Q3 2020 Healthpeak Properties Inc Earnings Call
Good morning, and welcome to the House peak properties Inc. third quarter 2020 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after.
After todays presentation, there will be an opportunity to ask a question.
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Well your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Bart that Rogers Senior Director Investor Relations. Please go ahead. Thanks.
Thank you and welcome to help fix third quarter financial results Conference call. Today's conference call will contain certain forward looking statements. Although we believe the expectations reflected any forward looking statements are based on reasonable assumptions. Our forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations discussion of risk and risk.
Sure. It is included in our press release and detailed in our filings with the FCC, we do not undertake a duty to update any forward looking statements certain non-GAAP financial measures will be discussed on this call exhibit at the 8-K Refurnished with the FCC yesterday, we've reconciled all non-GAAP financial measures most directly comparable GAAP measure in accordance with Reggie requirements.
It is also available on our website at Www Dot helps peak.
I will now turn the call over to our Chief Executive Officer, Tom Herzog.
Thank you Barry and good morning, everyone.
On the call with me today are Scott Brinker, our president and CIO and Pete Scott Our CFO.
Also on the line and available for the Q and a portion of the call are Tom Clark, Our Chief development and operating officer.
Our Mchenry, our chief legal officer and General Counsel.
Starting with our Q3 results.
Three quarters of our business represented primarily by life Science and animal babies is performing on track or ahead of our pre cobot expectation.
We're seeing we've seen executions and life science and animal babies that are in line with or ahead of our original annual plan.
And we have increased our same store outlook in both segments.
Unlike science.
Our development activity remains on track with very strong preleasing.
The industry continues to set records in BC funding, IPO and secondary equity offering which.
Which is adding to the already strong demand for space.
Medical office, we're on track with our development program with H.C. and have or expect to deliver four development projects. This year.
The other one quarter of our business represented by shop, Triple net and CCRC.
Continues to experience pressure from occupancy and expense trends related to covert partially offset by cures Act stimulus.
However, our results have been quite favorable relative to the outlook framework, we provided last quarter.
Improvements to P.E. casting staffing quarantines and other protocols Hum.
I have a lot or senior housing operators to better contain outbreaks of the virus and a function more effectively and profitably.
As we look forward, we are encouraged that health care workers and seniors are prioritized to receive a vaccine when available and phases, one a one b.
Over the past four years, we have taken deliberate actions to exit non core senior housing and SNF assets well.
Reinvesting the proceeds in our growing life science.
Movies and CCRC businesses each.
Each of which consists of irreplaceable and high barrier to entry portfolio.
And each with significant embedded upside.
In our life Science business, we have critical mass and a strong competitive position in each of the three major hotbeds of innovation.
San Francisco, Boston and San Diego.
In the Bakken life science market during the past three years, we have built a 2.4 million square foot portfolio inclusive of our latest acquisition and development announcements, but.
Boston now being roughly equivalent in size to our San Diego Life Science portfolio.
We have grown and strengthened our medical office business with a renewed focus on new developments with H.C. eight another top hospitals.
Including our acquisitions and development completions announced last night.
We have added almost 800000 square feet of on campus medical office space year to date.
And earlier this year, we increased our ownership interest in our CCRC portfolio to 100%.
And transitioned operations sales yes.
It is in our view the top operator in this important segment of senior housing.
We currently have a $1.2 billion our active development pipeline that is fully funded in our plan and 63% Preleased there.
Additionally, we have an enormous shadow pipeline of development and Densification opportunities and our life science and movies and CCRC businesses were significant value creation potential over the next 10 to 15 years.
And our company remains in great financial shape with strong liquidity in a fortress balance sheet, which we continue to manage carefully.
And finally during 2020, we continue to invest heavily in people and systems and have built what we believe is one of the top platforms in our industry.
As to the status of our shop and Triple net portfolio transactions.
First over the last four years, we have dramatically reduced the size of both our shop and triple net portfolio, but aggregate sales of over $5 billion.
As I noted during our last quarterly earnings call and on a recent webcast at an industry conference presentation. There's been strong interest in our shop and Triple net portfolio from a number of potential buyers they have considerable dry powder.
He's buyers include PE firms, whose investment time horizon fits well to capture the future recovery in potential upside of the senior housing market.
Fortunately, we believe there could be an opportunity to accelerate the exit of our shop and triple net portfolio, which we now consider non core.
Were in various stages on a number of transactions representing the majority of our roughly 4.5 billion plus or minus a shop and triple net assets, which Scott will discuss further in a few minutes.
We believe senior housing will remain a vital asset class in our society.
We'll continue to serve the demand of the rapidly growing baby boomer demographic.
So we will be a seller at the right price, but we are also fully prepared to play through its all these assets over time if needed.
Regardless, our focus going forward will be on growing in our three core businesses, a life science and movies and CCRC.
Moving onto our dividend.
Our year to date dividend currently exceed your F that FFO by one penny implant a year to date payout ratio of 101%.
As we mentioned on prior calls we are comfortable if our dividend modestly exceed your AFFO for a short period of time.
And we'll continue to assess our dividend based on our earnings results the path of the virus and the outcomes of our various potential transaction.
Last night, we announced we are relocating our corporate headquarters to Denver, and we'll be moving 20 to 25 people from Irvine to Denver during 2021.
We chose Denver as it provides a centralized location relative to our nation wide portfolio.
Equal travel time to our two offices in Irvine in Nashville, which will continue to house. The majority of our talented employee base and quicker travel when meeting with our analysts investors and rating agencies around the country.
Never also provided a favorable location to attract and retain top talent.
And finally, we also announced that we were replacing or age 75 mandatory director retirement policy with a 15 year term limit.
Given the current makeup of our board we believe the new policy will provide a more orderly and consistent board refreshment overtime and.
And we'll maintain a favorable mix of experience and diversity.
Frankly, I could not be happier with the breadth and depth of our current board.
With that I'll turn it over to Pete to discuss our financial results Pete.
Thanks, Tom.
I'll start today with a review of our third quarter results provide an update on our balance sheet and finish with a discussion on our 2020 outlook.
Starting with our third quarter results.
We reported FFO as adjusted 40 cents per share.
Same store cash NOI growth of 2.8%.
Same store growth for the quarter was driven primarily by our two office platform, which represent 85% of the same store pool.
Grew a combined 4.3%.
As Tom mentioned.
<unk> segment continue to benefit from favorable operating trends and tenant demand.
Starting with life science.
The impressive 5.5% same store growth for the quarter was driven by strong leasing.
Actual rent escalators and positive mark to markets.
In medical office, 3.3% growth was driven by positive mark to market and.
Contractual rent escalators and higher address.
Actually offset by a decline in parking and.
As expected year over year performance at our senior housing portfolio, which represents 12% of the same store pool was challenged.
Triple net growth of 4%.
Offset by a 16% decline in shop.
As Tom mentioned, we are in various stages selling the majority of our shop and triple net assets.
In accordance with our policy and generally accepted accounting principles.
Hundred 11 stabilized senior housing assets were classified as held for sale at quarter end.
These assets are excluded from same store would significantly impact our reported results.
In order to provide additional transparency, we added a pro forma senior housing page for supplemental this quarter on page 36.
At these assets been included in the same store pool.
Ported senior housing and shop same store would have been negative, 27% and negative 44% respectively.
Two other items I would like to mention regarding our third quarter results.
First we experienced a total of approximately $10 million or two pennies per share an elevated cobot expenses and our shop and CCRC portfolios combined.
