peak.
Well it helps of course communicates the sector, which went back and operate.
Yes.
What's our position that's one of the country's primary.
Well.
This is the concepts of focus stability and high quality.
Today marks the beginning of a new chapter.
And your name represents the culmination of efforts to reposition our strategy team portfolio and balance sheet.
Okay, we believe in the power of clarity.
Simple strategy unwavering focus a deliberate action enable consistent delivery on our vision.
For the past few years, we've been more discipline in our investment approach with a focus on the three primary private pay healthcare segment, the life Science Medical office and senior housing.
That's an innovative company at the forefront of providing high quality real estate of evolving healthcare industry, we're committed to delivering value for our shareholders customers and employees.
For shareholders.
I have a much improved and more focused portfolio and we expect to produce high quality cashwell consistent earnings and generate strong double didn't grow up overtime.
Our customers, including tennis, Parker's operators and sooner rather than.
My sustainable properties and strategically selective markets.
For modern amenities in New York design relocation.
Fidelity.
For our employees were fostering innovative and collaborative culture, where leadership as assessable and people have the necessary tools and resources to develop their own leadership skills and make the positive impact.
We've worked hard to create an environment that attracts and retains top talent.
Offered the opportunity to build Alaskan and rewarding <unk> <unk> <unk>.
To support the successful execution of our strategy ambition.
Also announcing she leadership promotion.
Scott Brinker. In addition to his role as Chief investment Officer will be promoted to president.
That's exceptional Hello deep.
Industry expertise has contributed to the successful repositioning of our portfolio.
Expanded role he will assume operational oversight of healthy lead business segment will continue to be responsible for enterprise wide investment portfolio management.
The structure will enable better strategic alignment across our businesses.
Alright, a decision making continued portfolio optimization.
Promotion will allow me more time to focus on the strategic direction of our company.
He relationships and our culture.
We're continuing to.
And work closely with Scott for years to come.
Jeff Miller, we promoted to executive Vice President Senior housing.
He's been instrumental in developing a senior housing team improve in the portfolio and implementing systems and data analytics across this year I wasn't platform.
Elevated rule definitely helpful oversight and execution of the senior housing segment.
There's a lot of told me promoted executive Vice President and Chief Human Resources Officer.
This has done an outstanding job transforming HR function rebuilding our team and cultivating a people first culture.
And your to oversee all human resources activities.
Under leadership of our ongoing effort to attract and retain top talent that makes help take an employer of choice.
Finally for bad Rogers, let up our call today ascent promoted the senior director will be immediate helping IR effort going forward.
Andrew John there's not a great job head of IR over the last three years has been elevated leader in 18.
Well I extend my congratulations Scott, Jeff and Lisa as well as far back me Andrew on their promotion.
Turning to operation.
We had another busy quarter with several important transactions announced for close to double continued to strengthen our portfolio.
Your housing we've announced over 1.4 billion on acquisitions year to date.
To diversify operator, Matt Hooper geographic footprint expanded relationships with top tier partners.
We also made significant strides it completed a final step some restructuring effort.
First we announced a series of transactions. The will also reduce our brookdale concentration just under 6%.
Well.
Our first announcement related to our CCRC portfolio Brookdale Triple net lease portfolio yeah.
Joint venture transaction, where the sovereign wealth fund, the we announced yesterday related to our Brookdale shop portfolio.
Second we closed the previously announced sale of the place your portfolio.
Legacy direct financing.
Structure.
Finally, we completed our path to exit the UK signing an agreement to sell remaining 49% interest when they got healthcare, which we expect to qualify your.
And life Science, we further expanded or Boston presence in the acquisition of 35, Kansas work right.
Bringing our total investments in the Boston markets 1.2 going.
Back to deal with 6% plus inclusive of a one to one tempered archive development project.
Additionally, our Fox when 1 billion dollar life science of all the pipeline South San Francisco, San Diego and Boston.
By incremental earnings call as we head into 2021 2021.
Normally strong and maybe a crucial.
And the medical office, our proprietary development program, what they see a continues to provide us with accretive growth opportunities.
Today's announcement of two new development.
I could see pipeline totaled seven projects represent approximately 145 million of development.
That's all the number of additional projects that we specs announcements coming month under the T program.
No our momentum remained positive on a variety of front.
We completed a number of important strategic transaction earnings than SPP are performing at or above our expectation.
Elements in deal pipelines remain robust and our infrastructure continues filmmaker.
Now I'll turn the call over <unk>.
Thanks, Tom.
Once again reported solid quarter operating and financial default.
All three of our core segment continued to perform at or above our expectation.
Third quarter, we reported FFO as adjusted 44 cents per share and blended same store cash NOI growth of 2.4%.
Year to date, our same store portfolio has delivered <unk>, 0.1%.
Let me provide some details around or major segments.
Starting with lifestyle.
Represented 29% of our SVP for.
Well, that's when we established in first half a year.
You didn't to the third quarter same store cash NOI growing five point.
Brings our year to date same store growth.
<unk>, 0.3% I need a reflection of the concern you kinda demand for high quality space and the three most important life science market.
On the leasing from year to date, we've executed over 1.2 million square feet of leases, including 390000 square feet in the third quarter.
We signed 114000 square feet of renewals during the third quarter at an average cash mark to market, a positive 50%, bringing our year to date half renewal spread.
For the 25%.
Turning to medical office.
Represented 39% of our SVP for.
Third quarter cash NOI grew 2.5%, bringing our year to date growth to 3.3%.
As we discussed on prior calls in addition to higher occupancy contractual rent escalator well in the first two quarters of the year benefited from outside add back at a medical city Dallas.
Accordingly, we expect some deceleration and our same store growth rate during the second half of 29.
Our year to date retention rate remains about 80%.
Demonstrates the consistent level of tenant demand for our on San Fran portfolio about.
Turning to senior housing, which triple that represent 16% and shop, 10%.
<unk>.
Third quarter cash NOI declined 1.3% with triple that growing 1.9%.
The Cline expert that.
Given the small size of our shop pool.
Quite equates to just over $1 million.
Year to date senior housing portfolio met our expectations.
Going positive, 2.2% shop declining 4.7%.
Along with the components to our guidance we provided at the beginning here.
Portfolio mix between Triple net and shop has shifted because a triple net asset sale and results in a blended year to date decline in senior housing <unk>, 0.5% on track with our expectation.
Turning to the balance sheets December we announced a $1 billion unsecured commercial paper program.
Got any incremental sort of attractively price short term floating rate going out there.
As of October 29, we got approximately $650 million a commercial paper outstanding.
The weighted average rate of 2.2%.
Roughly $71 million outstanding on our revolver.
We ended the quarter with net debt to EBITDA of 5.8 times, which is inline with our targeted range.
