Healthpeak Properties Inc

F:HC5

Earnings Call Transcript 2018-Q4

[Operator]

Good afternoon, good morning and welcome to the HCP, Inc., Fourth Quarter Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, today’s event is being recorded. At this time, I would like to turn the conference call over to Andrew Johns, Vice President of Finance and Investor Relations. Please go ahead.

[Andrew Johns, Vice President, Finance and Investor Relations]

Thank you and welcome to HCP’s fourth quarter and year end financial results conference call. Today’s conference call will contain certain forward-looking statements. Although we believe the expectations reflected in 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 expectations. A discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC. We 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 yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibit is also available at our website.

I will now turn the call over to our President and Chief Executive Officer, Tom Herzog.

[Tom Herzog, President and Chief Executive Officer]

Thanks, Andrew and good morning everyone. With me today are Pete Scott, our Chief Financial Officer and Scott Brinker, our Chief Investment Officer. Also here and available for the Q&A portion of the call are Tom Klaritch, our Chief Operating Officer and Troy McHenry, our General Counsel.

Through our efforts over the last 2 years, HCP is well positioned. We completed our portfolio restructuring and operator transitions, leaving us with a balanced portfolio and a clear and differentiated strategy. Additionally, our balance sheet is strong and positioned to support our growth strategy. Recent credit rating upgrades from S&P and Moody’s confirmed the progress we have made on this front. Across our three core segments, we continue to see plenty of opportunities to capture embedded upside in our portfolio and to create new value over time with development, redevelopment and complementary acquisition activities. Specifically, in medical office, tenant demand for on-campus properties remains strong. We are working to fill vacancies within the portfolio and seeing positive mark-to-markets on rents. We continue to mine our portfolio for redevelopment opportunities and are also actively working with HCA to schedule additional on-campus developments in our partnership program.

In life science, we have focused on sourcing complementary acquisitions and creating value through our development pipeline. Late last year, we expanded this pipeline for a compelling opportunity to capture value at The Shore at Sierra Point. We added a combined $385 million for Phases 2 and 3, resulting in a $1.2 billion pipeline, which is higher than normal for us, but allows us to pursue the opportunities we have worked hard to create. Even including the just commenced Phases 2 and 3 of The Shore, our pipeline is almost 65% pre-leased and approximately $500 million is already funded. The remaining $700 million of development costs will be spent over the next 2 to 3 years and is captured in our guidance.

In senior housing, Scott and his team are positioning our business for success. In 2019, you will see us continue to work to make incremental moves to improve our portfolio and operator mix, while supporting our platform with enhanced asset management capabilities and data analytics. We have come a long way in the last 2 years, but there is still plenty of room for additional improvement and upside and we intend to pursue them aggressively.

Moving on to our outlook for 2019, as we reported last night, we are guiding to a solid total portfolio same-store growth in 2019. Over the last months, we have communicated our expectations for chopping near-term senior housing fundamentals. Scott will elaborate on in a minute. We are feeling pressure on both occupancy and expenses, but we are also navigating the headwinds that were the result of a number of intentional moves we made to improve our portfolio and position it for the long-term. Accordingly, we still anticipate noise in 2019 shock results, but fully expect our senior housing business will stabilize and be a strong growth engine over time. We have been very deliberate in our portfolio repositioning to build a company with diversification designed to maximize long-term growth while reducing short-term volatility. We do recognize that each of our businesses operates within its own cycle and accordingly segment-specific growth rates will inevitably vary, but our primary focus at HCP is and will continue to be on the overall blended growth our portfolio can deliver.