This compares favorably to the $20 million in elevated cobot expenses, we incurred in the second quarter.
Second we received approximately $2 million or a little less than half a penny per share and cares Act grants.
When looking at our sequential revenue and I don't why performance.
Particularly for CCRC.
It is important to note we received approximately $15 billion of cares Act grants in the second quarter.
Paired to only $2 million during the third quarter.
Turning to our balance sheet.
Our liquidity and balance sheet remains strong and provides tremendous flexibility.
We reported a net debt to EBITDA of 5.7 times we.
We ended October with $2.6 billion total liquidity.
And we have no bond maturities until November 2023, when a modest $300 million comes due.
Moving onto our earnings outlook.
We have updated our 2020 outlook and earnings framework, which can be found on pages 45 to 47 of our supplemental.
Starting with medical office and life Science.
First we have increased our medical office same store outlook by 50 basis points at the mid 0.2.
Two 1.75%.
2.25%.
Second we have increased our life science same store outlook by 100 basis points at the mid point to 5.25%.
To 5.75%, which.
Which is also 100 basis points above our original 2020 guidance range.
In addition, pending.
Finding out how collections progress through year end.
Full year same store could surpass the top end of our range and speaks to the strength of the life science sector.
As a result of our improved outlook for medical office and life Science, we see a one to two penny pick up in AFFO per share or 2020.
Now our fourth quarter outlook for shop and CCRC.
As Tom mentioned, our shop, and CCRC performance exceeded our August outlook framework.
For shop, we expect occupancy declined 100 to 200 basis points relative to the third quarter.
CCRC, we expect occupancy to be flat at the mid point relative to the third quarter.
With regard to expenses, we expect both shop and CCRC fourth quarter incremental corporate expenses to be in line with the third quarter run rate.
Important to note that the shop occupancy expense outlook is inclusive of the entire stabilize shop portfolio phone adds up November 1st.
And does not adjust for potential disposition.
Well Scott will provide more detail on this specific transaction let me.
To provide a quick update on sources and uses.
Starting with acquisition.
In the third quarter and through October we closed on approximately $200 million of acquisition inclusive of the Midwest and movie portfolio.
We have also entered into binding contract on $792 million of life Science acquisition.
Moving to dispositions.
During the third quarter and through October we completed $115 million of non core disposition.
Which includes approximately $100 million senior housing and the balance in medical office.
We currently have a number of senior housing disposition in various stages.
Putting approximately $1.5 billion under purchase agreement.
And approximately $2 billion under letters of intent.
Which if successful are expected to close in late 2020 or early 2021.
The net proceeds from our senior housing disposition could be used for future strategic acquisition debt repayment or potentially some amount of seller financing.
On a run rate basis, our leverage will remain in the mid to high five times net debt to EBITDA. However, our spot leverage metric for the fourth quarter may temporarily go above or below our long term target depending on when transactions close.
As a reminder, the earnings outlook and framework and the supplemental is based on our best available information as of the current date.
Finally, along with our earnings release, we published our October preliminary results and I wanted to touch on a few highlights.
Life Science.
Strong momentum continues with 99% of contractual rents received.
Occupancy, increasing 40 basis points.
Medical office.
Sector continues to show consistent favorable results, 98% of contractual rents received.
And occupancy unchanged from September.
In shop, 98% of our properties are now accepting moving and occupancy declined only 10 basis points, which is the lowest monthly decline experienced during cobot.
And CCRC, 100% of our properties are now accepting move in and occupancy declined 20 basis points.
Notably our eye out al and memory care occupancy was flat, which is the first month during call. Good when occupancy did not decline.
Additionally in October we received $5.5 billion of Cares Act grant and we expect to receive an additional 7.5 million during the balance of the quarter.
Two last comment on the October preliminary results.
Before turning the call over to Scott first.
First we now includes certain historical senior housing data my mom going back to March.
We felt it was important for the street to have all of this information in one place to assess kobin trends.
Second.
We modified our presentation show operating metrics for the combined same store and stabilize held for sale portfolio.
Our previous disclosures had only been for the same store portfolio, but given the magnitude of that that that went into held for sale. This quarter. We felt it was appropriate to change our methodology with.
With that let me turn the call over to Scott.
Thank you Pete.
I'll speak to operating results in each business segment and finished with the transaction update.
In life Science, the 5.5% growth was driven by contractual escalators in the low 3% range augmented once again by strong leasing and mark to market. It.
In addition rent collections have exceeded our expectations at 99 plus percent.
And bad debt has been below historical averages year to date.
We're benefiting from our concentration in the core markets of San Francisco, Boston, and San Diego, which together represent 97% of our portfolio.
These three markets continued to dominate the capital raising in the sector.
We're also capitalizing on our two decades of institutional experience and relationships.
The peak portfolio is unique and that about 70% of our tenants are biotechs with the balance split between farmer medical device R&D University.
That's important because biotechs are capturing the vast majority of the capital inflows and therefore driving demand for space.
Only 3% of our life science rent is from Tech in office.
Significant because the lab environment can't be replicated at home.
Two thirds of our year to date leasing was done with existing tenants highlighting the importance in life science both relationships.
And scale in the local market.
We have direct dialogue with our tenants about their growth.
And a huge competitive advantage when they'd be more space.
Year to date, we've executed more than 150% of our original full year leasing budget.
Going by faster lease up at our new developments as well as renewals and expansions.
In Threeq, you, we executed 80000 square feet of new tools at a 14% cash mark to market.
New leasing was also strong and included a 118000 square foot lease at the Boardwalk in Torrey Pines.
That project deliveries in 14, 21, and is now 100% pre leased with a weighted average lease term of 13 plus years and a return on cost in the low 7% range.
So another huge development success fire team and platform.
Subsequent to quarter end, we signed an additional 96000 square feet of leases in October.
And the pipeline is solid as well with 227000 square feet under letters of intent.
Our new development deliveries over the next 15 months are 88% leased with very good activity on the remaining 12%.
Based on a favorable supply demand outlook, we began construction at 101, Cambridge Park drive in West, Cambridge, a 159000 square foot lab building that we expect to deliver in Threeq you 22.
The project is next door to our existing holdings in that Submarket greedy.
Creating a 450000 square foot class eight campus.
Turning to medical office.
Leasing continues to be strong and we're tracking inline with our original full year between buckets.
Nearly 700000 square feet of leases commenced in Threeq, you, including more than 400000 square feet of renewals at a 4.3% cash mark to market.
We ended the quarter with 90.7% occupancy yeah.
Down 40 basis points from the prior quarter driven.
Driven by the placement of two development projects into the operating portfolio.
Third quarter recollections were above 99%.
And repayments Kogan related rent deferrals were also up 9%.
Year to date bad debt is actually below historical averages reflecting operational excellence.
And the resiliency of on campus Medical office.
We delivered nearly 200000 square feet of medical office development in the quarter.
This includes a 119000 square foot building in Brentwood, Tennessee upon delivery. It was 49% leased the HCR with another 13% under signed letters of intent.
We also delivered a 70000 square foot medical office building.
Located at the Ogden Regional Medical Center in Utah.
That project was 69% leased that delivery and 78% leased today.
Turning to our CCRC portfolio.
Cash NOI was better than expected driven by occupancy.
<unk> expenses being lower than anticipated and $2 million of cares Act funding.
Entrance fee sales improved 30%.
This last quarter, but are still about 50% below historical averages we.