In October .
It's recognized our meaningful balance sheet portfolio repositioning progress with an upgrade triple the plot.
We're now ready to Triple B, plus you double they want.
All three of the major Mediamiser.
A quick note on sources and uses given our recent transaction activity.
We ended the quarter with approximately $570 million for equity Vernon.
Yesterday's announcement of our senior housing joint venture and UK joint venture Sal, We expect another approximately $450 million approach by year end, giving us total sources of approximately 1 billion dollar.
I have to utilize these proceeds to.
On our announced $333 million purchased 35, Cambrex Park drive expected to close in early December .
Fun $225 million and that's been a book the L. CCRC Triple net transaction expected to close in the first quarter of 20 to 20.
Fund all remaining 29 seem development redevelopment capital sad.
Estimated at approximately 200 million Dollarss and.
To start floating rate debt, allowing us to end the year with net debt to EBITDA of 5.65 0.7.
Our balance sheet perspective, we're in a strong position to take advantage of be accretive opportunity bye-bye.
We have a robust acquisition pipeline and attractive development and redevelopment pipeline and we are well positioned in bucked the debt and equity market having 2020.
Turning now to guide.
We're increasing the midpoint of our FFO as adjusted guidance to $1.76 per share from $1.75 per share.
<unk>, we're increasing the midpoint of our blended FCC guidance to 2.75% from 2.5%.
Updates to both guidance ranges are driven by fine tuning our expectation a lifetime and medical office segment.
Senior housing remains on track, but our expectation.
One final bookkeeping item.
Page 27 of our supplemental.
How did they table outlined the material near term purchase option in our portfolio.
Hope you find this new disclosure useful.
With that I would like to turn the call over to Scott.
Okay I see.
Third quarter was highly active across all three business segments, but was more than $500 million for strategic.
Greetings acquisitions, including Oakmont did senior housing and Hartwell skin lifestyle.
Also entered into a new agreements for $900 million of acquisitions.
You expand our life science footprint in Boston.
That's it continue transforming our senior housing business.
Under contract to acquire 35, Cambridge hard drive.
Brand New life Science property in West, Cambridge, That's next door to the property in land parcel that we acquired in January .
Purchase price of $333 million, he's a 4.8% cash cap rate.
5.7% GAAP cap rate.
Including the future development project. This campus will have approximately 460000 square feet.
They blended stabilized yield 5.6%.
Yeah. This is directly adjacent.
The other Weiss station.
The transportation hub with more than 10000 passengers each day.
So this classic Atlas had outstanding accessibility, and the rents or at least $20 per foot cheaper than east, Cambridge, where the vacancy rate is near zero.
We added two on campus medical office buildings to our development partnership with H.C., the nation's leading for profit health system.
Total spend is $34 million with 50% pre leasing at a blended return on cost of 7.1%.
He's demo visa allow H.C.J. to expand our outpatient capacity in core markets.
They're typically developed in tandem with H.C.A. investing significant capital into the adjacent hospitals.
In these strategic locations.
There was an avalanche of positive activity in senior housing.
Approaching yen, the complete transformation portfolio and platform.
As announced in October 1st we agreed to a series of transactions with Brookdale, which are neutral to slightly accretive to earnings.
Jimmy no change in leverage.
We expect to close in the first quarter of 25.
Background since 2014 healthy and Brookdale have been joint venture partners. They 16 property CCRC portfolio manage my Brookdale.
Well, Steve will acquire Brookdales interest in 13 outdoors CCRC is for $541 million.
That's a slight increase from the October 1st announcement has recently came to an agreement to add to 740 units.
CCRC ingredients in Florida.
The acquisition pool.
The updated presentation is available on our website.
This is a unique and differentiated portfolio.
Yeah. This is included nearly 600 acres of land.
Which today would be virtually impossible to recreate.
Got scale allows the properties to offer unmatched amenities and significant expansion opportunities.
Massive scale in the CCRC creates barriers to entry.
There's been zero you CCRC supply within 10 miles are these properties in the past 10 years.
Residence typically after it's easier to use around age 80.
Which positions. These assets you captured the earliest wave of aging baby boomers.
Finally, the average length of stay eight to 10 years.
Resident turnover is very well.
Yeah. That's it also allows us to grow what else, yes, they well now and well respected brands 15 year track record.
Oh, yes is the largest operator in the CCRC industry I.
An excellent additions to our family of partners.
Part of the transaction healthy well sell 18, triple net properties to Brookdale for $405 million.
This will materially improves the quality of our triple net lease with Brookdale.
If you learn the asset quality and rent coverage will increase.
And we'll move from having 11 separate leased pools with various maturity dates.
It was single Master lease with an eight year term.
Yesterday, we announced an agreement to sell a 46.5% interest.
Brookdale shop portfolio.
Another important step.
Transformation of the shop portfolio.
Our new capital partner is a large sovereign wealth fund.
Gross asset valuation of $790 million, which is the yield on sale in the low to mid 6% range before.
Management.
The transaction reduces our pro forma brookdale concentration to 6%.
Improves the age and demographics worktop portfolio.
Joint venture will be Unlevered.
Do you expect to close by year end.
Remember we closed on the sale of the noncore Prime care senior housing portfolio for proceeds of $274 million.
Wasn't important cleanup transactions and a loss to efficiently cycle capital your pipeline.
We also reached agreements to sell the remaining 49% interest in our UK portfolio.
We expect to close by year end.
Marking our exit from the UK.
We recently reached agreements for the early termination of our nine property master lease with capital senior living.
It would have otherwise mature in October 14 point.
Do you intend to market the five noncore assets for sale.
And the rest of those properties will terminate I'm clickable closing dates.
We plan to transition to four core properties to existing partners breached atria and want to discovery.
Capital Senior will pay contractual rent through the transition date.
Should occur in first quarter.
Our six property master lease with capital senior.
Matures in 2046 and has just over $4 million of annual rent is not affected by the transaction.
We've not tackle the key challenges in the Triple net portfolio Brookdale Prime care capital senior eight you're saying okay.
We also recast our relationships with core partners like Oakmont Sunrise in ages.
Every action was purposeful and strategic.
And now emerging in clear view is a far stronger triple net portfolio.
Our quality assets master lease arrangements with long dated maturities.
In a rental stream that should consistently grow into 2% to 3% range each year.
You see the transformation visually.
Take a look at the heat map on page 28 of our supplemental.
Eric prior periods.
Surgery underway in the shop portfolio has been equally proactive thoughtful and decisive.
It was stated previously treated the timing of all the activity it won't be until 2021.
GAAP SPP only reflects the transformation that's going to college.
We do feel good about the portfolio and platform that we're building.
