Healthpeak Properties, Inc. (DOC)

Earnings Call: Q4 2019

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Feb 12, 2020

Good day, and welcome to HealthPeek's 4th Quarter Financial Results Conference Call. All participants will be in listen only After today's presentation, there'll be an opportunity to ask Please note, the event is being recorded. I'd now like to turn the conference over to Barbara Rogers. Please go ahead. Thank you and welcome to HealthPeek's 4th quarter financial results conference call. Today's conference call will contain certain forward looking statements. Although we believe the and uncertainties that may cause results to differ materially from our expectations. A discussion of risk and risk factors is included in our press release and detailed in our filings with the SEC. Do not undertake a duty to update any forward looking statements. Certain non GAAP financial measures will be discussed on this call. In an exhibit of the 8 K we furnished with the SEC today, We have reconciled all non GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. The exhibit is also available on our website www.healthpeak.com. I will now turn the call over to our Chief Executive Officer, Tom Herzog. Thank you, Barb, and good morning, everyone. With me today are Scott Brinker, our President and Chief Investment Officer and Pete Scott, our Chief Financial Officer. Also here and available for the Q And A portion of the call are Tom Klarich, our Chief Development And Operating Officer and Troy McHenry, our Chief Legal Officer and General Counsel. Our 4th quarter and full year financial results were in line with our expectations. Since our last earnings call, we closed several previously announced transactions were also quite active in our Life Science segment executing a contract to acquire a strategic near our Hayden Research Campus in Boston and signing significant development pre leasing at Hayden as well as the shore at Sierra Point in South San Francisco. In our earnings release issued last night, we provided full year 2020 guidance. He will provide more details in his prepared remarks. As we position the company for 2020, let me describe how we see our current state of play. First, our portfolio is now well balanced across all three core private pay segments of senior housing, life science, and medical office. Senior Housing, we continue to purposely and successfully execute our strategy of building a portfolio and platform and we believe will deliver strong results over the long term. We have made progress in achieving alignment with the strongest operators in some of the most attractive markets in the country. At the same time, we exited many non core markets and selectively sold or redeveloped assets, to better position the portfolio. More specifically, in 2019, we announced $1,400,000,000 of non core asset sales and reallocated that capital into $1,400,000,000 of newer, higher price point and higher barrier to entry senior housing acquisitions. Most notably, our investments in the discovery and Oakmont portfolios and our partnership with LCS and our CCRC portfolio. These transactions not only broadened our base of leading operators, but also advanced our goal of reducing concentration with any one operator. Net effect of this redeployment has poor by 45% to over 5700 per unit, introduce our concentration with any one operator to 10% or less. In Life Science, we materially expanded our operating portfolio through $1,200,000,000 of strategic acquisitions, $307,000,000 of completed developments in our core markets. We have further established a leading position in the route 128 West Cambridge submarkets of Boston, growing this core market from 0 to 1 point 8000000 Square Feet in just two years, including our active and near term development pipeline. In medical office, we further expanded our proprietary development program with HCA, accumulated in a pipeline of almost $200,000,000 in development spend in high quality, well located and anchored on campus medical office buildings. We also welcome Justin Hill to lead business development for HealthPeek's medical office segment, supporting our vision to expand the MOB flow business. 2nd, our acquisition development and redevelopment pipelines are well positioned to support future growth and value creation. Through the relationships us over $1,500,000,000 of senior housing developments on stabilization of Oakmont and Discovery over the next 4 years. We entered 2020 with an active development pipeline of $1,300,000,000, almost 60% of which is preleased and a shadow pipeline for future development and redevelopment projects of $1,400,000,000. 3rd, we are conservatively financed and are rated BBB plus Baa1 by the 3 rating agencies. Our balance sheet is strong and we have ample liquidity. With the forward equity raised over the last several months, where Sol will be positioned to execute on our 2020 plan, will maintain in a year end 2020 net debt to EBITDA ratio within our target range of mid to high fives. 4th, I'm very pleased with the team we have in place and the enormous improvements we've made on our infrastructure, including systems, automation and data. Finally, on the ESG front in 2019, we continued our longstanding tradition, our commitment to ESG receiving numerous awards across every category. We also added new talent to our board with the addition of Sarah Lewis, now have an average or tenure of 5 years. In summary, we feel very good about our current position are optimistic about our business for 2020 and beyond. Before I turn the call over to Pete, I'd like to provide you some background around the press release we issued yesterday. Concerning our same store shop policies. Number of investors and analysts had communicated to us the desire for more comparability in the shop same store clarity of Health Peak same store policies, we created a compilation and rationale of all the material components and posted this to the investor presentation section of our website. Majority of our policies remain unchanged. However, we modified 2 of our existing policies and added one item of new disclosure effective January 1, 2020. First, going forward, we will include all JVs at share. With the recent addition of the Brookdale Senior Housing JV, we determined it useful to investors to provide the pro rata share of all JVs in our same store pool. 2nd, going forward, we will remove future operator transition properties from same store to better align with healthcare industry practice. However, if material we will continue to provide separate disclosure of transition portfolio results. Lastly, we've begun providing the management fee component of operating expenses. To aid in understanding the impact of these changes, we have provided pro form a 2019 same store results as if these revisions were adopted for the full year 2019. We've concluded that all of our other same store shop policies represent best practices and provide detailed and transparent disclosure of our treatment and accordingly, no other changes will be made at this time. Also important to keep in mind that same store is purely a performance metric and does not affect GAAP earnings, FFO or FFO. Finally, in 2020, we'll begin using the more common same store terminology rather than same property performance. To conform to others in our sector and most other REITs. With that, I'll turn it over to Pete. Pete? Thanks, Tom. I'll start today with a review of our results, provide an update on our recent capital markets activity, and and with a discussion of our 2020 guidance and related assumptions. Starting with our financial results. We ended the year on a strong note. For the fourth quarter, we reported FFO as adjusted of $0.44 per share and blended same store cash NOI growth of 3.6%. For the full year 2019, we reported FFOs adjusted of $1.76 per share and blended same store cash NOI growth of 3.7 percent. Turning to our recent balance sheet and capital markets activity. We had an active 4th quarter, starting with our debt activities. In November, we issued 7 $50,000,000 of 3 percent bonds maturing in 2030. We used the proceeds to redeem the remaining $350,000,000 of our December 2022 bonds and repaid our revolver and commercial paper balances. Successful off Em Redemption, extended our weighted average tenor to approximately 7 years and further improved our debt maturity profile. We ended the quarter with a net debt to adjusted EBITDA of 5.6 times and $2,400,000,000 of capacity under our line of credit. Moving on to our equity activities. From November through early January, we raised total gross proceeds of approximately $800,000,000 through a $547,000,000 follow on offering and $250,000,000 under our ATM program. All of the equity was structured under forward contracts, which we expect to settle in 2020. As of today, we have 32,000,000 shares of common stock remaining under forward sales agreements for just over $1,000,000,000. Utilizing forward contracts allows us to better match fund the equity required for our identified acquisition opportunities, and for our development and redevelopment activity. Before moving to guidance, let me spend a moment on our dividend. For the full year 2019, our dividend was fully covered with a FAD payout ratio of 97%. 