Now, turning to the team, I am very pleased with the way our senior leaders and their teams have come together. With all the major players now in place, we are able to fine-tune and are now formalizing certain responsibilities. First, I have asked Pete Scott to formally lead our life science platform in addition to his role as our Chief Financial Officer. While we are announcing this today, Pete has functioned as the life science lead for the last 6 to 9 months and was instrumental in leading the operations and strategic transactions during that time, including the sale of the Shoreline campus and he has quickly built relationships with key customers and partners. Pete leads a team of very experienced life science senior professionals that have an average tenure in the industry and at HCP of nearly a decade. Second, in addition to his role as Chief Operating Officer, Tom Klaritch has also assumed the role of Chief Development Officer. As we have increased our development and redevelopment activities, we determined that centralizing management under Tom allows us to scale our resources and ensure we are using consistent best practices across all three of our businesses. Third, we announced Executive Vice President, Promotions for Shawn Johnston, our Chief Accounting Officer, and Glenn Preston, who leads our medical office business. Shawn and Glenn’s promotions reflect the leadership and expanded responsibilities they have assumed within our organization.

I am also pleased to announce that Jeff Miller recently joined HCP within our senior housing team. For those of you who don’t know Jeff, he brings tremendous experience to HCP, having spent over a decade at Welltower in roles including General Counsel and Chief Operating Officer. During his time at Welltower, Jeff worked closely with Scott Brinker. At HCP, Jeff is responsible for day-to-day operations of our senior housing finance and asset management teams and reports directly to Scott who continues to lead our senior housing business. Jeff is an excellent addition and bringing him on is just another important step in strengthening our senior housing platform.

Before handing the call over to Pete, I would like to provide a few board, governance and sustainability updates. During 2018, we welcomed Lydia Kennard, Kent Griffin, and Kathy Sandstrom to our board as new directors and appointed Brian Cartwright as our Independent Chairman. We also adopted a mandatory retirement age of 75 for directors, a policy in line with corporate governance best practices and one that assures natural continued board refreshment. On the sustainability front, HCP has proven itself an industry leader and continues to build on the progress made since committing to focus on environmental, social and governance initiatives over a decade ago. Our recent efforts were again recognized by prominent ESG reporting organizations and for the seventh consecutive year, HCP achieved the Green Star designation from GRESB and was named a constituent of the FTSE4Good Index. Additionally, for the sixth consecutive year, we are named for the Dow Jones Sustainability Index and CDP’s Leadership band. Our cumulative efforts through our ESG initiatives have resulted in an ISS environmental score of 1, social score of 2 and an overall governance quality score of 2. These results reflect the hard work and emphasis this team places on pursuing our ESG initiative.

With that, I will turn it over to Pete to discuss our financial performance for the quarter and 2019 guidance. Pete?

[Pete Scott, Chief Financial Officer]

Thanks, Tom. I will start today with a review of our results, provide an update on our recent capital markets activity and end with a discussion of our 2019 guidance and related assumptions.

Starting with our fourth quarter results, we reported FFOs adjusted of $0.43 per share and blended same-store cash NOI growth of 1.5%. For full year 2018, we reported FFOs adjusted of $1.82 per share and blended same-store cash NOI growth of 1.4%, both of which were slightly above the midpoint of our guidance range. Let me provide more details around the full year results. Medical office, which represents 30% of our same-store pool, we reported cash NOI growth of 2.1%, which was in line with our guidance range. In 2018, we executed leases on over 2.6 million square feet of space, the highest volume of leasing activity in our history.

Turning to life science which represents 23% of our same-store pool, we reported cash NOI growth of 1.5%. This was above the high-end of our guidance range and driven by better leasing and occupancy. On a normalized basis, excluding the Rigel lease mark-to-market, cash NOI growth would have been 4.5%, which underscores the current strength of the life science segment. For our other property segment, which is primarily our hospital portfolio and 9% of our same-store pool, we reported cash NOI growth of 3.2%, was above the high-end of our guidance range. Strong performance for the year was driven by the results at our Medical City Dallas campus.

Moving on to our senior housing segment, it is important to emphasize that approximately two-thirds of our senior housing portfolio is currently structured in triple-net lease arrangements. In this segment, which represents 28% of our same-store pool, we reported cash NOI growth of 2%, which was above the high-end of our guidance range. This result was driven by better than expected ad rents in our Sunrise portfolio. In our SHOP portfolio, which represents 9% of our same-store pool, we reported NOI growth of negative 3.8%, which was at the low-end of our guidance range. As we have previously discussed, it is important to differentiate between the performance of our core portfolio and our transition portfolio. Growth in our core portfolio was solid at positive 1.7%. Those results were more than offset by our transition portfolio, which declined 17%.