We are seeing steady improvement in demand as Lcs was able to begin phase Reopenings also.
Also the strong housing market in Florida is a clear positive looking forward given our concentration there.
Guilt nursing occupancy with the NRC CRC improved more than 1000 basis points since the low point in may as elective surgeries have resumed.
Turning to shop.
Occupancy declined 220 basis points, when comparing AIDC June to the agency in September.
Much better than we experienced in to Q.
And corporate expenses were just under $5 million for the quarter, an improvement of 60% from Twoq.
The improvement carried through to October with occupancy down only 10 basis points from September.
Our operators have begun implementing phase reopening plans currently.
Currently 98% of our properties are allowing new bins.
More than half are allowing in person two words.
And between 75, and 80% are now offering at least some level of family visitation and group activities, including dining.
This gradual reopening drove a 70% increase in its probably the cart.
Well that portfolio, we collected 97% of contractual rent in Threeq you would.
With the other 3% deferred with capital senior living.
Rent coverage after management fee for the same store pool was 0.89 times on an as reported basis.
Which uses the industry standard of trailing 12 months and one quarter in arrears.
On a real time basis rent coverage after management fee for the three month period ended September was 0.62.
In both cases, the results were negatively impacted by moving the aegis portfolio to held for sale as that portfolio has strong rent coverage.
Turning to transactions, we're moving forward on a number of senior housing assets sales that will further rebalance our portfolio toward life Science and medical office continued to see strong interest from buyers and were in various stages on roughly four and a half billion dollars senior housing dispositions and loan we.
Payments.
Which we put into four buckets first.
Since July one we closed on the sale of 14 assets for roughly $100 million second we have signed purchase agreements some binding in some non binding on eight transactions for approximately $1.5 billion.
Subject to closing conditions.
Third we have signed letters of intent on six transactions for approximately $2 billion and for the majority of the remaining senior housing portfolio is actively being marketed for sale.
If successful we expect the aggregate shop sales to represent cash cap rates in the high fives on a pre coated basis and about 3% on a third quarter annualized basis.
We expect the triple net sales to represent cap rates in the high Sevens based on rent.
And then the high fives based on property level EBITDAR.
The price per unit for the senior housing sales ranged from nearly 600000 to less than 50000.
The dramatic differences in age location and competitive position.
In all cases, we have contractual obligations to not disclose the name of the operator or the buyer.
We'll be able to comment about which assets were sold after the applicable closing.
It's also important to note that could remain unpredictable. So there's no assurance on the completion of the asset sales.
Also in specific cases, we may choose to provide short term financing to speed up the closing.
Seller financing if any would be in the 65% loan to value range with escalating rates to incentivize repayment.
As we have no intention of being a long term lender.
Moving to acquisitions, we've had great success, finding opportunities to recycle proceeds from the asset sales the vast majority of which were sourced off market.
And represent locations and relationships that we specifically targeted.
In October we closed on a 439000 square foot medical office portfolio.
Well $169 million.
Price represents a 5.5% cash cap rate in year one.
Portfolio is 92% occupied.
Six of the seven buildings are located on campus and the other building, it's heavily anchored by leading health system.
We like to have scale at least 200000 square feet at any local market.
This acquisition allowed us to enter Indianapolis and scale.
And to do so with the number one health system in North India as well as the number one health system in south it.
We are also under contract to acquire the Cambridge Discovery Park.
Class a life science and research campus in West, Cambridge campus is adjacent to route to.
And within easy walking distance to our existing holdings next to able to watch station.
The purchase price represents a 5% cash cap rate and a 6.5% GAAP cap rate inclusive of the mark to market.
607000 square foot campus expands our footprint in Boston and provides healthy number one market share.
West Cambridge.
We also have the potential with existing entitlements to densify the discovery Park with an additional 100000 square feet.
We're excited to do this acquisition and partnership with Bulfinch.
Family owned company with decades of expertise and relationships in Boston.
And finally, we're under contract to acquire a 12 acre land site located between our existing Forbes and modular labs three development sites.
The site gives us additional runway to extend our number one market share in south San Francisco.
We now control the most prominent sites on all three major roads in this important submarket.
Which is the birthplace of biotech.
Combined these three contiguous sites allow helping to build and amenity rich campus with 1 million square feet or more.
He dealt in phases based upon our assessment of supply and demand.
In summary, we're making excellent progress transforming our portfolio.
With solid pricing on the senior housing sales and compelling off market acquisitions, and new development in life Science and medical office.
With these transactions along with our strong balance sheet and talented team, we're confident in our ability to deliver value to our stakeholders into the future.
And now back to the operator for QNX.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing Nicky.
So that's why your question. Please press Star then two.
But not everyone. They have a chance to participate we ask that participants limit their questions to one and a related follow up if you have additional questions. Please re queue.
At this time, we will pause for a moment to a similar roster.
And our first question today will come from Nick Yulico with Scotia Bank.
Thanks, a lot.
One so I guess first question on the senior housing asset sales.
You can just talk a little bit more about why you're doing this now and you did say that yeah, you're you're a seller at the right price. So I guess you do think that you are getting a good price here, maybe you could talk a little bit more about why why the pricing is attractive and and why you're willing to you know can't get out of this portfolio right now when you know are there.
We see growth in senior housing over the next couple of years, what why are you confident that you're going to sell at the right price and reinvest into something that's better growth than senior housing.
Yeah, Hey, Hey, Nick it's Tom.
So when I think about our decision to.
Mickey sales I think I had mentioned that we had received interest from a number of parties and as we assess that the moving forward was not a knee jerk reaction to co, but rather it was a strategic long range as long range up to decision.
Where we want her portfolio mix and future growth for reside so we've been selling senior housing for about four years as I mentioned in my script and I think as you know, but we do see cobot as providing a potential catalyst to fully exit the business.
We as we think about the reinvestment of the proceeds we see lots of opportunities to reinvest in both internal and external opportunities and our life science businesses and we do think both of those businesses have a natural competitive advantage for us given our life science clusters.
Hi, and the three major markets and the on campus H.T.A. anchored and will be.
Platform.
So as to I think you mentioned pricing that's the bottom line is that is there.
Certainly senior housing is down some right now it's going to be a valid business going forward in the future, but at the same time, it's going to be a bumpy ride and if we can capture pricing in the ranges that we just spoke of.
I'll call it a a high fives on shop on a pre cobot basis and call. It a three on Q3 annualized that's a pretty solid yield at that pricing and with that we're able to capture quite a strong price without having to.
Go through the bumpy uncertain right that that's certainly a senior housing is going to have so our view at that point is that there may be other players outside of healthy given our strategy that are better positioned to.
To take advantage of that opportunity and let us move on to reinvest in these other businesses that were interested in.
Okay. That's helpful. I guess you know the other question. It relates to you know acquisitions. You know you have gotten a lot done here some of which is income producing a majority of increase income producing also some land.
Yeah, how should we think about you know if you're selling four and a half a billion of senior housing and your acquisitions, you just announced or just under a billion still three plus billion to invest.
You know how much of that is going to be an income producing properties are you seeing you know there is at least I know one large life science portfolio out right now where the reports are 3 billion dollar sales price how is that it should we think about something like that you're you're you're gearing up for an acquisition like that and I guess some.
Wondering you know in terms of the dividend you did mention you are comfortable with the dividend for some a short time being you know are not fully covered by itself, but you know how coffee you guys on being able to reinvest all this capital. So it's not going to create a significant amount of dilution that would have to come.