Wrapping up with yesterday's announcement.
I was fortunate to join cheesy in early Funky 18 at such a unique point the company's history.
Well the aligned executive team.
Clear vision, where they wanted to take the company.
Afforded by high caliber.
Collaborative genes.
Today, I feel even more fortunate.
Tom asked me to take on him expanded role at healthy.
Company with a differentiated strategy.
Hi, quality portfolio and balance sheet.
Disciplined portfolio management.
Basin shifts to drive growth.
Our new colors are purposeful.
Tell the story of our future.
Black and white.
Joe simplicity clarity and focus.
The final callers goals.
As we intend to maintain our standards, it's a very highest level.
I'll turn the call back to the operator for Q.
Ladies and gentlemen at this time it'll be getting the question and answer session.
To ask a question you May press Star then one of your Touchtone phones. If you are using a speaker phone. We do actually you. Please pick up your handset before pressing the keys to ensure the best sound quality.
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We do ask you please limit yourselves to two questions in the interest of time.
Once again that is star then one to ask a question well pause momentarily to assemble the roster.
Our first question today comes from brick Anderson from SMBC. Please go ahead with your question.
Hello team Health peak.
Right.
So just okay two questions, perhaps to to Scott you know the core versus transition portfolio of the shop ER business kind of flip flopped in terms of performance in the third quarter. You mentioned you know the full effect of everything you're doing like sort of a 2020 <unk> 2021 event can you.
Describe where are we going to see sort of I'm kind of.
Variability like this through the process or was this sort of a one and done type thing Youd expect to see core do better than transition that just just get a sense of what what it will look like over the course, the next year or so.
Hey, good morning, Rich I.
I think there a couple of things.
Hassan wise.
Law of small numbers so.
The small, especially over 90 day period.
This is like senior housing numbers can jump around quite a bit.
Very hard to predict so that's that's part of it the other is that in the core portfolio.
Most half of that wall is in Denver, and Houston, two markets that have a ton of new supply. It's just a very competitive environment. Good long term markets, where good areas within those two men are satisfied.
<unk>.
Market today.
And and why was down pretty significantly in fact in the core portfolio. If you take out Houston in Denver.
Our year over year SPP would've been flat.
Instead of down 7.4% so.
Now it's in a four point was actually performing quite well, it's just those two markets in our properties there given our concentration or having huge outsized.
So that's what explains the decline in Oh.
We think that number will certainly improve moving forward I'd also note that all the communities in Denver and Houston are part of the portfolio that we are selling a 46.5% share on to the sovereign wealth funds and the transition portfolio. It was nice improvement.
That's a although down.
2.7%, that's a lot better than it had than the previous six or seven quarters and feel like the fourth quarter.
Should be a positive number hopefully materially positive so.
Hopefully that gives you some color about the change in direction between core and transition.
Perfect. Thanks, and then second question.
Appreciate the color on the CCR season protection.
They they exhibit in terms of competition and the length of stay but 40% of your shop. I think is is CCRC is now are you comfortable I mean, obviously the risk is housing market sort of tanks and you have trouble getting people into the communities so to what the.
Agree or do you see that going down I hope you know and perhaps in dramatic fashion as you kind of.
Change your portfolio or swap it from triple net to shop in the senior housing space.
Wretch it it's Tom up the CCRC its do definitely represent a different model from straight senior housing barriers to entry are dramatically different as you probably another huge properties sitting on lots of acres infill type land.
They appeal to an earlier wave of baby boomers more in the range of 81, rather than 85 for for purposes of entrance.
They haven't eight to 10 year length of stay which obviously produces a better earnings model due to the predictability.
Those tenants.
And we think that with with the approach that we've taken to that business that it produces a more stable component to our senior housing business that we'd like blended against the ill in Iowa continuum of care product. So we actually really like it but but 40 is the right number or do you see that.
No I mean, what's your appetite for other CCRC is I guess the question as you go for Yeah. I think that's a fair question Here's the thing about CCRC is they don't trade that often because they're very difficult to put up.
I mean for instance, the new supply hitting this stuff in a in a 10 year period, and the 10 mile radius of spend as Scott indicated absolutely zero. So there's an earn a lot of and trading hands. So one quality product does change hands. Another we've got the infrastructure set up to take advantage.
Of this product type, we certainly would like to purchase a more but it's not going to be an outsized portion of our portfolio is just going to be one line of business that we have within senior housing with we think it's up a good diversification within the senior housing segment don't want a portion of it.
Gotcha, Thanks, very much you bet.
Our next question comes from Jordan Sadler from Keybanc. Please go ahead with your question.
Thank you morning, just a follow up <unk> riches last question there.
Why are the cap rates so much higher on these properties and what is the tail risk as sort of <unk> you guys think about it how should we be thinking about it.
I guess I'll take this one to the cap rates and the and the risk up and all that Scott to chime in on this as well from a risk perspective.
One of the things that one has to consider is that the entrance fees oftentimes are paid for by the senior sale of their single family home.
So if there was a dramatic decline in home values and it was prolong that could have some impact yet the accounting in the way that it is set up.
Amortizes that entrance fee over the actuarial life of the of the tenant. So that's that produces a more appropriate matching of income a with the with the services that are required on those properties. So a good earnings pattern that we think to be quite clear.
Correct.
So despite the fact that does have the the risk factor of a downturn and housing, which hopefully would not be long term. It does produce strong pattern of earnings that will go through the cycles and as far as the cap rates, where they currently stand that's what the market is.
And there was complexity and setting these things up.
The accounting involves actuarial work Shawn Johnson, our CEO spent.
Two three months working on this round the clock to make sure that we had it right.
Great job appointed together add up now that we've got it all set up the way. We've we've studied the business we've been in the business for a period of years, along with our friends Brookdale, we think that it's going to be a great business Accordingly cap rates to me feel like they're a bit high.
So I think I think there could be some compression as we look forward over the next several years, that's my day Scott.
Yeah, there's also.
Not a whole lot of comparable transaction activity of point too on cap rates. So.
I've seen them anywhere from 7% to 10%.
Sure so.
It's hard to say that there's a specific market cap rate I think it's easier to find comparables in senior housing was just a lot of activity is just very rare to see for profit easier she's in particular trade because the vast majority of the product nonprofit that rarely if ever trend.
So.
It would be the other comment I would make you sensors.
Obvious comparable cap rate to point of view.
Transaction standpoint.
So I've seen it to your point, we know what we don't get a ton of granularity on these from a lot of folks, but one of the smaller players.
In the space public reach has a significant portfolio I have noticed you know there's it at the operator level, there's a significant resident buying liability.
I would imagine those sit on these assets as well just you know those fees essentially that are I don't know refundable ultimately upon a you know move out.