2020, we expect our FAD payout ratio to improve into the low 90% range. Accordingly, Our board decided to maintain our annual dividend Turning now to our 2020 guidance. To range between $1.77 to $1.83 per share and blended same store cash NOI growth of 2% to 3%. The components of our blended same store growth rate are as follows: life science at 4% to 5%, medical office at 1.75 to 2.75%, senior housing at negative 1% to positive 1% and other at 1.75% to 2.5%. We expect earnings and same store growth early in the year. Included within our guidance are the following high level sources and uses, starting with our sources of capital. Dollars Fulton Hospital purchase option and just over $300,000,000 of debt capacity. From a use's perspective, we anticipate the following: $800,000,000 of acquisitions, consisting of the post, Oakmont purchase options and other pipeline opportunities, $850,000,000 of capital spend, is fully funded and is primarily driven by our development and redevelopment activities and $225,000,000 to repay debt related to the Brookdale transaction. Let me spend a minute now on our FFO as adjusted earnings The midpoint of our 2020 FFO guidance assumes $0.04 of positive growth compared to 2019. Starting with the positives, we see $0.06 of positive impact, primarily from our blended same store NOI growth assumption of 2.5%. We see $0.04 of positive impact from developments coming online. The vast majority of this benefit is from the final phases of the Cove, in the 1st phase of the shore. We see 2 pennies of positive impact from transactions, including 1.5 pennies the Brookdale transaction and a 0.5p from 2020 acquisitions. Moving now to some of the offsets. We have negative $0.04 from the rollover impact of our 2019 capital recycling, which was heavily backend weighted. Our 2019 dispositions included some of our final legacy portfolio cleanup transactions, such as the Prime Care DFL and the UK assets. These dispositions came with high cap rates, but also materially de risked our portfolio. We have negative $0.02 as a result of a deferred revenue recognition impact related to certain leases. Counting rules do not allow recognition of rental revenue in FFO until tenant improvement projects are substantially completed. Even if cash rent is received from More than half of this is associated with the Celgene lease at the shore, where their TI build out was delayed due to the merger with Bristol Myers. Importantly though, we do get to include this cash rent in FAD. We have $0.01 of drag from higher year over year development and redevelopment spend. While this is an immediate term drag, we continue to see opportunities for significant long term value creation with our development and redevelopment projects. We have accelerated phase 3 of the short. We have broken ground on the boardwalk in San Diego, and we have added more HCA developments. Finally, we see negative $0.01 from various other items. The net net with all the puts and takes we are guiding to $0.04 of increase in 2020 compared to 2019. Perhaps there is a bit of conservatism in our guidance as well. Please see Page 48 of our supplemental for a complete list of guidance assumptions. I want to briefly touch on the guidance addendum we added to our website. We felt it was important to expand on some important topics. 1st, we included a quick overview of the Post acquisition, and how it synergistically fits within our portfolio and expands our Boston footprint. 2nd, we included an update on the status of our development pipeline. As a result of our pre leasing success we expect positive earnings contribution from our active development pipeline for the next several years. 3rd, we included a quick update on our Brookdale transaction, which closed just last week. We reaffirmed the modest FFO accretion, and as we mentioned, the transaction is neutral to FAD. Finally, 4th, We included additional detail on our 2020 guidance with a projected sources and uses, a breakdown of the components of our blended same store NOI growth, as well as an FFO roll forward. A few housekeeping items before I turn the call over to Scott. Starting with CCRCs, In the first quarter, we expect to book a gain on consolidation in the $100,000,000 to $150,000,000 range, an an approximate $100,000,000 management fee termination expense. Both items will be excluded from FFO as adjusted. Near nearing completion of the fair value analysis of all components of the CCRCs, including the fair value of non refundable entrance fees, will more commonly referred to as nrefs. The fair value of in place nrefs is expected to be approximately $400,000,000 to $450,000,000, and amortized over an expected, actuarially determined remaining length of stay of approximately 6 to 7 years. These items are covered in more detail in the guidance addendum. Moving on to some financial reporting items that will take effect in the first quarter. First, we are aligning the definitions of FAD, cash NOI and adjusted EBITDA to reflect the nonrefundable fee on a GAAP amortization basis in accordance with accounting consolidation rules. 2020 cash and ref collections are dollars, Lastly, we are changing along with a few others are outlined on Page 49 of the supplemental. With that, I would like to turn the call over to Scott Thank you, Pete. I'll start with our segment level operating results for full year 2019. In Life Science, which represented 32% of our same store pool, we reported cash NOI growth of 6.2%. Above the high end of both of which exceeded expectations. Including more than 700,000 square feet in the 4th quarter. Turning to medical office, which represented 44% of our same store pool. We reported cash NOI growth of 3%, which was above the high end of our original guidance range. Outperformance was primarily driven by mark to market, strong retention and higher than expected ad rents at Medical City Dallas. We leased more than 2.7000000 Square Feet in 2019, exceeding our expectation. Moving to senior housing, triple net represented 13% and Shop 5% of our total same store pool. Full year, senior housing cash NOI increased 1.5% with triple net growing 2.4% and shop to declining 1%. In December, we closed on the previously announced joint venture of our 19 property Brookdale Managed shop portfolio. These properties were removed from the shop same store numbers in accordance with our policy in effect in 2019, in which unconsolidated JVs were excluded from same store, and we not removed these assets all our full year SHOP same store results would have been negative 4.5%, slightly above our original guidance. Additionally, Had our new same store definition been in place in 2019, our shop results would have been negative 2.7% due to transition properties being excluded and joint ventures being included at share. Senior housing portfolio outside the same store pool includes recent acquisitions with Discovery and Oakmont, triple net conversions with Sunrise in Oakmont, the CCRC portfolio and our redevelopment and held for sale properties. The scale of this portfolio is significant and the asset quality will be accretive to our same store pool when they're added based upon and the CCRCs have been strong, while results have lagged expectations at Discovery And Sunrise, where numerous initiatives are underway to improve performance. Turning to transactions. Since our last earnings call, we've closed on over $1,800,000,000 of acquisitions and dispositions. Starting with Life Science, we continued to grow in Boston and San Diego, run their contract to acquire the post a $320,000,000 Class A life science campus located near our Hayden Research Campus in Boston. The price represents a 5.1 percent cash cap rate. The 426,000 square foot campus is 100% leased to 4 biotech and innovation tenants with an 11 year weighted average lease term and roughly 3% escalators. Additionally, the campus likely has potential for increased density over time. The post enhances our cluster strategy offering leasing flexibility for our tenants, $333,000,000 acquisition of 35 Cambridge Park Drive, a newly built Class A life science property in West Cambridge. The building is next door to the property and land parcel that we acquired in early 2019, creating 440,000 square feet, of contiguous space upon completion of the development. In San Diego, we expanded This $164,000,000 project is located on Science Center Drive in Torrey Pines. This is an A plus site and will be HealthPeek's flagship in San Diego. The campus includes 3 adjacent Health Peak Holdings comprised of 2 land sites, totaling 105,000 square feet of ground up development that will flank both sides of an 85,000 square foot property that will be redeveloped. On stabilization, the campus is projected to generate an estimated yield on cost of 7%. We've made significant progress At the shore, we executed a 10 year lease for 182,000 square feet with Janssen BioPharma, part of the Johnson and Johnson family of companies, representing approximately 60% of phase 2. Janssen has expansion rights that can be executed over the course of 2020. We continue to see strength and positive momentum in South San Francisco, where we enjoy number 1 market share. And in Boston, we're now 57% pre leased at our 75 Hayden Development Project, The 2 recently signed leases total 122,000 square feet, and we're seeing strong interest and activity on the remaining space at Since our last earnings call, we closed several important transactions, including the acquisition of Brookdale's interest in the CCRC portfolio, and the transition of operations to LCS. The sale of 18 triple net leased properties back to Brookdale The sale of a 46.5 percent interest in the 19 property Brookdale SHOT portfolio to a Sovereign Wealth Fund, and our exit from the UK. Additionally, we reached agreement on our remaining 6 property master lease with Capital Senior Living who will release $1,900,000 of security deposits to health peak upon signing definitive documents. In exchange for converting the 6 properties into a RIDEA structure, effective February 1. The annual rent on the properties is currently EBITDAR of $3,700,000. All of our capital senior living properties are well along in the disposition process and upon completion Carey Asset Management platform, which we call peak vision. We look forward to showing it off in person. Having rebuilt our senior housing team, We've now built the technology platform as well. Relationships continue to drive our deal flow, In December, we signed an agreement with Oakmont, which provides Health Peak the option to acquire up to 24 of Oakmont's development properties The properties are concentrated in California with an estimated value The acquisitions are expected to be At each closing, HealthPeak would enter into a highly incentivized management contract with Oakmont, creating a strong alignment of interest. Finally, in our medical office segment, we added an on campus MOB in Nashville to our development program with HCA. The 172,000 Square Foot Class A Building has an estimated spend of $49,000,000, and is located on 1 of HCA's