Your dividend [noise].
Okay. There is there's a lot in that question. It's a great question that covers a lot let me up and we tried to sequence it in a way to help make sense of it.
So we have acquisitions that we've announced a call it a billion dollars.
Some of that in life science or most of it in life science. Some of it and then will be it will be a step at a five and a half cap.
On campus. So we feel very good about that I'm very strategic in the life science side, a very strategic asset for us in West Cambridge that it has been a market that we have had interest in having significant market share and then the Gallo asset which is key.
Tickets to our B M L three and Forbes land sites that are entitled and could create a mega campus for us in the future. So those are very strategic acquisitions for us.
That we that we took off on an off market deals and we feel really good about them when we think about the.
Sales proceeds up.
As to how much of this makes will end up seeing but we have a billion and a half under some form of a hard or soft contract in a couple of billion Undrilled why we would expect that there's you know some are fair amount or maybe all of it that gets done we'll see how it plays out but one has to remember that when orchestrating this big of a transaction.
That tax planning becomes important and a couple of these big portfolios are worth 10, 31, capable, which eliminates any tax risk that we would have with our investors that we consider to be very important.
And so then when we look at if we as we do the acquisitions could we end up utilizing some of our liquidity a if a number the sales don't make and so we've put some information into our soft and I think you can back into quite easily to see that we will still have lots of liquidity in a great balance sheet, even if some of the.
Sales don't make we're going to be totally fine on that front to your question about use of proceeds.
You're you're referencing a major we'll call it 3 billion dollar.
Life Science steel in Boston, I know, which one you're talking about that probably it's not for us.
A nice portfolio, we have not chosen to compete in east, Cambridge will leave that to some of our competitors. So for us that's not one that we will pursue and as to our dividend.
The other leg of this whole thing.
You know really at a at a 101% payout ratio, it's pretty much just a fully covered dividend up to this point.
We've got a strong portfolio, our balance sheet and liquidity are great. We're going to be comfortable and I mentioned this a quarter ago I mentioned at a recent conference if our dividend modestly exceeds our AFFO for a short period the impact than any v. is almost nothing so as we proceed over the coming months, we'll be able to continue to assess.
The dividend based on our projected after follow the path and duration of the virus, which is still uncertain. The outcomes of these sales are preferred payout ratio as we reposition the portfolio, where we'd like to see that fall.
And given all these factors I, just see little benefit in prematurely, making an adjustment to our dividend before we see how these things play out.
So the bottom line is when it comes down to a protracted dividend west shortfall of size, it's something we would not do it because we will seek to continue to protect our liquidity and ultimately our our credit rating. So we're not worried about the dividend we will end up in the.
Right place on that when the right time comes and make the right decision on it.
Oh I appreciate your time very helpful. You bet next thank you.
Our next question will come from Steve Sakwa with Evercore ISI.
Ah. Thanks, maybe just following up on Nick's line of questioning, but maybe kind of take it at a higher level and I realize there's a lot of moving pieces here.
Both on the disposition side and the acquisition side, but if you are successful in executing all of the sales in the call at four four and a half billion dollar range and you sort of look out is it your expectation that you can you know effectively achieved the same blended yield on the investments that you make on a stabilized.
Basis I realize there is some timing differences of when the money goes out and when the money kind of comes back in.
But you know what are your expectation longer term that this would be sort of FFO neutral and maybe some dilution in the short term is that how you're thinking about it.
Yeah. It's a very it's very interesting question and you almost have to be in the inside of the company to build a model these types of things.
But the bottom line as well.
When one looks at the the the timing of transactions and could that create some dilution that could affect payout ratio I saw a couple of notes to that effect. Its fair question.
I think in terms of if these assets to sell at the right price and what we said, we'll only liquidate these assets at the right at the right price or will play through we've got a great platform.
But if they do sell at the current yield in the third quarter and you can you can project forward, what it looks like for us or any of our competitors.
As we go forward in coal that isn't really dilutive to sell assets now.
The answer is no it's not dilutive at all not not for the time being as we roll forward into the recovery, whether that's six months or nine months or 24 months, we don't know that could be a different answer, but that's a bumpy ride with a lot of uncertainty. So the answer is no it's not more dilutive.
By taking these actions.
Because when you think about what would we use the proceeds for well. We just showed that we had a billion dollars of transactions that we could do that's all a cap rates.
We have more off market things that we're looking at and that we will be able to do and decide if it makes sense to the extent that we have excess cash that's not hard look at our 2024, and 2025 maturities and take that out in the 4% range, bringing our net debt to EBITDA down.
Into the low fours for a short period of time, and then identify other opportunities. When the time is right reinvest put new longer dated bonds in place and if it.
We're in great shape and that for in that respect so things I've read about were people validly wondered would we have a special dividend or have to do some things that.
Make it more painful we're just not in that position at all so as Keith Your question on yield we spoke to the current quarter annualized <unk> roughly a three across on a blended basis, just compare that to the types of investments that we would make that would obviously have a yield.
The much higher than that even paying down debt temporarily has a it has a higher yield than that and if there's a hockey stick recovery in senior housing and I Hope. There is then it would it would we have a recovery quicker than we had expected and that would all be good it would not change our decision strategically and what we're trying to.
To bring this company. So I think I think those are all great questions and that's how we think about all those items.
Okay, just as a follow up on development I realize you guys are looking to expand the development on life Sciences in M. obese a lot of people are expanding their life science a endeavors in the markets in which you're operating in just maybe talk about some of the competitive supply issues and is there any risk or worry on your.
A part that the market gets a bit overheated, whether it be in Boston or.
In South San Francisco.
Hi, Steve I'm, Scott here, I mean, certainly any real estate business has the potential for supply and demand to get out of balance for a short period of time.
Longer term, we think the fundamentals in my sites are as good as any real estate sector, but even looking over a shorter period of time, there's between two and a half and 3 million square feet of new supply and each of the three core markets today, but it's substantially pre leased about two thirds on average I'm not.
Submarkets are higher or lower than that but that's a two year delivery timeframe that 67% pre leased our portfolio similar yes.
Percentage leased it's delivering over the next 15 months, 68% that's delivering through the year end 2022. So we do a very very careful of supply and demand analysis before we pull the trigger on any new development and the most recent was at Warner One Kim's departure right.
In West, Cambridge, where we feel very good about.
The window do we would open in mid Twentytwenty, two given the amount of demand in that sector relative to their on leased new supply that's coming so we'll continue to watch it quarter to quarter as we make new decisions. We also think about our densification opportunities.
And that business, which is different than sitting on a bunch of vacant land. We feel like we've got up to 3 million square feet of net additional space that we could add on existing campuses and obviously those are all in a plus type locations that we could do those tomorrow, we could do those 10 years from now with 20 years from now so we don't feel like present.
Urgency to.
To those particular opportunities, which is a great place to be strategically that we can pull the trigger when we think supply and demand is favorable.
Okay. Thanks, Thanks, Dan.
Our next question comes from Michael Carroll with RBC.
Great. Thanks can you provide some details and how far along these seniors housing sales are right now I'm, assuming the transactions are fairly far along given they're comfortable quoting sales prices and valuation. So I guess should we assume that the 3.5 billion that that you kind of quoted in highlighted in your <unk>.
Press release could be closed over the next few quarters.
Oh, Hey, Michael Scott here, No we'll hold off on.
Putting specific closing dates.