At some rate where does that liability see it based on shorter now that this JV will be sort of consolidated is that going to be on HCP balance sheet and if so how big will that be and if not just kinda. It's still curious how big it is.
Yeah, the refundable entrance fee.
Sits as.
A deferred liability that's an evergreen liability.
Other words as as one resident moves out debt that refundable liability gets refunded to that that senior or their their state a when the next resident moves and so becomes a.
Evergreen liability that numbers about $300 billion on our books.
When we think in terms of the nonrefundable fee. That's represents a deferred revenue because there's a future surface obligation.
And therefore, when you have a deferred revenue that's picked up in purchase account and appropriately over the remaining extra lives of those seniors.
He is amortized into income.
As as a booster to the total income that is earned on that are on that portfolio or that particular property, which create does create a nice earnings recognition pattern.
But that liability on the portfolio that we purchase and that's the 100% level is that about $400 million.
Scott Jordan I wanted to add one other thing though.
The average total entry fee on this.
He is only about $200000.
Very modest price point, it really appeals to a wide.
Demographic that 200000 is below the.
The median home value in these markets I'm pretty significantly and.
Entry fee communities are different sometimes there are 90% refundable plans or could be a zero percent refundable class.
This portfolio is closer to the zero percent refundable on average over that 200000 dollar entry fee only 25% did it is actually refundable in the balances nonrefundable. So this this portfolio RV was pretty unique from that standpoint is that.
Refundable liability.
Pretty small relative to the size of the asset values.
So I think it's important to keep that in mine as well and as Tom mentioned it functions more like a security posture I mean, there's no interest rate associated to it just sits on our balance sheet. So.
It's one of the complexities and CCRC and maybe that is one reason is the cap rates are little bit higher but.
And with it, especially given the ability to scale here I.
Im going to have one thing Jordan, because you've obviously study season I don't know, but everybody on the calls have the same time.
What kind of cap rates that you're speaking to when we did the brookdale transaction that was in the vicinity of I can't get.
Somewhere in that range and that's based on N. Hawaiian entry fees that are we see but when one breaks it down let's get down to actual cash flows.
Yeah. It was my next question.
So let's break the castles apart. So if we went from let's just call rough numbers of 10 cap or is it probably on a recurring capex basis to recurring capex. It probably brings it down about an eight in the quarter cap and that means we spend a lot of money in these assets because they have to be kept and tip.
Shape up if we included that the the revenue enhancing capital improvement type spend as we have seeks to make these assets a along with Brookdale, we have seeks to make them to better and better quality.
It's probably more in the 7% to 7.5% yield range, but that is with a pretty vast improvement and the quality of the assets. So again going from a 10 cap to probably an eight and a quarter run rate a yield.
Based on recurring Capex, we put a lot of money to the assets, that's probably putting this more on the 7.5% cap rate range just to give you feel.
Thanks for all the color.
Our next question comes from John Kim from BMO. Please go ahead with your question.
Hello healthy.
HM.
Can you I think you provided some mark to market on the lifetime that you had this quarter, but I was wondering if you could buy that same figure for M. obese and also what should we expect for 2020 expiration.
He's in the last part was what we expect for 221.
The 2020 mark to market.
Okay Huh.
In the past couple of years, we've actually seen the mark to market in the M. obese move up this year.
Very good we're in that kind of 3.4% last quarter, 3.2% this quarter on based on.
Stork old numbers, and where we've been moving I would suggest the same kind of numbers next year, 2% to 4% kind of sand that range.
Got a my next question is on the purchase option detailed that you provided this quarter.
Is the annualized base rent is that a good numerator for a the cap rate.
That you'd be selling out.
Hey, John Yeah that is a good.
That's a good proximate for the numerator.
Okay do you have any indication on what can happen once the 2021 option in L.A.
On the whole hospital in Irvine.
It's likely to get exercised.
It's on the west here.
What's the current assumption right now.
I'd say that said it's likely.
They continue to work through their plans if they decide.
Advantageous for them to have more time.
We're gonna be flexible and open.
Them and working through that.
Six and a half is that in a market cap rate for.
Not at the time in Italy.
Yes. This is Tom clarity, but that's it that's a good market cap rate.
You read asset I mean, it did hold is you're not familiar with Orange County, that's the best health system.
Orange County, and it's a fantastic location in Irvine, So I don't think that's representative.
Hospital cap rates, but it's certainly.
Presented itself such a unique.
Health system and and market location.
Thanks, good color.
Thanks.
Our next question comes from Michael Carroll from RBC. Please go with your question.
Yeah. Thanks can you discuss the south San Francisco Life Science market, what type of demand are you seeing at your Sarah points projects right now and has that interest changed since one of your peers and now it this quarter that they fully leased a their development project was nearby.
Hey, Mike It's Pete.
Happy to dig into that I think of us as I've said before south San Francisco is a very important market to a healthy.
4 million square feet in that market and the current vacancy rate is around.
2% right now, which is one of the reasons why you're seeing.
A lot of new construction.
When you think about the new construction there was about 3 million square feet right now that he's getting filled with all the new leases that have been side.
Probably around two thirds committed.
Within that is obviously the co pays for which is 100% leased ashore phase one which is 100%.
Please.
And also within it isn't sure phase two we're not at a point, yet where we're ready to give any additional information on that but I think you can glean from the demand within that marketplace that we feel very good about the prospects of the Schwartz phase two.
You know, we're going to continue to focus on life science tenants I know, there's been some activity with non life science tenants in that marketplace, which when something gets leased out to a non life science tenant that's actually probably a good thing for us.
Since our core focus is on life science users and that's why.
It is so we feel quite good about that marketplace and we think all these projects will do well and we feel very good about our positioning with the shore phase two.
Great I know, we discuss this a little bit time last quarter, but I know you have some land site still in South San Francisco is there a point where are you would want to bring forward or some of those projects in break ground on another one.
Yeah. That's a good question, Mike you know we actually have.
A lot of land opportunities in life Sciences, both with in South San Francisco, but also in San Diego as well as Boston or if we had to prioritize where we are to guy.
Within South San Francisco will continue to build out the shore phase two as well as the short phase three that's our focus right now I think as you look at San Diego.
Probably prioritize our science Center Dri project down there.
Head of some of the other projects in South San Francisco right now just given that we have.
A decent pipeline ongoing currently and then in Boston, We have our 101, Cambridge Park drive opportunity.
Into the city of Cambridge, right now are trying to see art site permit.
Going as fast as we can there, but we feel quite good about how we're positioned Dan and that west, Cambridge market with one or one there. So our priority is probably one on one as well as science Center drive, finishing up the shore phases, two and three and then to the extent that there's a still significant demand will start to assess those other land parcels.