flagship campuses. Project is 45% preleased with active discussions on the remaining space. On campus MOB at Grand Strand Medical Center. This project was our first development in the HCA program. Project was 71% leased upon delivery with strong momentum to lease up the remainder of the space. Taking a step back, 2019 was just an incredible year for the company. And it goes way beyond strong operating results, high quality acquisitions and leasing activity. More important We solidified and grew key external relationships and further established a team of skilled and collaborative colleagues that extends well beyond the individuals you hear from on these earnings calls. Those human assets are even more We'll now begin the question Our first question comes from Nikhilico, Scotiabank. Please go ahead. Everyone, Pete, you mentioned that the guidance is perhaps conservative. Can you elaborate on which items would drive the range higher and what you were talking about there? Yes. Hey, Nick. Good question. You know, our blended guidance does assume some modest operation, when you look at same store growth, I think about MOBs, we finished 2019 at 3% The component midpoint is around 2.4, which was the same as last year. As you remember, we had some strong ad rents at medical City Dallas, which is difficult to forecast. So that certainly factors in. Within life sciences, we finished last year, at 6.2%. We had a very, very strong year. The component midpoint is in the mid-4s, which actually was the same we had last year as well. Market fundamentals remain strong and certainly we'd like to outperform again this year. But as you know, there's some lumpy leases and the mark to markets where we ultimately end up, the rents seem to be moving upwards. A lot faster, and downward. So look, we think there's some potential upside there. And then in senior housing, I think triple net is generally in line. It's more of a straightforward business to forecast. And then shop on an apples to apples basis, I would say is modestly improving, but still a challenging environment. So that's how I think about the various segments heading into 2020. Okay, that's helpful. And then, second question is on the post acquisition you made and also just the rest of the Boston portfolio. I mean, the difference between the cash and GAAP yield on the post acquisition seems pretty big and even more so than a straight line rent benefit would suggest. So I guess I'm wondering if there's a big mark to market, rent benefit on that acquisition. And maybe you can also give us a feel for the rest of the Boston portfolio that's in place, where you think the those in place rents are, versus market today? Hey Nick, it's Pete. So, I'll start with the post first. One thing about post 1, we're very excited about it. And if you look, we put some nice pictures of that asset in the guidance addendum. Weighted average lease term is long on that asset, over 10 years so that obviously is a contributor to some of the differences between GAAP versus cash. There is a little bit of a mark to market on those leases as well, although the straight line impact is by far the biggest driver of that as we think about Boston generally, where we are relative to market I would say some of the newer assets we bought, I'll use an example, 35 Cambridge Park Drive, The weighted average rent there is in the very low 70s, asking rents in that market, and we included this. And the addendum for Class A new space is approaching the mid-80s, and some of those rents were signed or leases were signed give or take a year, year and a half ago. So you've seen some significant movement in rental rates, which is also driving down the initial cash cap rates as well, which is something to keep in mind, but we're certainly benefiting from that on the yields on the development we're doing, especially at 75 Hayden, where we are significantly exceeding our underwriting, there we thought we'd be in the mid-50s from a rent perspective. It's a different market than West Cambridge, but we're actually approaching mid-60s at this point in time. On a blended basis for the leases we've signed as well as the conversations we're having right now with tenants. So things are moving in a good direction for us and we're certainly taking advantage of it. Okay. Just one that's helpful. Just one other follow-up on that is on the 75 Hayden. And as we think about 101, the 101 starting as a development, It sounds like those yields could be even higher than the range that you guys provide in that, development page, the life science page that's in the guidance addendum? You actually get over 8% maybe. Is that right? Yes, I think on 75 Hayden, we still have some more leasing to complete there. But based on the rents I just quoted, yes, we could be above the high end of that range. We're a little conservative and how we show those ranges until we have leases signed. But certainly, we're trending in a good direction there. I'd say on 101, we're still working through the entitlements there. And we will work on finalizing our costs. It's a little bit more expensive, developing in West Cambridge than it is in Lexington. We've got to build some subsurface parking there. But certainly the rents are helping us yield perspective. So more to come on that, hard to comment today without our final budgets being done on that. Next question is from Jordan Sandler, KeyBanc Capital Markets. Please go ahead. Thanks. Good morning. I wanted to see if you could, you talked about some of the conservatism baked into the same store pool. I guess, I'm curious if you could maybe walk through the non same store pool, specifically, the cadence of the total shop portfolio performance throughout 2020 and how that'll contribute to FFO. As we know, the same store portfolio is the less than 25% of total SHOP portfolio NOI? Yes, Jordan, I'll try to handle that because most of the life science and MOB portfolio outside of development is already captured, same store pool. It's really the senior housing portfolio. Because we really started over. I mean, we blew apart virtually every asset that we own, either selling it, converting it to shop, restructuring leases, changing operators, acquisitions, redevelopment, hardly an asset remained untouched from 3 years ago. So about 80% of that senior housing pool is not in same store. That includes the CCRC. Which are performing extremely well. And that closed the transition from Brookdale to LCS on February 1, performance right up to the closing date under Brookdale's operations were really strong. And we haven't seen any no will fall off in performance so far. So that's fantastic. That would potentially be upside to earnings guidance because you saw we baked in up to $10,000,000 of degradation. So that would be fantastic. That's a big number. It's $110,000,000 of total NOI. So significant. Sunrise is a meaningful piece as well that's not in same store today. We've done a lot of surgery on that portfolio as well. Frankly. A lot of the Prime Care assets were hold, past generation Sunrise assets in more secondary markets and we saw a lot of those. Even what remains, there are a number of assets, 10 to 15 that are being sold. So that we'd be left with a portfolio of about 25 higher quality Sunrise assets that are kind of in their core markets. They're really good at the A plus sites in the primary markets. And we've tried to hold on to those because we think they'll do a great job. And that's a material amount of NOI. In the range of $70,000,000, including the 2 CCRCs that they operate for. So those will start becoming part of same store on a quarterly basis in 2020, but they won't be part of the full year pool until 2021. And then there's the Oakmont portfolio, both the triple net conversion assets, as well as the acquisitions. That's going to be $30 plus 1,000,000 of NOI. It's pretty Materials, all in California, for the most part, brand new, at least the acquisitions that we've done. I wouldn't call that a lease up portfolio, although it's very new real estate, they lease them up so quickly that they're essentially stabilized within a couple of months of opening. Nonetheless, they should have strong growth. Over the next several years and hopefully well into the future. Those again will be added to the quarterly same store pool throughout the course of 2020. Then they come into the full year pool in 2021. And then the last material addition would be the Discovery acquisition. So we noted in the prepared comments. That was a lease up portfolio that did not fill up in 2019, the way we expected it to. They've shown some recent momentum. They've made a number of changes to personnel and local initiatives that we think will start to pay off over the course of 2020. So those assets will become part of the quarterly same store pool And then in 2021, they would become part of the full year pool. So a long way of saying that by the end of 2020, certainly into 2021, the results of the senior housing portfolio will start to appear in a meaningful way within that same store pool. So we've had the same challenge, Jordan, that our best assets, in fact, the majority of the pool senior housing is not in same store. So it's been challenging for us as well, but it's just a function of all the surgery we had to do hopefully build what we think is going to be a great portfolio over time. And as we look forward over the next 24 months, the vast, vast majority of our senior housing portfolio will to become part of same store. It's that's I appreciate that you walk through that. I guess the part that I'm trying to understand and maybe this from modeling perspective and trying to take, I could absolutely take it offline, but I think the broader audience would probably appreciate just how the total NOI from the total SHOP portfolio flows throughout the year? Right? I mean, is this going to be rising gradually or with less of a seasonal impact because of the pieces that have some momentum or a little bit lease up? Is that generally how it's going to perform? Gradually improving throughout the year? I think that's fair, but the major components are the CCRCs, which are mostly stabilized. Sunrise, which