I think we're better off talking about specific portfolios once they in fact do close but you're right. I mean, we we felt comfortable disclosing that we have a billion fives under signed purchase agreements with.
Known Counterparties.
Strong relationships, whether they certainly have strong brand names and make a high likelihood of execution, but its a unusual environment. So until they're closed will discuss <unk>, we'll disclose the names of the buyers in huh.
More importantly, the operators at that time and then in the letters of intent. It's another $2 billion. Those are in various stages. Some were more recently signed and then some are substantially far along so it really is a mix you know we talked about having 14 different transactions and those two buckets alone in addition to all.
All the assets that are marketed for sale, but not yet exclusive so we're making great progress and yet it's a pretty dynamic environment that changes by the day. So the you know the feedback could be different in two weeks or two months, but from where we sit today, we feel like we're making great progress and have.
Picked good counterparties as well that we'll execute.
And then Scott can you talk a little bit about the I guess roughly 800 million that was not in that 3.5 billion type number.
Are those mostly triple net or shop assets. It's a mix of both can you kind of give us some color on whats the progress on those specific assets.
Yeah, I'm happy to do that it it's a mix of triple net and shop.
The the the the stage of marketing those is somewhere close to signing letters of intent in some are just now being marketed for sale and then we have some that are in joint ventures, where we don't have unilateral authority to go ahead and make that decision. So the timing of those going for sale is more.
On certain Mike.
Okay, great. Thank you.
Our next question will come from Kwon song and react with BMO capital markets.
Hi, Thanks for the time I, just wanted to shift to the to the corporate headquarter announcement.
And just see or confirm if all the senior executives that that that we know are staying with pekin and making the move.
And what the potential cost could be.
Opening that new office.
And kind of related to that or are there any offsets in the GNS that we should expect if you do in fact.
Exit seniors housing with all day asset management people et cetera types that line of business.
Hey, Juan it's Tom.
Uh huh.
First of all we're relocating 20 to 25 people in total.
The Irvine.
And Nashville offices will remain in place.
Nobody's, losing their job as a result of these relocations.
It puts us in a central life position, which I think is going to be much more efficient for the senior executives.
Ah well have some senior executive talent that will be in Nashville, as their main headquarters or their their main location and the same with her.
Irvine.
But our C suite and Hebei piece will also have offices in Denver. So I think it's I think that it's going to work out very nicely.
We always had difficulty with the travel back and forth between Nashville, and Irvine, because it was a connector flight made it very difficult for a large portion of our team that is now in charge of a bigger and bigger part of our business.
And I can tell you that BNN they vary southwest corner of the country. When we head to head to Boston to oversee our 2.4 million square feet of.
Life Science, and other properties and interact with Wall Street. Those are long flights. So with and we think this is going to be better outcome as far as cost savings. So as far as concerns no wouldn't have any concerns on that as far as cost savings you know there might be a little bit of that early on I would say, it's a push.
Overtime, Denver is a much cheaper place to do business. So it will probably have some.
Cost savings overtime, but that wasn't the real reason that we that we get it so as far as offsets syngenta, yeah, there's a little bit of that that will occur over time, but not a big deal. This was more about getting our executive office in the right location and Denver is a better place to recruit retain tell.
But over time as well so that that entered our thoughts as we made this move.
[laughter] My question, sorry, with regards to the GE and it was more.
Is there a benefit to shareholders from exiting seniors housing in terms of reducing that gen anymore.
Sure it affected the accident a third of your business outside of what you've maintained its easier says.
Well you know, we'll keep the CCRC is if we look at it from an animal I perspective shop, and triple net or about.
17% of our total NOI.
And as far as a gionee savings that's not that's not the motivation behind the moves so no I wouldn't model a lot in there might be a little bit.
But we will reallocate our skilled personnel as we can to other parts of the business that we are growing.
So I do see some savings overtime, but I would not model anything dramatic into your numbers for them.
Okay and just my final question could you just provide a little bit more on the vendor financing like how much potentially or are you willing to provide and do you see that as a as a bridge.
From an earnings perspective as to what do you see any pressures into mismatches.
Reallocating that capital recycling that capital.
Maybe if you could just help us a little bit there quantum and how you're thinking about that.
Oh, Hey, Juan it's Scott I'd say the answer is to be determined we.
We mentioned it because it's possible that for specific portfolios, we would provide that as a way to get to the closing quicker obviously the buyers.
Fine that a blended three cap our underwriting a pretty dramatic improvement in N.Y. overtime, which makes sense.
The lenders are not always quite as well need to take that risk I'm. So it's at least for some of the portfolios. It's not an ideal time to source that as that and why bounces back chapter.
Chances are the debt markets would become more favorable so if we do provide this seller financing it likely be in the 60% to 65% range.
The purchase price.
When we set it up with relatively short terms and escalating rates. So that there's no mutual incentive to pass back sooner or later, you know Tom repeat anything you'd want to add.
A P M.
Yeah, I can add some color to that hey, one nice to have you on these calls we got.
You know as you as you think about the.
Use of proceeds here I think it's important to point out we wont sit on.
Cash like we have the ability to repay up 2 billion five a bonds. When you look at what we have maturing in 23 and 24.
And so then when you think about the billion dollars of acquisitions, we announced today, we've got a pipeline building as well there may be a little bit of seller financing.
Within that as well as we pointed out so I wouldn't look at this is we're going to be sitting on a whole bunch of cash that we've got to put to work. We we've got planned for all that and as Tom mentioned, our leverage May you know dip into the high fours to the extent that we don't put that capital to work into acquisitions right away.
But it will get back into that the run rate you know mid fives over a period of time as we do find the right acquisitions.
Thank you.
Excellent.
Our next question comes from Jordan Sadler with Keybanc.
Thank you good morning.
I wanted to just dig in a little bit in terms of redeploying the capital once it comes in it's been touched on a little bit you guys, where you put a billion dollars you say to work, but talk to us a little bit about mix going forward. I mean do you is this going to be you know 40, 40 20, <unk> what do you.
You see in terms the landscape over the next few quarters in terms of being able to deploy into lifestyle Mobiuss CCR says.
Jordan next few quarters is a relatively short period of time. So let me address the exact question you can expand on if you want.
First it depends on how much.
Of these sales were successful in executing and the timing because it could be Q4, a bunch of it could be.
It could get into Q1.
So it depends it depends on how much seller financing in a in a short term bridge might be required to get the sales done in certain cases, it depends on whether weve identified additional strategic.
Acquisitions in our core businesses during that period of time.
We have the option of paying down some 4% debt 24, and 25 to be kind of nice to shape. The top off of those debt maturity stack, so that that would not bother us at all.
And that could all happen over the next few quarters and those will be decisions made based on what plays on all those different factors I just mentioned as far as the mix.
It's probably realistically easiest to invest in life science right now.
Because we've got so many densification opportunities and developing opportunities, but we also have strong opportunities in.
M. obese, Tom Tom Klaritch, which has a decades long relationship with H.C.A. and the things that we're doing with them have created some nice opportunity. We've got Justin Hill, who is out working his hospital relationships and identifying other off market places to invest.
Money favorably, we have some densification opportunities in our CCRC is on those average 50 acre land parcels.
That could create some some upside so it could be a whole variety of different things I don't think we're going to be hurting for opportunities, we're going to be underwriting carefully to make sure that the mixes right and we're we're a engaging those funds and in the highest a risk reward opportunities that we have in front of us and these.
The business.