South San Francisco, Tom you want add anything.
Yeah.
A few things that I would add is as we look at.
Any new development.
One of the things, we consider and do a lot of work around is the demand supply fundamentals.
Well look at the amount of pre leasing that's taking place not just within the market, but within our own properties.
We look harder as to how we would match fund.
Those investments with non core sales in fact this.
I happened to be a topic with our board meeting a weekend a half ago, where we did a full deep dive on that.
So we like our prospects, we like what's coming down the Pike. We do we do have some of these projects that Pete just mentioned that fit very neatly into our clusters and therefore that represents additional opportunity for us a in the way clusters work with bio tech tenants and the like so we like our play but were.
Also going to continue to approach it with a high degree of caution while still seeking to take advantage of the opportunities that we have.
Great. Thanks.
Thank you.
Our next question comes from the <unk> from Morgan Stanley . Please your with your question.
Thanks for taking the questions just first on on senior housing shop.
We've now had oh, the three large healthcare reach reports it's been a range if results in views I know you guys gave some thoughts longer term on near near read I'm, just wondering specifically on shop.
Oh, Scott if you could give us a sense of two things one how did occupancy trend for maybe just to defer their multiple pools, but just some of the boost to get a sense of how things are shaping up going into Fourq, you and then what sort of the the range off of pricing bar that you saw exhibited across all the audio partner.
Yes.
Hey, good morning, because so I'll comment on the entire shop pool.
So year over year.
Occupancy was down about 70 basis points.
Quite easily in third quarter, it actually moved up.
Quite nicely and if you look at where we were on January 1st of this year versus where we're at today.
The first five months of the year decline about 100 basis points.
On the last four months into your increased about 100 basis points. So we're basically right back to where we started.
On January 1st.
The shop, SPP or oil, which is pretty good actually so that that's where we're at on occupancy. The recent trend is actually that quite positive obviously up 100 basis points over the last four to five bonds and not on rate I think it's more for me can you talk about the two.
Pools separately because in the core portfolio, which is more stabilized a bit too.
Year over year Revpar is up three half, 4%. So actually it's been quite strong and continues to be the transition portfolio and year over year growth rate is slightly negative.
And I think there a couple of things. There. One is we do have a number of mall occupancy properties within that pool, a when one of the operating partners and spend more aggressive on right to improve occupancy, which is bringing down that averages just a small again the law.
Well numbers the other thing that's happening in that pool is it the acuity level is declining.
They'll just ran a higher acuity level that atria and that's the vast majority of that pool. So.
So the rep or which is an all in rate, including care is naturally going to decline a bit when acuity comes down. So I think that's a factor is well Victor.
Okay. That's that's helpful on the Oh on the JV with the sovereign wealth fund sorry, I missed this its I think due to unit did you get the cap rate on that.
Oh, we did vikram its in the low to mid sixes.
Before the asset management team.
Okay low to mid Sixs, and then maybe just one for for beat.
There's there's a lot of changes obviously over the last two quarters I I know you will eventually give us 2020 guidance, but just sort of.
Looking to get a sense of some of the bigger moving pieces as we go into 2020, given the do you mean, so many changes that have gone on over the last two quarters. If I look at sort of consensus numbers. It seems like sort of 40 540 445 cents a run rate throughout the shelf next year. Just wondering if you can talk about.
Some of the bigger moving pieces, we should be aware about as we as we a bitter models.
I picked it up or is I guess I'll take that one.
He got one do that okay. So we.
We do expect to have more normal earnings growth going into 2020.
As you know were we still got the fourth quarter in front of bought some more in the Mets right now of our annual operating plan that will present to our board in December .
But I will share with you some directional thoughts based on where we stand today.
As long as you recognize that our full year guidance is not going to come out until February which is our standard practice.
So given that one I'll just give you guys are run down you can you can use it as you do your modeling and let's throw them obese.
Yeah movies or are primarily on campus for our portfolio as you know.
Sent us a steady performer for the last.
Decade, plus consistently has operated in the 2% to 3% range.
2019, when you look at our numbers, we did benefit some from the outsized growth in medical city, Dallas, which brought our SPP.
Ah to the upper end or maybe a little above the top end of our typical range.
And as we look at 2020, I think we can't assume that that additional add rent continues to grow although it might but we're not going to forecast that so I would probably say somewhere in the low to mid twos for applebee's.
Oh go into life science, the fundamentals remain very strong right now we continue to see near term upside.
Our positive Mark to market is in the 15% to 20% range that that is in our portfolio.
We've got healthy lease escalators as I think you know.
So if we were gonna Swager number for purposes of this call I would say growth than before to 5% range.
And let me caveat that for a moment.
Up you guys realize we used a cluster strategy, which is vital in the three core life science market and we've got strong scaling these markets and.
That combined with the significant development platforms that we have that we're delivering on heavily in 2020 and 2021.
It it gives us the ability to proactively collaborate with our tenants.
To meet their space needs as they grow which has been a common thing we've done with our tenants we have a lot of development coming online.
What this means as well have certain tenants that have smaller space they want to grow into bigger space, which would move from one of our S. P. P properties into one of our non SPP properties, primarily a lease up a a development.
We in fact, we've seen a few fairly significant tenets that that are taking these exact moves that we've we've signed up letters of intent and and that's at the cold to shore. It might have some some of that stuff going on a Boston we'll see.
And it's it's absolutely a positive to our earnings and is the right economic boom, but can be a negative in the short term or two S. P. P. Due to the downtime, we haven't repositioning that vacant space for new leases.
No. It's a really good thing for the company, we get the blip in the metric of SPP, so, peaking and break or an eye on the senior team I've been talking about how to best present that as we go into 2020.
Economics are gonna be great well figure out that metric and whatever the most appropriate way to present that but bottom line is life science looks great. The real growth isn't a 4% to 5% range.
It takes us to senior housing unless you're a triple net that's easier.
We've dramatically overhaul that triple net portfolio brecher talk to that.
They take a look at that he chart go back a few quarters as he indicated it's in the south.
It's dramatic when you look at it and Ah, but we're looking for that business to have same store growth at 2% to 3% long dated leases good credits so that business looks great.
It's going to shop.
That makes up.
15% of our total cool, but 10% of recipe people some of our best assets will come into the pool over the next year year and a half so that I can even be I'm 2020, a SPP so back to shop STP Vienna at about 10%.
So consistent with the previous views that Scott provided.
We believe we've got an operating environment that is going to be choppy and 2020.
Well, we expect to see steady improvement going forward.
And we have worked really hard to remake the shop platform the favorably position it for our portfolio.
The worked under dates and dispositions transitions.
Recycling of capital into higher quality assets, which we think will be rewarded the direction that we want to move.