is a stabilized portfolio, Oakmont, which is essentially a stabilized portfolio. And then Discovery, you should have some lease up benefit over the course of the next 24 months. Okay. And then, separately, can you offer the same store guide, particularly for life science shop using the old methodology. Just curious how much contribution you'll see if any from the inclusion of the CCRC portfolio as well? Yes, let me Jordan, it's Pete here to talk about the life science same store. I do want to provide a little bit of background on this and Tom touched on it. In the Q And A portion of our last call. I've described before the cluster within a cluster strategy within our markets and that we are able to really support our tenants as they have success and need to grow I want to give you an example, because I think this will be helpful. So global blood therapeutics is a tenant in the Cove phase 1, at least 67,000 square feet, and we collect about $4,000,000 of rent. Next month, they are moving into the Cove phase 4 and will lease 164,000 square feet, and we will get over $10,000,000 of rent. But they're vacating a building that's in same store and moving into a building that is not in same store. Even though we're receiving over $6,000,000 of rents, which is a very quick thing. And we've subsequently backfilled all of that space, it just has some downtime between when GBT vacates and the new tenant actually takes possession. We had a similar example with myocardia at phase 1 of the shore. So we updated our policy to remove the vacated building from the pool because it wasn't going to provide what we believe is the right organic growth number for how that segment is actually doing. Think we all know it's performing quite well. We have very strong lease escalators. We also have very strong mark to markets. So we have pulled those two assets out, it's really those 2. There's one other smaller one as well in San Diego. So it is a good question. We are at 4.5 percent for the midpoint. If we were not to have pulled those assets out, we would have been a few 100 basis points below. So in the 2% range. But frankly, as we look at it, we hope we keep signing more leases with existing tenants and collecting a lot more rent. And we're trying to provide what we believe is the best organic growth number within our same store pool. So that is the life sciences portion of that question. On the CCRCs, remember, with the CCRCs, they're not in same store. They will not go into same store until until next year. And also, not only was it an acquisition of the interest we didn't own, we're also transitioning to LCS. That will go into the full year pool in, I believe it'll be 2022, for the full year, and it will start to go into the quarterly pool in 2021. What about with the other, just forgetting about the CCRCs, just the if you layered on the old methodology to the same store shop portfolio, what would that number have been? Yes, sure. Instead of the negative 2.5. Yes. One clarifying point on the CCRCs, we are going to create a standalone segment. So you'll have full disclosure on that segment starting in 2020, even though it's not part of same store. So you'll get full transparency there. And then on the question about the same store, I want to make sure I'm answering the right question. If you could just restate it. I'm just curious what same store shop NOI guidance would be for 2020? If you hadn't changed methodologies currently projecting negative 2.5? Yes. Okay. So the major difference in that case would be unconsolidated joint ventures would not be in the pool. So that includes Brookdale and a few assets within an operator called MBK and our guidance for 2020 would have actually been better than the 2.5 percent, a negative 2.5% that we reported yesterday, primarily because of the Brookdale joint venture portfolio. We've talked about that. Portfolio having its challenges being based primarily in Houston and Denver with a lot of new supply. So our guidance would have been better, with our old policy. Got it. Next question is from John Kim BMO Capital Markets. Please go ahead. Good morning. Maybe I'll ask Jordan's question in a different way. So your total Shop margins this quarter were down seasonally, but up 60 basis points year over year. Should we take that margin improvement as run rate going forward as the you look to 2020? John, can you repeat that? It faded and we couldn't hear your question. Your shop margins were down seasonally this quarter, but up 60 basis points year over year. Should we take that margin in improvement as a good run rate going forward when we look at margins on your Total Shop portfolio? I want to make sure you're looking at the right numbers though. The margin for the overall shop portfolio is probably modestly better because of the held for sale. Assets, which are the lower quality properties, the margin on the same store portfolio would not have increased. All that being said, we do think there's substantial room for improvement, on balance of the senior housing portfolio that we intend to hold long term, the margin today is in the mid-20s. We think there clearly opportunity to improve that at least 5 basis points in as much as 10 basis points over time. Okay. And then on your lease restructuring with the capital senior, how much more do you need to do on your remaining triple net portfolio, specifically with Harbor or maybe some of your other smaller operators. And is this any of this contemplated in guidance currently? Yes, if you look at the heat map on the supplemental, We've cleaned it up pretty dramatically. There were about 50 data points on that chart. 2 years ago, we're down to about 4 or 5 data points. And The only two that are well below 1.0 rent cover are de minimis in size. They have pretty good corporate guarantees standing behind them until the lease maturity dates, at which point we would sell those assets. They're not core to the portfolio. It's also just such a small dollar amount. That's page 30, if you wanted to look at it. It's changed dramatically over the last couple of years as you've stated. And then you talked about HRA. John, we did a big restructuring with them last year where we went from 14 assets in multiple leases with multiple different maturity dates down to a core portfolio of 8 assets. That are based in Florida, where they're located. We consolidated all of the leases into one master lease. Did a 10 year term substantially improve the credit, and guarantee behind that lease. We also agreed to give them $10,000,000 of capital to renovate the buildings. So they're just now getting started with those projects. So over time, we expect that rent cover to improve. But until the renovations are done, I think you'll see it stay below the 1.0 times rent cover But we feel like we've done the work that's necessary. The Brookdale portfolio has an 8 year term, that's in a master lease with the full credit of Brookdale. And then the only other material lease is with Aegis, which is a 10 year lease with strong rent cover and very good assets. So Hopefully, we've, we've done our work on the triple net portfolio. So a year from now, the heat map will improve significantly for it is today? Well, the only thing that's really going to happen now are the 2 small dots on the leases that mature over the next 3 to 4 years, those will eventually go away. But, you won't see us add anything to the heat map because we're really not doing new triple net leases. All right. Okay. Thank you. Thanks. Next question comes from Vikram Malhotra Morgan Stanley. Please go ahead. Thanks. Just on the CCRCs, can you maybe I missed this Can you you mentioned you've baked in some degradation. Can you give us a sense of how you view sort of the growth in that portfolio in 2020? And then and just again related to the CCRCs, can you clarify the initial when you presented the NOI from the CCRC that he was about $51,000,000. Is the is the amortization of the all the nonrefundable fees, is that included or partly included in that number? Yes, it was $55,000,000 in the presentation, Vikram, and that number represents both the total NOI, including the cash NRF, as well as the total NOI, including the amortization of the NRF, they're essentially the same number. So I think that's a really important point to understand. It sounds like there's been some misunderstanding about that point. And I think it's a critical point that economically, the NOI that we acquired is $55,000,000, whether you measure it on a cash basis or an amortization basis. So that includes the $400,000,000 to $500,000,000, that that the fair value that will be amortized over the 6 years or so. That number includes that $60.55 is includes everything. Yes, Vikram, this is Tom. Yes, it includes the amortization of the non refundable entrance fee for the 51% that we just acquired in that number. As well as the NOI for the 51% we just acquired in the number you're looking at in that deck. Great. Okay. And then just the trajectory, in 2020? Yes, that portfolio has performed well for a number of years. We have good disclosure in the presentations that we do each quarter with the long run historical NOI growth in that portfolio and occupancy, it's been a steady upward slope, in 2020 versus 2019 was an extremely good year for the CCRCs. The total NOI was up almost 6%. Of course, it bounces around quarter to quarter, but for the full year, it was really strong. Growth. We're not expecting similar growth in 2020. In fact, we are projecting for that presentation the potential for some degradation, but all signs to date suggest that we may have some upside to the guidance number. Okay, great. And just on the shop portfolio, can you kind of maybe give us a bit more color on what's embedded in that negative 2.5. I know it's a small piece of the overall pool, but just how are you seeing sort of the pieces between occupancy, rent growth and expenses? Yes, happy to do that. Vikram, we're projecting a modest increase in occupancy. The Brookdale portfolio, which is now included at share We're projecting negative growth, just given the last 6 months in that portfolio, it's not going to turn around overnight. So that's