Maybe as a follow up Tom you you know I heard a sort of a commentary on the lifecycle portfolio exposure you guys are pretty bunched up in south.
South San Francisco, Diego, and Boston, obviously, any appetite for additional markets, where you think you'll stay focused.
Well you know I think Weve I think we will stay.
Pretty focused because we've got.
Irreplaceable clusters in each of those three markets and that's a very important thing when you're doing with biotech tenants that are rapidly growing.
It's one of the most critical things frankly is to have a purpose built biotech space in clusters.
So we're going to want to continue to.
Capture share in those three markets, but that doesn't preclude us from going to some of the higher yielding cap rate markets outside of the three major hotbed innovation centers and it is something we will be looking at but at this point I wouldn't put it on the west coast.
One thing that we're doing near term, but we are going to be looking at Scott.
Got anything that you would add on that.
Yeah. The only thing I would add Tom is that in that business. It. It's so important to have scale.
Local market, we mentioned that.
And the last well in 2022 thirds of our leasing has been done with existing tenants.
So if we do enter a market we would want to be able to do so in scale not unlike my comments about medical office, but even more critical in life science. So that would be just the fundamental thing that we'd have to work through.
It's got to add one more quite happy which is just you know you've been active.
Active participant that seniors housing landscape for.
Well over a decade or how would you characterize buyer demand versus assets available for sale today.
But a buyer's market or a seller's market.
Yeah, you know we went up to a very specific group of Counterparties. So generally speaking we went direct we didn't run a bunch, it's brought auctions to get the temperature of the entire marketplace was quite targeted.
And it was it was a mix maybe as you might expect somewhere highly interested.
And others were much less interested I think the maybe the more interesting thing from my standpoint would be that most of the buyers seem to fall in the category of more sort of operationally intensive real estate investors as opposed to pure real estate investors and you know I think that the lines.
With the direction that senior housing has been moving so that's probably the only kind of very unique thing that I've noticed over the past six to nine months, Tom anything you'd add.
No I think Thats right Scott.
Thanks, guys, Hey, Thanks, Hey, if I could ask a the analysts on the phone we do have another 10 people in the queue up we'll start to speed along if we could be a questions and even our answers, but let's continue to proceed will get to everybody. So let's go to the next or the next.
The analyst operator please.
Our next question comes from Nick Joseph with Citi.
Hi, Selman I was going to ask him to partner like everyone else, but I'll keep it short.
Yeah, and I recognize the senior housing you know this exit has sort of evolved over the last three to six months. So it's not necessarily a massive new news because I think you sort of your mark did a little bit.
But I'm thinking about what's left over and how you think about the synergies of the lifetime snake MLB business as well see CCRC.
With the framework of when you came into the role you spent a lot of time talking about.
Having a balanced portfolio three private pay businesses with different drivers and having that diversity was going to be good for shareholders. So that if one part wasn't doing as well. The other one would pick up then you create this very stable a portfolio that you eventually want to get to be a third a third a third.
Right clearly things have changed Youve decided not to exit senior housing and you're left with predominantly an attractive like science and an attractive MLB business, where I understand you have.
The capabilities and strengthen both in the marketplace, but.
You know do they really have synergies right and you have pure play Inmobi players that are listed you'd have a pure play a life science player. That's listed as well the number of private life science players players. So why keep these businesses together in addition to hone holding the CCRC, what's the point.
In other words your point is that we we spoke to a balanced portfolio of.
Life Sciences will be senior housing, we're retaining the CCRC is and what is our investment thesis is the way to have.
The three businesses together with CCRC is remaining is that the main point.
I mean, the question is yeah can you have [laughter], what's the benefit of owning peak when there are more low you know sharpshooters within each asset class separately capitalized how do you how do you view the synergies of the business going forward.
Well, it's the way we've thought about it is that we've got a three businesses that that all.
Take advantage of the same baby boomer growth demographic, they're all private pay.
And in all three cases, these three businesses have irreplaceable portfolios and high barrier to entry.
And that's true of course in life science with these clusters, there's no way to reassemble that now one could not re assemble and 84% on campus H.C.A. anchored and movie business with.
On an affiliated basis at the 97% range and its CCRC is there's no way that you could accumulate a portfolio CCRC is given that they rarely change hands.
Being their control, but not nonprofits.
The CCRC is only represent 8% of our company, but they price had an 8% to 10% cap rate.
And that is a very very strong return given the lower risk profile for this asset class and attract more fluent senior the nonrefundable entrenched entrance fees brings stability to the tenant base Who's got the eight to 10 year average length of stay versus two year for shop.
And he thinks set on 50 50 acre parcels of land. Each 500 unit properties. We haven't had one new CCRC asset in 10 years within 10 miles of any of our properties than we have you will see us it's a very well capitalized operator with a five decade a track record.
Third for operate in TCR season, so when we look at each of these three businesses. They do all benefit from the first three things that I spoke to and do create some degree of diversification, but all feeding off of the same.
Ah aspects of of benefiting from the baby Boomer demographic the high barrier to entry the irreplaceable portfolios and so we do like all three of them and think that that's a better place now. Your other question I think really alluded to what changed our mind on shop and Triple net because you're right. We did talk a third a third of <unk>.
Third and.
And it wasn't so long ago that we had 65% of our business that was sniff and senior housing.
We spun we spend our SNF.
We sold off billions and billions of dollars of senior housing and those are good businesses for other companies and the further into we got at some point, we looked up unrealized at 17% remaining shop and Triple net we have a decision to make its if it is distracting. It's a it's a it's a more volatile business and would we be better.
As it relates to allow some of our competitors to compete in that business and we bring it down to the three businesses that we chose especially with covert coming on driving that current yield and cap rate down for at least some period of time with a bumpy road to follow what an opportunity to be able to.
Choose to exit those businesses, if that's what we preferred and and do so on a non dilutive basis for some period of time and that's the decision we came to if we're successful at the sales.
And just as a follow up I guess, how much does managing the managers and senior housing play into <unk>.
How do you feel about the lack of control over those assets and being able to adapt the thing whereas in the MLP in life Science portfolio is you know it's your gets you in your own staff that are making the management decision.
Got you want to take that one.
Yeah, I'm happy to tell you, there's there's certainly a lot of friction.
And that structure, particularly for <unk> you cannot.
Own more than a small percentage of one of the operating companies. So that has been a source of friction throughout the the rice with everyday a structure it seems to have intensified.
As the acuity within the business has increased so it certainly is part of our view and our decision around weather too.
Exit the business stay in the business or or grow the business that has done a source of tension that feels like it's growing not decreasing Michael.
Yeah, all right. Thanks. Thank.
Thank you.
Our next question comes from Rich Anderson with SMBC.
Hey, Thanks, good morning out there so I'm I'm on the topic of you know this is a better business for someone else to do.
How how did how did you kind of come to that conclusion I know you said, what you said, but to the extent you just don't have the heart to kind of put into the business with all the moving parts and the bumpiness, but how much to quality play into this in other words do you did you look at your portfolio thing I don't know I don't know if that can really compete with so.
Some of the other portfolios that are out there did the due to the weather any consideration specific to your portfolio that drove this decision or was this more of a holistic senior housing call just generally.
Not once you're going to start.
Yeah rich it was a holistic disc.
Decision now there are certainly some assets that in order to capture any.
Any I know why growth the new owner will have to invest a pretty material.
The amount of capital back into the building and for a private equity firm with a five to seven year time horizon that is a perfectly fine outcome. That's not something that we were particularly excited to do so yes that plays a role, but the decision to sell four and a half billion plus.