And for 2020 or same store pool is going to remain.
Very small and up and ice quality assets won't even be end the call until 2021, so given all that and it by the way I was just make it [laughter] shop is inherently difficult to forecast.
Where everybody out there.
Especially when you have a smaller cool and you've got transition so we'd like to see Q4 play out we have that that information in hand, and on shop, I think we'd probably want to wait until February and give us our best guidance at that date, Andy Schopick again, which represents 10% of RSVP cool I.
Oh, Yeah sure quite go ahead.
On external growth.
Our development pipeline is going to produce some really positive.
Impact from an F. FFO as adjusted perspective, we're talking probably four cents a share.
Just from what earns an.
And you'll also see earn in from 2019 accretive acquisition activity, assuming we're successful, which we think there's a good chance that we'll have some upside there we want forecast to it but we do feel good about that but at the same time, there will be some offsets that I think you guys probably haven't your models.
If you don't make sure that you talked to our bad and Andrew in the light and the guys here, but there's gonna be some rollover impact from some of the late 2019 for instance, the prime care sale that we made that was a great sale plant upsale came with a bit of dilution. The UK ventured disposition came with a little bit of does.
Solution, we're gonna have the normal annual pruning of our noncore assets. We're gonna do that forever just assume we're gonna we're going to sell 300 million doors of older tired assets every year and recycle that into development.
We've got that the north Fulton a hospital purchase option.
Pete mentioned that we've added a new schedule. We wanted to make sure you guys saw that it's an 82 million dollar purchase option that RUPS out to about a 10% cap rates a little bit of dilution there.
But given all this back to I think what your original question as we expect to move back toward a more normal earnings growth beginning in 2020.
With some potential positive or negative noise from a senior housing transitions.
And some of these new acquisitions that we still you know when there are some lease up required for stabilization or but we'll come back to with more specifics on the fourth quarter call that that's what I'm willing to tell you on the 2020.
That's actually very helpful. Thank you so much and I I would agree with you on the Triple net side even your.
Metrics on the amount of new supply. The median household income in the median home value. They all jumped as well so definitely agree with you.
Thanks.
Our next question comes from Joshua are fairly in from Bank of America. Please go with your question.
Hey, guys. Thanks for the question I'm curious on the Brookdale shop JV that you created this quarter why not just sell those assets out right and then maybe could you talk about their performance first your overall shop performance and maybe the impact on your shop, both today and in the future how how you might present.
Yeah, you don't want to call out this specific performance of.
That portfolio, although I didn't mention that.
Understood and Denver ours significant part of the core.
And that the balance of the core portfolio was actually flat year over year versus down 7.4%. So I think that gives you at least directionally indication of how that portfolio.
Was performing the decision to do a JV rather than sell the assets outright was a couple of things one it's a new capital partner that.
We've been talking to you for a good period of time that over time, we think could be an excellent strategic partner on any number of opportunities. Obviously, there was a mutual desire to establish a partnership it may never girl. It may grow significantly you know what we'll see based on the opportunities.
But that was an important consideration.
For us.
The other is that over time, we think these are gonna be good assets for the next couple of years, we think it's going to be more challenge because as the markets.
They are in unfortunately, the sovereign wealth fund there are some benefits to be private they're able to take a long term view, which they do we're able to take a long term view, but only to certain extent and we needed to manage the portfolio. Accordingly. So we think that overtime. This will be a very good portfolio for a couple of years.
It probably will be more challenge. So we thought this was a strategically and economically the right thing for us to do with the assets.
It didn't want it and that's Josh let me try and answer.
Answer your question on S.P.T. I'll speak office, we've been told that there's some sound difficulties first time I've been told that I'm too quiet so from a SPP perspective, our policy is to remove jvs from SPP Ah. So if the steel does close in the fourth quarter it could have a material.
Positive improvement on our reported numbers importantly, and this is very important our current guidance.
Does not assume these assets come out of our full year pool.
We will be transparent in the fourth quarter or on the impact of these assets and show with both with and without these assets included.
I just had one thing to that Pete if I could as we go into 2020.
We will be assessing whether to show these types of jvs on a pro rata basis going forward because when we get some larger JV is like this it just feels like there's assets missing up we probably we would like to report on I'm sure you're like of information. So we're working on that.
Thanks, guys that's it for me.
Thanks.
Our next question comes from Chad Vanacore from Stifel. Please go with your question [noise].
Hi, Good morning. This is how chill on for Chad [laughter]. Congrats on the rebranding and my first question James Fronda shop performance looks like occupancy has improved quote unquote or across the board given the competition you Meshing Denver and Houston Your core portfolio did you offer more concessions in the quarter to defend occupancy.
What do you see the outlook for four key unclean Ford and how we should do you think of occupancy versus rate increases in the choppy market, they mature, especially thinking 2020.
Hi, good morning, and so there wasn't as much price concession as there was increased marketing spend so that's one reason that the year over well actually sequential performance was a big weaker so not significant discounting it was more.
Capital into the buildings as well as elevated expenses.
Through the marketing efforts, including new salespeople.
Okay and my second question is on dispositions you just mentioned the plan to like recycled $300 million assets annually I didn't know what run rate. So other than the 18 chip on the assets you are selling to Brookdale are there any major portfolio. These physicians that are in the works near term.
No nothing.
Dramatic it's more just typical for me.
Okay. That's people me thank you.
Thanks.
Our next question comes from Nick Joseph from Citi. Please go ahead with your question.
It's Michael Bilerman here with Nick just want to come back to a the joint venture and Scott you mentioned.
The low to mid six cap holiday total portfolio value of 790 million.
Which equates to a total at a why of about 49 million and then the other piece that you sort of talked about was.
That included the assets in Houston in Denver that if were excluded from the shop pool.
It would mean it would be flat. So if you were to look on page.
34 of your shop.
In the third quarter right, there was 14.6 million of cash in Hawaii.
It was down seven so half of that is Denver, and Houston down let's call. It 15 to make them half simple.
How does that all tie out to a you know what's embedded to about a 49 million dollar in Hawaii sixtym quarter cap on $790 million a value.
Oh, I'm, just trying to piece it altogether or maybe the cap rates on the different in a wide number versus what's in place [laughter], maybe not happened maybe there's other assets outside of what isn't here can you just sort of tied altogether.
Yeah, I'll try to and maybe a follow up call would be helpful. Too just to walk you all the details, but the assets that we are selling.
Sovereign wealth fund or doing a JV.
Not all those assets are in yes, peaking.
Because there are some that are actively being redevelop so they're not in SPP.
And then if you look throughout the supplemental when you see that shop assets held for Brookdale that also includes a number of assets that are held for sale. So there's a population difference that I think is maybe driving some of the confusion, but you're correct on the roughly 48.