weighing down the shop same store portfolio. It would otherwise have done, some reasonable occupancy growth. The RevPAR growth is pretty muted We're projecting about 2% in 2020, just the reality of market conditions today. And then the primary operating expenses, of course, labor that cost has been growing at around 5% per year and we're projecting that that will continue in 2020. Got it. Great. Thank you. Thanks, Vikram. Next question is from Michael Carroll, RBC Capital Markets. Please go ahead. Yes, thanks. Tom, can you talk a little bit about your MOB strategy today? It appeared at least for the past several quarters that peak has been mainly focused on the development side. I guess with the addition of Justin to the team, can peak be more aggressive on the acquisition side too? I'll start with that and clear, if you've got something to add It has been one of our objectives as we go into 2020 to, start working on the flow business in MOB, similar to what we've had in senior housing and life science. The addition, the addition of Justin Hill, working with Tom Klaritch and Scott Brinker, we think, is a big step forward. And I do think through relationships, we will have a number of opportunities that come out of that. So that is definitely part of or that's definitely one of the significant goals we have as we go into 2020. Tom, anything you'd add on that? I think 2019 was actually a little bit slow on transaction front for MOBs and there was not a lot of high quality portfolios out there. We are hearing in the coming months, there should be a several decent sized portfolios into market and we'll certainly take a look at those and, hopefully be able to execute on some. Okay. And then are you, focused on the larger transactions or would you pursue, I guess, on the smaller individual type portfolio or individual assets also? I think it's more likely to be a flow business like we're doing in life science and senior housing, which is very targeted. Approach, we now have a very senior resource to allocate the time to travel around the country to see sites and and meet with partners, and sellers. And he's Justin is extremely skilled at doing that. So there's no doubt that the activity will pick up in the medical office segment. The big portfolios, pretty much everybody gets a chance to see those. We look at all of those it may be that on occasion, we'll find the risk adjusted returns appropriate, but I would put that more in occasional category or opportunistic, that's not going to be the primary way we grow our business in any of the three segments. Okay, great. And then the last one for me. Scott, I think you mentioned in your prepared remarks that there is increased density at the post that you could do. Can you provide us some more color on that and what should we expect? Yes, it's a 36 Acre campus with a sea of surface parking lots, spaces. So, that's not a near term priority, but it's certainly something that when we do life science acquisitions, whether it's the towers at Sierra Point, for the Cambridge, the Cambridge Park Drive, too many, too many syllables on that one. Cambridge Park Drive acquisition, or the post, where when we do acquisitions life science, we always look for the opportunity to build scale on that campus over time. We've just found that to be such a critical component of life science real estate to have that local density and scale. Got it. Thanks. Next question is from Ritchie Anderson, SMBC. Please go ahead. Hi, good morning, everyone. So just getting back to the CCRCs, I just want to make sure I have this right. You're you'll run about 85% rental revenue and about 15 percent amortization. Is that about right or total in terms of the total revenue 1? I would, characterize that differently, Rich. When you look at the total amount of income generated on the CCRCs, it's about 60% from the NRFs, nonrefundable entrance fees, and about 40% from the NOI. The numbers just so you have them is it's about $65,000,000 for the NREPS and about $45,000,000 net So the NOI is coming to about $110,000,000. Okay. So NOI meaning, okay, I was just looking at the revenue. I was looking slide 47 on your supplemental and trying to sort of just look at the revenue side of the equation? Yes. I think it's probably easier, Rich, the way we about it is how Tom described it, which is the percentage of NOI. And that cash NOI is essentially the annual rent we receive from our residents. And then the NRS is broken out separately and that's the entrance fees that we receive residence when they move in. So we've got it in those 2Qs. So that's set up to a bigger question. So, you now own it 100 percent, you're having to bob and weave through a lot of disclosure noise. That you did a good job explaining in your disclosure materials last night. But I'm wondering, And I know you have a you like the CCRCs. I know you're somewhat the exception of that. A lot of people have avoided that space, but perhaps there's a turnaround story here. But I'm wondering when you think of all the work you've had to do to explain the disclosures and whatnot, and now owning 100%. Have you given yourself like a sort of a card in their back pocket and the small optionality should it not work out very well that it's easier simply to sell a portfolio that you own 100% than if it's kind of wound up in a joint venture? I think in the unlikely event that doesn't work out well, we certainly have given ourselves that, that card But we feel very confident that it's going to work out. You mentioned the accounting and some of the confusion that came out of it. We had a few different calls with analysts last night, very knowledgeable analysts as we walk through the economics and how they match up to the cash that's generated. And I think the analysts all came to the conclusion as well as some others that we've had opportunities to talk to over the prior months that the county does capture the economics in these deals. But I do think there's been some misinformation out there that frankly, I'd like to take a minute, not actually give me the question, Rich, to set the record straight on it. And I think it's important because this is a in my view, a very favorable asset class and a great opportunity, but one with high barriers to entry and hard to get into. So I'm going to take a minute on that. We mentioned earlier that the CCRCs in this portfolio generate about $110,000,000 of FFO in the 2 buckets. And we talked about that, the NOI and the nonrefundable fees. And what's important about these two buckets is the NOI produces about a 10% to 15 percent margin by itself. The nonrefundable fees adds to that margin and brings it more like to a 25 percent margin. In other words, the nonrefundable fees are a critical component of the income to generate a profitable return on the CCR portfolios So when one considers the fair value, that, that has to be assessed, it has to include those nonrefundable fees. Some facts. The average senior resident enters the communities at around age eighty, and they're usually pretty healthy at that point. And they have an 8 to 10 year actuarial life of stay. A nonrefundable fees are then amortized over these end to 8 to 10 year lives. So it produces a a proper, amortization of income based on providing those services and providing those, those units in that shelter and those services to these seniors. So when we look at the major points of the transaction, I think the first one is we underwrite that we underwrote those deals and when we underwrite future deals, we look at on a cash not a GAAP or FFO basis. That's how we underwrite it. So the underwriting is based on cash, but the fact is, is that GAAP also follows the money and GAAP generally gets to the right place on this stuff in, in, in, in, especially in this type of an accounting. The annual income being recorded on this stuff is roughly equivalent to the cash being received, which is really important when considering that the accounting then reflects the true economics. The NRS this important point that I think it's missed, the Nrefs are absolutely akin to prepaid rents and are accounted for very similarly. Which, as you know, is consistent across all forms of real estate. As you pick it up and purchase accounting, you don't ignore prepaid rents. If you had, rent that was prepaid for 3 years on a particular property and you want to buy that property, you're not going to ignore that in your purchase get a reduced purchase price, record a deferred revenue, and you'll recognize that income in over that 3 year period. Of course, you'll do that. And, that's true for 80 wells, say, well, it's true for these 2. And these nonrefundable fees are just simply prepaid rents, on the end reps, for seniors. So, those NRF center amortized over an 8 to 10 year life. Now you got to recognize why the 8 to 10 years because It's assessed by actuaries every quarter, so it's not us making these numbers up. Actuaries look at the numbers, determine the appropriate life to amortize this, And that's the period of time in which we bring this income in. For the existing residents at the date that we did the acquisition, The Value Van Res are simply booked as deferred revenue under GAAP. And then for the, The new residents, of course, as they come in, rather than recognize all those nreps at one time, and say that's $150,000 number, rather than recognize at all one time in GAAP and income and FAD, which I think you would object to, We then amortize that over that 8 to 10 year period in which we're going to be providing the services makes perfect sense under GAAP, where you're expecting some kind of a matching print of course. The stuff is not there's nothing esoteric or fancy going on here. So the cash to recognize for deferred revenue importantly follows the cash and that cash in this case comes from a deferred purchase price just as if you had bought an asset that had prepaid rents upfront, of course, you're going to pay less for that asset if you're not going to be collecting those rents because your seller collected a whole bunch of those rents on day 1 and the next day you bought the asset and you weren't going to get those, those rental payments. So