Plus or minus was 100% driven by just our view about whether the business fits inside of a health care read that otherwise has scale critical mass and a great platform into businesses that are pure real estate businesses with we think very solid supply and demand in the short term intermediate term and the long term.
And we think that's a company that's going to be very attracted to investors as a pure real estate company senior housing could be a great business, it's not really a real estate business going forward as argue it feels much more like in operating business and to my point earlier, that's the buyer pool of who we're talking to them.
Understand that and that's what they're interested in that's just different very different than a real estate company, especially for a public REIT is our view, Okay and then my second question.
Sorry, you're popular cigarettes stick around for a bit I guess the.
The topic that Michael Dalton brought up about competing with your peers you know you're reallocating, probably some very smart people that are focused on senior housing into these other asset classes do you think that there will be some sort of time to kind of catch up to the Alexandria isn't the healthcare Realty isn't the Healthtrust Health care Trust, a you know folks who spend.
All their time in medical office and life science, respectively, or do you think it will be a fairly easy kind of turn around to get down to that level of IP redirected and functional is to the extent that you'll be able to be as competitive in as smart in the spaces. Those to you know asset classes.
Hi, rich.
The bottom line is as we've grown the two businesses of life science and M. obese I think we'd be hard pressed to find.
And then we'll be team that has more experience than what we have.
What Tom Klaritch.
Having.
Then one of the co founders of Mad Catz has been in the business for a long long time with deep relationships.
So no we do not feel like we're coming from behind in that respect and we have a bigger balance sheet the ability to put out more funds to do bigger deals. So we think we've got great competitive edge, there and when we look at like.
Life Science, we've been doing that for many decades, because you have to roll all the way back to slow before it was acquired by HCP in 2007, which is still quite a while ago and we have some very deep experienced people in that business as well.
Along with relationships development expertise portfolios that were that were purpose structured in clusters as pure lab.
Not that the not the office Tech combination type properties that you are seeing spring up more often now so.
So we feel that we're already in an outstanding position to compete in both of those businesses and along with some very very large densification opportunities that we've alluded to a couple of times and we will be bringing out more fully over the coming months to help investors understand the magnitude of those opportunities.
Over the next period of years. So we don't feel like I was catch up mode.
I was I wasn't suggesting that the people that are there now they're doing a job or probably you know I'm certain are very good at their jobs just talking about as you grow in your redeploying senior housing folks into these other asset classes will take some time for them to get sort of up to speed, but I get your point and it was perfectly well answered. So thank you Oh, no I get that drivetrain as far as the senior housing folks.
Being dispersed into some of the other businesses the businesses are already.
Well staffed with experienced people and being able to bring some of the senior housing people into or some of these other businesses a skilled people that bring other talents and I think as a positive and then realistically I mean.
Let me make the statement is that within senior housing if we do exit this business. There are a number of senior housing people on the platform. Some will remain with the CCRC season. If there's some senior housing that remains behind a it'll also be downsized the platform and the but there is that there is the reality of attrition that occurs so some of that.
Take is taken care of naturally as well. So these are all things that weve been working through and consider it but I think we'll end up in a good place and all that okay. Thanks very much appreciate it thanks rich.
Our next question comes from Steven Valiquette with Barclays.
Great. Thanks, Hello, a time and Pete and Scott Thanks for taking the questions.
Yeah.
Yeah, one of the pieces of good news from divesting most of your senior housing assets is that this will eliminate a lot of the additional operational uncertainty for the company and 21 related to COVID-19.
I guess in light of that are you planning to give official full year.
2021 guidance when the time is right you have more visibility on the divestitures and redeployment maybe on the fourth quarter conference call.
And also just based on your comments earlier on this call about not much dilution anticipated from the the senior housing asset sales.
Is it your directional gold at least for now to try to grow AFFO per share next year from whatever the final jump off point will be in 2020.
Yeah people [laughter].
Yeah, Hey, Steve its Pete here nice to.
Yes, I mean, I think on the guidance question its a little soon to talk about.
21 guidance, we're in the middle of our budgeting right now for this year.
We wanted to provide the outlook framework that we put out and I think it's been affected to at least help educate the street on the way we're looking at things right now and obviously, there's still some uncertainty on the timing of the closing of transactions as well as you.
At least for this year somebody cares act grants and other things like that that you know I'd like to be able to issue formal guidance, but it's a little soon for me to talk about that on the call today, we'll talk about it more when we get to our next quarterly update call I think as you think about your other question and what our earn.
Things grow looks like as we head into.
Next year to the extent that were successful and.
Disposing of these you.
Senior housing assets, you know without shop and trip on that I can say unequivocally that we should have much more stable earnings going forward.
As Tom mentioned, our portfolio will be comprised of that three stable high barrier to entry businesses and when you look at medical office, we've grown same store by.
2% to 3%.
Last 15, plus years life Sciences.
Escalators are above 3% in that business and we're in a great backdrop from a positive rent mark to market and the CCRC is have a longer length of stay and a stable and RAF model. So as we look at those business as we do think they should generate 2% to 3% consistent same store growth in fact in the near term it might actually.
He better than that given the backdrop and in life Sciences.
You know we also have this well established development and redevelopment platform and Weve got future densification opportunities across our portfolio. So as we look forward you know I don't want to give a specific timeline on that but when you factor in all the things that I just said no that is basically 4% to 5% FFO growth and your.
But a dividend on top of that I know Tom's talked about in the past and we see ourselves as a very stable, 8% to 10% annual total shareholder return read and I think that's something that we're really appealed to the market out there because the date in the health care REIT sector, you haven't really been able to find a lot of this company.
Yeah, that's extremely helpful and yeah, you're right in the last five years have had AFFO going down mainly because of divestitures and yeah. There's talk about the CAGR is for growth going forward again, so I appreciate the color. Thanks. Thanks.
Thank you.
Our next question comes from Joshua Dennerlein with Bank of America.
Yeah, Hey, everyone worse might have already been answered but.
One question for you on that 4.5 billion Oh, the potential sales how is that split between the net lease valuation in shop valuation I know you gave the cap rates, but it's kind of hard to back into.
Back into it.
Yeah, Hey, Josh its Scott.
We can't quite comment on that level of detail I think the best thing we could point you to is just the disclosures that we have that show the amount of triple net rents in the portfolio as well as the amount of shop.
And why.
Both historically, but then obviously threeq you as well and then and try to use the cap rates that we've provided separately and I think you'll at least get into the same or the right ballpark, but we're not going to say much more than that at this point.
Okay, that's oh yield for those guys.
Thanks.
Our next question comes from Daniel Bernstein with capital one.
[laughter] since almost everything has been asked I can probably tend to just asking who's going to win the election Tonight [laughter] I try to stay away from that.
Actually [laughter] I mean, I do have a somewhat political question, which is if you do have a vice president and CFO.
You get some pharmaceutical price controls.
Do you have any concern about the demand side of the business for.
For life Sciences, you know you've signed a lot of leases in the last quarter or two does.
It doesn't seem like there's not much concern from your tenants, but how do you think about the risks there from a regulatory side on demand for life science.
Danbury really from life science up there's been attempts made at drug pricing controls for a lot of years Ah that doesn't mean that they can't occur.
But but both parties are making statements at this point during an election.
We'll see if it we'll see how it plays out.
There's been discussion of tying reimbursements to international index or give you a Medicare direct negotiating power but.