$49 million without a why over the $790 million purchase price.
But what is that a wise that a current in place reported three Q number arguably a part of that sounds like under redevelopment a part of that where you had significant in Hawaii weakness or is it what is forecasted for next year as a trailing 12 months what does that 49 million represents yeah. It's a t. 12, Michael the 15th.
We annualize would be more like high 5% to 6% and forward looking cap rate.
Probably let the sovereign wealth fund comment on that and we'll give our view when we get February guidance.
Right, but that's important number at least from us through Threeq you annualize because that's the end of why we got to pull out of our model in which case, it's going to be less dilutive. If it's in that five to five and a half range versus six to six and a half.
Other thing and.
You know it was really helpful. Tom as you walk through a lot of the.
Elements of next year coming from this year, you know you had like storage of self storage company come out and gift 2020 guidance actually a lot fewer companies get 2020 now be XP and a few others would you consider you know you have a big conference coming up with Hey, written a few weeks, maybe putting more of those building block.
Yes, together, so you can give a little bit more color to the street versus waiting till February .
Michael I thought about that and.
I must say if.
You know I've got a path in other.
Sectors.
We're one of the dealing with a single sector.
When you start dealing with multiple sectors. It becomes much more complex as you can imagine.
And I will say the senior housing sector is.
So far different animals to forecast.
Then the others that have ever dealt with.
And so it's we almost need to see how the year completes out to get a feel for the fourth quarter to see how January looks before we set guidance for the year because there's so many moving parts and even the moving parts. Despite the difficult in the transitions it comes down to.
I think in terms of of assets that are often at 15 2020, 530% margins smaller changes and be a in a why it could be it could be ramps it could be expenses a variety of different things can cause some pretty dramatic changes in the numbers.
And that's especially true when we have a small pool like we have and shop I was what I worry about in shop kits that we can have a change that is literally immaterial to our outcome for earnings for the year, but it can swing this metric that seems so exceedingly important.
The street, because I know that their comparing us to certain peers, what's an enormous number in their portfolio and so we have a tendency to want to get enough time to model. It as best we can.
Good good estimates on that number it'd be hard for us to come out with full guidance.
Early when we've got the shop number that we want to dial in as best we can so I'm I'm inclined not to come out with specific guidance at may read, but rather gifted fractional guidance as we can like I just did and then dial it in in February .
But I I agree with you in same store, there's way too much focus when all three view calculated a different way I mean, well powered to think calculated the thing between their SEC filings on their supplemental where do you stand at least trying to come together you know the industrial reach came together 24 months ago to at least a guy.
Agreed to a common definition on same store.
Is that something that you feel you can do.
There's willingness to do.
Yeah, Michael it's something that we would gladly do.
But it requires all parties to want to come together and come to a common definition. So if if if we find that our peers wanted to do the same we will be the first to sign up.
[laughter] last one just on same store I guess, you must have listened to welltower invent off this call I'm sure Scott listen to Welltower, because you had some really nice comments from his whole boss on it.
But from the same store perspective, where do you lean in terms of the description of the sale of the senior housing operating environment overall.
Yeah, Michael I guess would be somewhere in between what do you see I can't tell you that well you're very distinct.
Michael I would you say the the industry environment is generally in line with what we've been talking about for the past two years. So it's challenging.
Certain markets are better positioned than others certain operators are better positioned than others.
We're starting to see modest signs of improvement in more markets.
Then we would have a year ago in general our portfolio is performing in line with what we expected it to beginning of the year, even though it's a really small portfolio in hard to forecast. So our view has it changed on industry fundamentals, we didn't see any dramatic change in the third quarter, but that doesn't mean that somebody else.
Did you say very local business, especially if you've got transition assets in the pool that I certainly wouldn't disagree with any comments that were made by anyone else, but we can't comment more specifically on what we're seeing as well as the conversations we have a with operators who have bigger footprints.
I would you say our view is that it's challenging. It then challenging things are getting better, but it's it's got to take a little bit more time to improve at least at a national level. There are certain pockets that are doing extremely well already oakmont is a great example, aegis is a great example, so there are.
Submarkets and operators that are making a lot of money right now and would be confused by anyone talking about a challenging operating environment and then there are others at the exact opposite ends of that spectrum, particularly in smaller markets with older assets in particular, if you're in the middle of the transition. So I think it requires a lot of nuance.
About what portfolio, you're talking about in be best to avoid sweeping generalization about junior hobbies.
Right, Okay. Thanks, a lot.
Thank you.
Our next question comes from Steven Valiquette from Barclays. Please go ahead with your question.
Great. Thanks.
Good morning were good afternoon to Pete and Scott I.
Congrats on your continued a life science strange, which is pretty important but unfortunately I also had a question on senior housing.
Sure.
Just a follow up further around the a discussion outperformance in the shop core versus transition portfolios. Your comments around Denver and Houston were helpful. When you look at it in the revenue growth trends year over year actually fairly comparable between the core versus transition portfolios.
Instead to me it was really the operating expense growth kind of jumped out it was higher at around 5% in core versus only 1% the transition portfolio.
I'm not sure if that was related to the to the acuity differences that you alluded to earlier in the queue in a but I guess the question really is going with the overall industry discussion around rising labor costs and other expenses.
Is there any extra color you can provide about a initiatives that you and your partners may have to try to control operating expenses within the overall shop portfolio.
Yeah happy to take that one part of the gap between the transition in core portfolio on expenses is that.
Last year, we talked about some of the transition assets, having disproportionately high operating expenses during the transition weather's repair and maintenance or overtime or contract labor. So that started to reverse a little bit. So that's one reason that or the growth in operating expenses or not.
Transition portfolio. This year is lower than what you're seeing in the core portfolio because the cost of labor I think you've seen that's pretty consistently among.
The other health care reach as well as a publicly traded operators. It's in the 4% to 5% range in most markets and that was true of our core portfolio and true of our transition portfolio. So it was really.
Expenses outside of labor that we're driving most of the difference in operating expenses between the two pools the square.
Was there any hope to kind of bringing that expense level down space and some initiatives are you kind of stuck with the cost.
Expenses growing in that four or 5% range that you just talked about.
Yeah, I wouldn't say that your stock or at the same time.
Seniors are moving into these communities with an expectation of a certain service level and it requires a lot of human to human interaction and that's not something that we're willing to compromise so any consideration around.
<unk> cutting expenses, but at the expense of the service level that that's really off the table and it's a competitive labor market and at the end of the day, usually companies with the best employees end up having the best performance senior living community is no different so you have to pay a competitive wage.
To get a high quality worker not the same time.
There's a strong culture, good development opportunities et cetera, you have a better chance to have less turnover.