that's, that's fairly basic. So when we go through and we think about some of the principles is that gap is usually designed to follow the money and the economics. And in this particular case, it absolutely does. GAAP is designed to report income in the correct period. And it usually gets that right. And in this case, it absolutely does. GAAP is designed to create a matching, a revenue and expenses. All of these principles are spot on in the CCRC accounting. So some of the misinformation that we heard buzzing around I felt very important to set the record straight, and I'm glad to take more questions on this. I guess it does, I mean, it's important that every real estate in the country is required not optional, required to use this kind of accounting across a whole vast array of different things that are accounted for when you purchase real estate. And so there's nothing special here. I just wanted to debunk some of the stuff that I've heard out there. All right. That's a 6 Sigma question or answer a question. I wish if I ever heard one. And then, then just one quick one. Haven't disclosed, the cap rate or the economics behind the Sovereign Wealth JV is there a reason for that, or did I just miss it some place? Hey, Rich, it's Scott here. When we announced that deal, last quarter, we talked about a cap rate on sale of about 6%. Inclusive of the asset management fee. And that's on a trailing 12 that performance has been weaker, more recently. So just depends what time period you're looking at, but it's in that range. Next question is from Nick Joseph of Citi. Please go ahead. Hey, it's Michael Bilerman here with Nick. First off, Tom and Pete, I do appreciate, I think the industry appreciates you spending the time with Ventas and Welltower to work towards some commonality and also being able to put out a presentation, which lays out every item think is really helpful for the street to have. So just thank you for doing that. I want to come back to the life science same store change you made. And Global, I know you want to be, working with your tenants and partners with your tenants. It's possible global blood could have looked at Alexandria Kilroy. They could have looked at Biomed a variety of different other landlords in the area for the increased square footage that they needed. And so you would have lost them if you couldn't satisfy them potentially, and maybe there's some other dynamics, but you potentially could the tenant you're existing building that's not going to your developments. And therefore, the asset should stay the same store because it is it is part of your organic growth of having to backfill when the tenant leaves to something else. And so I don't I appreciate the color and the desire to think about something. I actually don't think it's the right methodology change to make, because it is a vacancy that you're going to have to deal with, whether they go to your own building or someone else's, shouldn't matter. Hey, Michael, it's Pete here. I appreciate the point. Maybe I should clarify it. With global blood, we proactively allowed them out of their lease. So we would not have lost them. They would have stayed within their current premises and not moved, but we might have lost them from expanding within our portfolio. But we certainly could have held them to their current lease and not allowed them to get out of it. Earlier, we proactively elected to allow them to get out of their lease because they needed more space. And I should just clarify too that within the policy, we will not remove a building unless and we'll be fully transparent on this because we show fully sequentially when buildings come out. We have basically said, unless we are getting significantly more revenues from that tenant for their move, then we would not be removing them. So it's more of a proactive choice on our part. We could have said, no, made them stay in their building, but given up significant increases in rent because they needed more space. So our choice is to work with our tenants. And I actually will tell you in San Francisco, we've heard over and over again, the fact that we're the dominant landlord that many, many tenants look to lease with us, of their opportunity to grow. And if you look at our tenant base, it's heavily weighted towards biotechs. We do have some pharma exposure as well, which is pretty big. But those are the tenants where you can actually see significant growth and partnering with them is quite important. Hey, Michael. Before you respond, if I could add something for you, I do appreciate the question. It's something we grappled with, some, as to the best approach. We did conclude that it's better information If we're moving a tenant out of, let's just say, 25,000 square feet, that had 6 years remaining on the lease into 100,000 square feet that might have a 10 year lease at a higher rate, to show a same store decline when in fact it was very profitable company, it did feel strange in the same store. But one thing, I'm going to catch these guys by surprise a little bit, but Pete probably won't collaborate me too much. One thing we will do is we will footnote, in some way that is not in the fine print the impact of the, of these transactions and what it would have had on same store as we go forward. Because we're not trying to obviously hide it. We would want to put that out there so you can see it if that would be a reasonable, solution. So how much term was left on the lease in I may have written down the numbers wrong, but I think I heard 4,000,000 of rent, 67,000 square feet, 10,000,000 of rent, 164,000 square feet, which seems that it's basically $60 in the same rent. And so I guess I was, maybe the numbers are wrong, but I was surprised the rent stayed the same when you have the new build I assume you have all the TIs that you put in the existing space and you have a massive amount of TIs for the new space. So just help us walk me through the economic year of, what really was the exchange other than more space and how much term was left? I don't know if they had the exact term on me, but I would say they moved into phase 1 of the Cove. It was close to a 10 year lease, so they had north of 5 years left on their term. From a TI build out perspective, I would say that we built more of a and we do this often Michael with tenants that we think have a lot of upside opportunity. We build very generic base. So we're not doing a whole redo in the eyes. So the original TI package that we gave, to global blood in their initial lease was around $150 And then the renewal or excuse me, the new lease we signed with a backfill tenant is substantially higher than what global blood was paying, but also the TIs were substantially below that 150 given it was more of a generic space that was built out initially. And the rent is, was the $60 a foot the right thing in both cases or Maybe the gross rent numbers you quoted are not right? I quoted approximate numbers. I believe we were a slight pickup. But remember, we had some escalators for when they signed their initial lease and then we ultimately signed them for probably around 5 and quarter monthly low 60s for phase 4, which is actually a pretty strong rent within that market. Page 18 of the guidance where you have the roll forward, Pete. And it's helpful just to go from one to the other. We talked a little bit earlier in the call about the non same store shop assets, given all the transitions and evident you've done in that portfolio, what would the change be from like where does that show up on this reconciliation how many pennies, is that adding potentially to 2020 as those operations stabilize and improve? Yes. So, yes, it's certainly adding within the development earning. So the 2 big tenants I talked about myocardia and global blood those are big contributors. And I said in my prepared remarks, you know, phase 4 of the Co, which is Global Blood. I'm talking about the SHOP portfolio. Sorry. Just the fact that the shop, your shop, your normal shop growth, is it a small percentage of your entire shop portfolio, which is captured in the 2.5% blended, but you clearly are getting upside. As you made all those transitions, you had all the down NOI in 2019 that affected you, I would assume, but there's a positive benefit as those assets stabilize and ramp. Where is that being captured? Well, the transition assets are in the same store pool for 2020 because they will have had a full year of comparable results under a common operator. So you're not missing anything there, but to the point I made earlier, almost 80% of the senior housing portfolio is not in same store, even in 2020. They will start being added the quarterly pool throughout the course of 2020, but that's not captured in the guidance number. So there actually is a substantial amount of upside or downside, in earnings, based on the results of that non same store portfolio. Right. So that's what I'm trying to get at is what's embedded in your $1.80 guidance for that non same store shop? Pool, which is the largest portion of your shop assets, what are you assuming from an increased decrease or not relative embedded in that dollar 80 of FFO? Yes. So, Michael, and obviously, the roll forward is at a very high level. If we did every single adjustment, it wouldn't be able to fit on an 8.5x11. But big picture within 2020 transactions, Scott mentioned the CCRCs being the biggest component that is not in same store. That is picked up in that 2020 transactions. We talk about the penny and a half of accretion from the Brookdale transaction. So a big chunk of it is picked up there And then also when you look at the 2019 capital recycling, Scott also mentioned the, Oakmont and Discovery acquisitions If you look in that table footnote C, you've got 2019 acquisitions, which actually includes Oakmont and Discovery, but that's also offset as we look at this for the capital recycling we did as well as some of the funding. So the positive impact of those is offsetting some of the negative from the capital recycling. And then I also point out, we do have that other bucket down there, which is a bit of catchall, but does, obviously, pick up some other things. As