But we have a tendency to look at it more or less to clay.
We don't see a huge risk of the baby Boomer generation is demanding lots of drug innovation.
The development of biology based drugs has accelerated massively.
Ah the FTC approval processes faster the patent cliff with pharma.
Looking to replenish their growth.
They're taking out these these biotechs when they.
Come to a proven drugs and then COVID-19 has been a a stark reminder of the importance of continuing to.
Develop new drugs and treatments. So when you put all this together I just can't see the government ultimately wanting to stifle innovation. It could be that there is some kind of reforms that are made we do think that both pharmas and big Biopharmas have somebody that's factored into.
To their future economics from what we believe in what we've understood Oh, we don't see that being a deterrent to growth and demand for this type of real estate.
Okay I appreciate it ill hop off and maybe what's got later next year. Thanks.
Our next question comes from Lukas Hartwich with Green Street.
Thanks morning, So were getting out of senior housing how did you weigh giving up an attractive avenue of external growth looking forward.
[music].
It's it's one of these things where when one looks at it strategically.
As I mentioned in my prepared remarks, we're believers that society is going to need senior housing in the future.
Well from a social perspective and from a a neat perspective, so that business is here to stay.
But it is a higher acuity different business today.
Today than it was a decade ago and it's subject to a lot of new supply. So it is going to be a bumpy ride, but yet there's there's what the what the what the fast growing demographics, there's plenty of upside which is good for us because it means we can capture good pricing as as we see.
The exit so as far as the largest growth opportunity.
I'm not troubled by that not troubled that if we exit a business that has more volatility in our view doesn't fit as neatly into a rebate to focus on our other growth opportunities that ive already outlined.
It doesn't bother me too.
Create an opportunity for investors, that's more focused and lead the senior housing to some others in the industry both rates and non rates that will compete on that front and the same thing but felt the same thing about about snfs in the triple net side to sniff, that's not necessarily a bad business. It's just one of the we chose not to compete in.
So we've just tightened it up further we think that there's a great place for a read that specializes in the businesses that we've talked about life science.
On campus and movies and CCRC is so we're not necessarily making a statement we think senior housing as a bad business. It's just one that we've chosen to a shift away from in our strategic position and if we weren't down at 17% of our business span shop, and Triple net we probably would need to be thinking awfully hard about whether.
An exit made sense, it's only because it's down at that level that we're able to take this action.
Thanks.
Thanks Lucas.
Our next question comes from Mike Mueller with JP Morgan.
Yeah I.
I guess, given the comments about senior housing being an operating business and not a real estate business per se why did you stop short of selling CCRC. So.
Well, Mike for the reasons that I mentioned earlier, so I won't I won't repeat them all but she's here a season, we do view more as being real estate like seniors come in it's a more fluent senior they have a tendency to sell their single family home they invest in.
A sizeable nonrefundable entrance fee they have an eight to 10 your length of stay.
And so its not and then there's a much lower level of acuity they come in.
The vast majority of them through the independent side of the business.
And so it's completely a lifestyle choice, where they are effectively going in and investing for the balance of their lives into the asset that they will be occupying and for us. It creates a much more stable asset from an investment perspective or from a real estate investment perspective.
And so a different play than what would be a shop a shop in shop portfolio.
Okay. Okay that was it thank you thanks.
Thanks, Mike.
Our next question comes from becoming a lot of talk with Morgan Stanley.
Hi, Thanks for taking all the questions just to two quick ones, maybe just first you've talked a lot about sort of the growth opportunity in life science and MLB.
And I'm just wondering could have.
Part of your decision.
With purely driven by kind of your view of seniors housing over the next few years and maybe longer term, but have you did you could perhaps not but but how much of it was sort of.
Your view that maybe or life science, and MLB portfolios, we're not sort of being valued correctly, you know by the market or potentially you may be more value could be ascribed once it's simpler and there's more focus or could you maybe just talk about leaving growth. The site kind of how you talked about the kind of inherent value that.
That that's you know investors will be rewarded for.
There's no question that chrome I'm glad you asked that question.
When you when you think about it.
A company that's got senior housing life Science, Applebee's and shop and Triple net net it's been so volatile, but so much new supply at least over the last several years and we recognize that there could be a recovery come in.
The vast majority of our.
Time, visiting with investors and analysts has spent talking about shop and it seems that the the <unk> a lot of the same time.
It's around that topic, we've been told by some big investors that until we downsize even further we will not get the full multiple re rating that our portfolio and our strategy and and perhaps our team deserve, but as we downsize that further that there will be a re rating that will.
Likely take place in the future and that is absolutely one of the things that we looked at when we came to this decision.
Okay, and then just another quick one I'm sorry that they're they're just two quick ones. One is I know you can't talk about the dividend yet, but given the business is ultimately going to be perhaps more capex intensive you know combined can you at least sort of talk about B L Green field.
Gonna be comfortable with going forward once the dust settles and then just second that the changes and the board eligibility requirements kind of.
Good day, and how did they if at all related to the strategic decision. Just you know timing why then just more broadly thank you.
Sure as far as the as far as the the Capex part of what you just described.
We had we had more capex by far on the senior housing shop Triple net side.
Those assets as they age and new supply comes on to compete they take off they take on an awful lot of Capex. So.
As you know you don't get to spend into why at the end of the day or dividend in Hawaii your dividend cash flow and so that was definitely a part of our decision as we as we looked at the equation.
And then as I think about payout ratios.
One of the things that you mentioned, which I think again, it's a very fair question. It depends on what our business ends up looking like guest after we complete the sales having a strong development of Densification pipeline. If when you look at high quality rates across the industry. So I have a little bit lower payout to keep.
More retained earnings so that can be recycled accretively into development and I'm not telling you that weve made a determination with our board as to where exactly will fall out and it depends on what we look like but those are all the exact kind of things that come into consideration when we make those important decisions and we want to get it right. You know we would we would hate.
To having.
Have a knee jerk reaction in the middle of cobot and adjust the dividend too far or not enough. So if it's required at all so we're we're we're going to be going through that exercise and and I believe will come to the right place the.
The second part of your question was our board how did I think you're looking for a little bit more color on how we how we looked at it.
Bottom line is this we put that age 75.
Requirement in place a two and a half years ago, we refreshed half of our board during that time, we had a we had an older age board a very very good board members, but they they were they were of older age and we knew that refreshment and if they had been in place a long time.
Time, we knew in fresh refreshing was important so we utilized an age 75 retirement age for a period of time, we've refreshed half of our board at this point and we have a number of younger board members that have joined our board in in the in the early Fiftys as far as age and so as we.
Started looking.
Out as to what our board will look like over time, we recognized that an age 75 policy just didn't make a lot of sense and we've got more progressive to have a 15 year term limit a it would result in really strong experience.
Diversity and expertise a breadth and depth on our board we felt very good about the way it looked with that fit.
15 year term limit and thought that that would be an excellent board refreshment over the long term. So that's how we came to the decision nothing more than that.
Great. Thank you.
Thanks Darren.
Any more questions our question and answer session I'd like to turn the call back over to Tom Herzog for any closing remarks, okay. Thank you and thanks, everybody for joining our call again, a long call, but a lot going on I got to tell you when choosing our call today.
We had the option of the morning of the elections for the morning. After the elections. We obviously chose the morning of it's going to be an exciting evening, everyone up so well talk you. All soon we'll see on some Andy ours next week and they read the week. Following so look forward to talking to them.
Hi.
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