And attract a more talented workforce and that's really the emphasis no longer term are their chances for technology to reduce the amount of personnel needed at the community. Yes, I think that's the case, but I wouldn't say that there's a dramatic opportunity on that front in the next year or two.
Okay got it okay. Appreciate the color. Thanks.
Our next question comes from drew Babin from Baird. Please go ahead with your question.
Hey, good morning.
Drew just a couple of quick ones for me the capital senior properties that are the ones that are flipping over to regalia I know when this happened with Sunrise I think their rent payments were subordinate to a capital spending and so there wasn't really a noticeable uptick in capex at Macy's perspective with these properties.
Are you can see kind of a noticeable increase in the amount of capex. He's responsible for you just kinda talk about the structure there.
Sure John I'll take that it so its four assets those will probably transition in the first quarter of 2020 , they're good properties and we think good sub markets I think it's more likely than not that.
All four of those will end up being redeveloped their 25 year old properties.
Under a triple net lease overtime the amount of capital reinvested into the property is not always.
A significant as you might want so I think it's more likely that those would move into the redevelopment pool of in which case, it's a different type of spending then and capex that would be impacting earnings.
Okay that makes sense and then just one more for me the or the breed and your see that ultimately.
Hopefully.
We'll be buying now what was the reasoning for bringing that one and what changed in the dealer.
Give a little more color on that I'd appreciate it.
Oh, it was nothing more than valuation so we've been talking to brookdale.
About this.
Portfolio for a long period of time and there was a disconnect on that particular property about the right valuation that did not get resolved by October 1st, but we subsequently we're able to come to agreement on the right valuations I'd ask that at a price that we were a willing buyer and they were a.
Willing seller and Lcs is excited to take it on as well it fits very nicely within the Florida geographic footprint for that portfolio. So we think it's a nice at.
Great. That's all for me thank you.
Thanks.
Our next question comes from Daniel Bernstein from capital One. Please go ahead with your question.
[noise].
I just wanted to ask go back to the comment you made on additional land at the CCR season, just generally given the impressive restructure the portfolio.
Where the start have been in CCR season, maybe seniors housing generally coming down do you see some additional opportunity to ramp up your construction development senior shall skin, maybe to what extent would you do that.
Yeah, I, it's not going to be a steep ramp up but as a long term owner, we think there's substantial long term opportunities. There is one active projects underway.
And that virtually every campus there is some level of expansion opportunity as an example, the project that were underway with already.
The independent living portion of the campus, which is usually two thirds to three quarters of the total units are in very good condition and they've been reinvested in over the over fear over a period of time.
But the community has a very tired health care unit.
There's no memory care provision you assisted living is studio apartments or the skilled unit is semiprivate occupancy.
This is a campus with 50 acres Atlanta, so there's the ability to construct a brand new assisted living.
Hey.
As well as memory care and create private.
Yes for the skilled nursing so today at the property that you walk in the independent living in its fantastic and then you see the health care component of the campus and it's not much to talk about so there's really a an opportunity to dramatically change to the health care side of that campus. So that's just one example of the type of pro.
Jack you can do when you've got 600 acres of land.
Okay and then just one last question is do you know you've done.
Recent private equity sovereign wealth fund transactions in the movie and seniors housing space do you see any opportunities in life science to expand that expand those opportunities as well.
There's certainly plenty of interest, but Dan one of the things Tom talked about before as our cluster strategy.
Our ability to allow tenants to grow within the portfolio as they have success.
Becomes more challenged as you start joint venturing different campuses and moving tenants from.
Perhaps a wholly owned campus to a joint venture campus or vice versa. So to scale, we have not done any joint ventures or within the life Sciences space and that's the primary reason why.
Okay I.
I appreciate that that's all thank you.
Thanks.
Our next question comes from tire Okusanya from Mizuho. Please go with your question Yeah. Good afternoon again, congrats on the name change hopefully to start a bigger and better thing.
As we start to pick up about 2020 again, just along the lines of the C. S. You questioning a there a couple or the operators to at least coverage kind of remains weak as we start thinking ahead of 2020 should we be kind of throwing some kind of consideration around lease restructuring around some of those names as well.
No.
No I don't think so tie all I mean, the vast vast majority of the triple net rents nowadays with Brookdale aegis and H. array and those are now very long term.
Master leases with improved credit.
There are a couple of I'll call them cats, and dogs or that have very little amount of ran all of them how corporate guarantees though.
I think we're more likely to just collect that ran through the maturity date. If we did choose to do something earlier, which is not our expectation today the amount of rents from those properties is showing significant that you wouldn't even be a blip.
Gotcha, Okay. So that's number one and then number two.
Tom I'm not trying to show you the door anything but with the promotion of Scott I beat what kind of signal about it really trying to send us just around maybe succession planning at this point.
Well.
That's a.
I think I don't want to answer this one tell by the way welcome back today. Thank you I appreciate that [laughter].
Now here's here's my thinking so don't read anything into that.
It wasn't so long ago that I thought of 57 year old is an old guy, but as far as Ceos go I think it's a relatively young guy nears I can tell so I expect me wrong for lot of years I'm looking forward to working what Scott yeah in partnering with him and.
I think that's going to be for many years to come so don't don't read anything to that into a this promotion at all other than I think Scott is going to be able to help us run this business, even better by bringing under one extremely talented person. The overall oversight of our three businesses along with the transaction.
So that that's being headed up by one person.
And that was that was the sole rationale for as well as that allow Scott to continue to group himself.
A bigger things going forward.
Great. Thank you. Thank you.
Once again, if he would like to ask your question. Please press star in one.
Our next question comes from Lukas Hartwich from Green Street Advisors. Please go with your question.
So just one left for me can you provide an update on the tenant interest level at 75 Hayden.
Sure its Pete here Lukas so what are the interesting things about 75 Hayden as we actually had to build a parking garage first before we could begin construction of the steel that had been completed a fairly recently.
Deal has gone up and in fact, we just had the topping off of that a few weeks ago, We think will really well positioned with 75 Hayden vis-a-vis the market fundamentals there so similar to the shore phase two nothing to report today, but we feel very good about how we're positioned and.
Yeah, we're looking to deliver that basically on a year from now so we're right in that sweet spot, where we think we can get some leases side.
Great. Thank you.
Excellent.
And ladies and gentlemen at this point and showing no additional questions I'd like to turn the conference call back over to management for any closing remarks.
Well. Thank you operator, and thank you for all joining us on the call today and are continuing interest and so Pete.
We'll look forward to seen many of you at any rate and talk too soon.
Ladies and gentlemen that does conclude today's conference call. We do you. Thank you for joining today's presentation. You may now disconnect your lines.
[noise].