I said, this is more high level. But going through those 3 items, CCRCs, Oakmont and Discovery, that's the absolute vast majority of non SPP senior housing assets or shop assets right there. Last just question on the dividend. And Tom, you referenced the board maintained and we'll think about it next year. Can you at least tell us what the framework or mindset that they made that decision to then reevaluate in 2021, how they, what are the what are they looking for the current trajectory of AFFO would indicate you're going to be able to cover more in 2020 than you did in 2019, right? Arguably if you're able to hit the guidance that you've laid out your dividend coverage by the end of the year should improve rather than go down. But just maybe help us understand what's the framework? What are they thinking about from a dividend perspective, next year? Absolutely. I can give you some insight on that. That was a robust conversation. We had some very good viewpoints around the room, recognize that our yield is quite strong, but that on the restructuring that our coverage was, was quite, was quite high were quite, quite low, in other words, 97%. And as we looked at it, we also knew that we were going to have a fad improvement during the year, and we could have easily raised the dividend sum to capture at least some growth and certainly provide an indication of where we're going because that's where we see ourselves going as we look forward the next 2, 3 years. Ultimately, at the current time, the board decided, let's stay put. The yields good. We've got excellent growth on the horizon. Let's get that, let's get that coverage in a stronger place first so that we're happy with that along with all the rest of our metrics. And we can always revisit that. It could be midyear. It could be 2021, but we thought probably 2021, there should be a good opportunity to revisit that then. So because our yield is so high and the coverage could use a little bit of improvement, that's how we came to that conclusion. So, I mean, frankly, we could have easily added if we chose to, but we felt that we would seek to get the better coverage first and then move on to start increasing the yield after that. Right. So there wasn't, it was much more about whether to raise than to cut? Oh, yes. The word cut never came up in a room. Okay. That's what I wanted to know. And Michael, one last point, we go, Michael, one last point, we had 8 years left on the GBT lease. So I think it's pretty important to note that for this, there was a lot of term left. And, they're now doing in a 10 year lease at the boat phase 4. And you've already released that space, it sounds like, right? We've already released it. It's just a matter of downtime to get the new tenant in. Thank you. Thanks, Michael. Next question is from Jonathan Hughes of Raymond James. Please go ahead. Hey, good morning out there. On the CCRCs and Tom Pete, all the details are greatly appreciated. But looking at page 49 of the supplement talks about the accounting change that's to come in the first quarter. Can you just clarify that you will be booking effectively $45,000,000 of NOI through cash NOI and EBITDA or will the full $110,000,000 including the $65,000,000 of NRF amortization also be booked in there? Yes, Jonathan, it'll be at the 110. Because we'll be under consolidation at that point. So it'll be the full amount of the, NOI and MRAS, the amortization of MRAS. Got it. Okay. And then maybe one for Scott. I think you mentioned the recently acquired Discovery and Oakmont properties are a little behind relative to underwriting. I think you said there were some personnel changes. So what happened there versus your expectations when you bought them less than a year ago? Yes, to clarify Oakmont is on schedule. If not, ahead of schedule, I had mentioned that discovery was behind. That's a lease up portfolio. 9 assets that we acquired and 5 of them are, generally doing well. The other 4 fell behind. So we were expecting some pretty significant occupancy improvement, the opposite, up and up those 4 properties discovery had a number of transactions that they were working on in 2019, which ended up being a bit of a distraction unfortunately. And shortly after our acquisition last April, a pretty significant change in personnel at the property and regional level. That needed to be sorted out over the course in 2019. So we think that they've addressed see today in that portfolio sits in the high 70s, which is roughly where we acquired it when, of course, we're that that will eventually stabilize well into the 90% range. So, they're behind. We still think they're a great operator. We're still confident in the assets, but certainly we're not happy with the 1st performance. Is there, are the Rev 4 trends kind of in line with your expectations? It's just the occupancy? Yes, it's been mostly an occupancy problem. Next question is from Steven Valiquette of Barclays. Please go ahead. All the 2020 guidance details are definitely helpful. 1 of the metrics, well, first you mentioned in your prepared remarks, you had $1,400,000,000 of announced non core asset sales over the past year or so. That was well above the original guidance. So for 2020, you're projecting another $500,000,000 of dispositions just remind us whether this, the 2020 disposition guidance is fairly generalized, just as a place marker, or is there some pretty good internal visibility on which properties and property types you plan to sell, so just the $500,000,000 may be realistic for this year. And should we assume that most of the additional sale activity will be in senior housing or is that not the right assumption? Thanks. Yes. Hey, I can start with that. It's Pete. Scott wants to add anything he can. So the $500,000,000, what's included in there is the North Fulton purchase option, which is around $80,000,000. It also includes the held for sale assets, which we do disclose in our supplemental. That's about another $300,000,000 when you back out the triple net, assets we sold to Brookdale, which is included in that too. And then there's certainly some other non core assets within senior housing as well as potentially MOBs that are not very significant, but certainly would make up the balance there. We don't intend to sell anything in life sciences. So I would say 500 is our initial guidance on that. If that number were to go up, we certainly would be looking to recycle that capital into acquisitions or development spend. So we wouldn't have it go up just to raise cash, we'd want it to go up in order to fund some capital recycling activity. So that's the way we think about it. Okay, got it. And just quickly on senior housing, you gave us some clarity last quarter. You talked about softness in markets like Houston and Denver as standouts. Now that more time has passed. Just curious if there's any notable trend changes in these stand out markets either for the better or worse. Or dynamics still pretty similar to what was happening in the mid-twenty 19 as we enter 2020 now? Yes, I don't think there's anything materially different from comments we would have made 6 months ago. The past couple of years, we've been a bit more cautious than most about the state of the industry and how long it would take for it to turn around. I think that turned out to be the correct assessment for sure, from where we sit today. Occupancy across the sector is generally flat, which is certainly improvement from where it's been the past 3 or 4 years. But too often I think that occupancy is coming at the expense of discounting and incentives and those aren't being picked up by the NIC data that a lot of people like to focus on. So we don't see rents growing at 3%, at least not nationally. Certainly, they are in particular markets, but not at the industry wide level. We think it's more likely in the 1% to 2% range, with flat growth, you can assume that revenues growing 1% to 2% a year. And if labor is, the vast majority of your operating expenses growing 5% a year, on a 30% margin business, it's pretty simple math to understand why NOI at an industry level has been declining. In the 5% to 10% range. So, we see that improving slightly throughout the course of 2020. But we don't think we've yet hit that inflection point despite the fact that occupancy is flat. We really need to see both flat occupancy and pricing power a dramatic increase in occupancy so that revenue growth can keep pace with expense growth. And we're just not there yet as an industry, but getting closer for sure. Hey, if I could jump in for just a second. Yes, go ahead. Sure. Oh, no, I'm sorry. I finished your question. No, I was going to ask one more quick one, but yeah, go ahead first. Have you coming on on this, the prior question first? No, actually, I was going to make a comment. I recognize the coals going long. We had lots of topics. We had a lot of materials for you guys to review, and I apologize. There was just so much City and so much information to get to you that we felt without it. It had been very hard to discern what is taking place in our business. We've got another half a dozen, six people. I would ask that, ask the questions quickly if we could just Please request that you do, and we'll try to get quick answers just to get through the rest of the questions. But we'll go as quickly as we can at this point. So, yeah, please continue. All right. Just a quick one here. Just to the extent you could comment on this, is there any color on what prompted the planned sale of the, I think it was 6 additional capital senior living properties over and above what you announced previously? Yes, we've had a good dialogue with Jim and her team. They have important strategic initiatives on their end, which included reducing their lease liabilities HealthPeak was their smallest partner. They certainly have others. They were not core assets for us. And we've talked about having, 2 or 3 years ago, 30 different senior housing operating partners. Today, we're down to about 20 like to get down to about 10. And we were not looking to grow with CSU. So it made sense, both for us, and for CSU strategically to exit that relationship. We think the combination of releasing the security deposits And the likely sale price for those assets will result in a perfectly good outcome for us rather than having yet another underwater triple net lease. We've been working hard to get rid of those. Next question from Chad Vanacore of Stifel. Please go ahead. All right. So I'm going to keep it to one question in the interest of time. Just thinking about CapEx, it looked pretty high this quarter. How should we think about run rate for 2020? And was this quarter, was that related to accelerated development or was that catch up for earlier in the year? Yes. Hey, Chad, it's Pete. You know, CapEx is historically been backend weighted for us the fourth quarter tends to be the highest CapEx number and not just a 4th quarter number because you could get some misleading, payout information there. So, we'd focus you more on the full year number. And then from a guidance perspective, we do include CapEx, and the supplemental with regards to recurring CapEx there and others. So I just encourage you to look at that additional detail for what we're budgeting for. 2020. Next question comes from Omar Ayo, Akofania of Mizuho. Please go ahead. Hi, yes, good afternoon. So I just wanted to follow-up on some of Steve Valiquette's questions. In regards to the acquisition outlook, most of your peers don't really give guidance, but you've kind of given an $800,000,000 guidance. Is that something very specific that out there or is that more of a kind of just a generic placeholder number? Yes. Good question Tayo. We've raised these equity forwards And in our sources and uses, we fully deploy those and you can see what they're getting deployed into capital spend acquisitions and the Brookdale transaction. On the acquisition front, that includes the post. So that's $320,000,000. When you take the balance, just under $500,000,000, we announced our Oakmont purchase option agreement a couple of actually about 2 months ago. And some of that is identified for those, although hard to get into specifics on timing right now, but certainly that's within our plan for some of those. And then the balance of that is a little bit on our pipeline. So that's how we came up with the $800,000,000 number. Great. And then just a quick second question. The Amgen Lisa men and extension. Can you just talk a little bit about, again, why that was done and kind of what's the worst case scenario they do decide to terminate early? Yes. So we obviously have a very strong relationship with Amgen and we have for years. The transaction that we announced in December, we believe, was a win win. As part of the agreement Amgen extended their maturities, on three buildings that are most important to them and we were able to spread out the lease maturities. They will vacate one building that they current occupied And then the other three buildings they lease are actually subleased. So now we have full clarity. They had extension rights on those sublease is there. And we have an opportunity to talk to the market about those buildings. It's a main and main location, right, next to the cove. It's our Britannia Oyster Point campus. So, I guess worst case, they would just vacate all of their, leases. But it would get spread out over the next 4 years would be the worst case. Hard to say what they'll end up doing with the buildings they extended the leases on. They have the right to stay in those through 2029. So I would say best case is on those three buildings, they stay for the full 10 year term essentially that they renew for. So hard to gauge now, but we felt quite good about having clarity on that campus and an opportunity now to work with other tenants, either sub tenants or the market on leasing up some of those buildings. Great. Thank you. Thanks, Jeff. Next question comes from Daniel Bernstein of Capital One. Please go ahead. Hi, good morning. Still good morning, barely. For you. Yes, one thing is, maybe later, we could talk more a little bit more offline about the amortization of the CCRCs. I don't want to go back over it again. Given the time, but I do want to talk to you guys about it. The one question I had is you have a bunch of debt 23, 2025 that around 4% yield. You obviously called the 2022 debt earlier. Did you bake in any refinancing into your 2020 guidance? Yes. No, we did not bake in any refinancing into our guidance. If you look over the last 6 months. We've done a lot of on deals and actually extinguished much of the debt that we have maturing 2020 to 2022. So we have not baked in any additional debt issuances and redemptions. Okay. And then I don't want to put you in a quarter on long term senior housing fundamentals, but when you look at your portfolio, it's around 85 on occupancy. I think historically, it's probably been higher than that. Do you think the industry is going to get back to that and maybe your portfolio back to that upper 80s occupancy within senior housing over, say, the next 3 to 5 years. Is there that kind of an upside embedded within your portfolio? Is it going to take a little bit longer than that? Yes, I think the portfolio we've built will get back to that level. I think 3 to 5 years is a comfortable window to get there. Next question, Michael Mueller, JPMorgan. Please go ahead. Hi. Just on the same store definition, what's the 2 things, what's the trigger for the transition assets to go back into the same store pool? And then secondly, we look at the 2019 performance on, the new definition of minus 2.7% versus the minus 2.5, 2020 guidance, should we read into that, you're expecting slight improvement or is the property mix changing where it's driving that little bit of improvement? I'll take the first one and Pete the second. This is Tom. For the transition, it's you have to have comparable operators in both periods. If we move for moving from one shop operator to another, we will pull it out of the, same store pool for transition purpose. But I'll remind you, if it's material in that portfolio, we'll continue to disclose it both ways as we have in the past. So you won't lose anything from what we've given you in the past. Kate, the second part? I hate to do this, Mike, but can you repeat the question? Yes. I guess when we look at 2019, Chuck, performance of minus 2.7 percent under the new definition versus 2020 guidance of minus 2.5. Is that slight improvement based on operations getting better or is the full size changing from year to year that's driving that improvement? Yes, it is a bit of a different pool, Michael, because of the transition portfolio, which under this definition would not have been in the 2019 same store result, but they will be in the 2020 same store pool under both the old and the new policy. I think the best apples to apples comparison is that, if we had used the 2020 same store policy, our 2019 results would have been negative roughly 4% versus the guidance of negative 2.5%. So there is, slight improvement built into, 2020 relative to 2019. That's not a perfect apples to apples comparison because of the pools, but that's as close as we can get. And that's primarily the reduction in size of the tail portfolio, frankly, rather than 100% share, it's at 53.5%, and that's the portfolio that's been dragging down performance. That's just the reality. We don't think that lasts forever, but that has been the case, the past 2 years. Thanks. Next question is from Lucas Hartwich, Green Street Advisors. Please go ahead. Just ask one. So there's a lot of capital chasing life science these days. I'm curious how you think that impacts the supply outlook for that segment? Good question, Lucas. We're certainly seeing cap rate compression. It's no longer this niche asset class. There's a lot of capital. Chasing the space and driving cap rates down. And also when you add to the mix, the fact that you've got a lot of increased demand from tenants looking to lease space. You have, a virtuous cycle, which I've talked about in the past. So, and we're also seeing a lot of pre leasing happening well in advance. And so I think where we are today it's likely that we'll see additional developments in each one of our markets. We are obviously participating in that in all three markets. But we're certainly mindful of making sure that we would look to match whatever new supply we deliver. With our view on where demand is from Next question comes from Joshua Dennerlein. Bank of America Merrill Lynch. Please go ahead. Hey, guys. With the post acquisition, you kind of expanded in the 128 a submarket for the Boston Life Science. What kind of draws you to that submarket? And Is there any other submarkets you really like in Boston? Yes. We actually really like the Lexington market. Primarily because of its location for the 2 and also the AOYS T stop And we like the West Cambridge market because that is exactly where the T stop is. So we see some real synergies between owning assets in West Cambridge as well as in Lexington. I know the post says it's in Waltham, but if you look at the map, it's less than a mile from our Hayden Research Campus. So We like the suburb play, but what's important to us is making sure that our tenants can utilize the transit system to get to and from their workplace because traffic in Boston is not easy to navigate. And as we look at the suburbs, we'll continue to assess the ability for tenants to access that transit. Okay. Is that it for questions, operator? Yes. We'll now turn it back to Tom Herzog for any closing remarks. Just a couple of comments. I will say that the CCRC class of assets, the portfolio we consider to be a great opportunity for us. We recognize that there's a little bit of education on the account. It's not that difficult we have an opportunity to go one on one with people, which we've done some of. Glad to do that with anybody. So call in, our team can help. I do apologize for the length of the call. There was just so much going on. I'm guessing for the sanity of our team and for you, it'll be less busy next year. And I do thank you all for joining the call on your some health needs. So we'll see you soon. Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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