Quick note on the fourth quarter performance for our transition portfolio. NOI declined year-over-year from approximately $6 million to $4 million. This translated into a large percentage change. However, given the small size of the pool, the financial impact was only approximately $2 million. Additionally, we were encouraged by the 30 basis points of sequential growth in occupancy. This growth was driven primarily by 350 basis points, sequential growth in occupancy from the initial 7 assets we transitioned to Atria and points to the upside potential if new operators stabilize performance.

Turning now to the balance sheet, we made tremendous progress reducing leverage and improving our credit profile. In the fourth quarter, we used the proceeds from the Shoreline and the Apollo transaction to repay $1.2 billion of debt. These actions resulted in credit upgrades to BBB+ from S&P and Caa1 from Moody’s, along with a move to positive outlook from Fitch. At the end of the quarter, we reported net debt to adjusted EBITDA of 5.6x and we had $1.9 billion of availability under our line of credit. During the quarter, we were also active in the equity market. We raised approximately $656 million, consisting of $156 million on our ATM and $500 million in a follow-on issuance, the majority of which was structured as the forward offering. This was our first follow-on equity deal in 6 years.

Turning now to our 2019 guidance, we expect full year 2019 FFOs adjusted to range between $1.70 to $1.76 per share. During 2018, we completed our major capital recycling transaction. This resulted in a diversified high-quality portfolio that we believe will generate superior risk-adjusted growth over time and a more predictable earnings stream. However, as we previously disclosed, there is a significant carryover impact in 2019 from these activities as well as from our balance sheet improvements, our ramp up in development and redevelopment activities and our senior housing operator transition. All of these positive actions will results in a stronger, better positioned HCP, but in the near-term do result in some drag on earnings.

On Page 48 of our supplemental, we have included the detailed assumptions embedded within our 2019 guidance. I would like to take a moment to expand on four items. First, we have currently assumed a midyear refinancing of our $800 million 2-5/8 notes due February 2020. Second, we have assumed $600 million to $700 million of development and redevelopment spent. This amount is elevated relative to 2018 in order to capture significant value creation opportunities. Third, we have assumed $900 million of acquisition activity at an initial blended cash cap rate of 5% to 5.5%. And finally, we have assumed $500 million of asset sales at a 6.5% to 7.5% cash cap rate. We expect to fund our remaining capital needs through the drawdown of our $430 million equity bolus and utilizing our excess debt capacity. Combined, these four key strategic decisions result in about $0.03 to $0.04 per share of headwind to FFO in 2019. However, as we have said consistently, our goal in 2019 is to create a strong base year with a high-quality portfolio that we expect to grow off of going forward.

Turning now to our SPP assumptions, we are guiding the blended cash NOI growth of 1.25% to 2.75%. We will update or reaffirm this range throughout the year based on performance. The components of our blended growth rate are as follows: medical office at 1.75% to 2.75%; life science at 4% to 5%; other at 2% to 3%; and senior housing at negative 1.5% to positive 1.5%.

Finishing now with some additional disclosure items. As part of our ongoing commitment to improve the reporting usefulness for our three core lines of business, we have made a few important changes. First, with regard to senior housing, we are now combining our triple-net and SHOP portfolios for purposes of guidance. However, we have disclosed that our guidance range was derived at the midpoint based on expected triple-net growth of positive 2% and SHOP growth of negative 5%. Second, we added a summary table for our blended senior housing SPP growth in the earnings release. For the full year 2018, our blended senior housing SPP would have been positive 50 basis points. This should provide some useful context as to how our 2018 performance compares to our 2019 guidance. Third, we expanded disclosure for our senior housing business. This quarter, we have provided additional quarterly detail pertaining to our core and transition SHOP portfolio on Page 34 of our supplemental.

Finally, effective January 1, 2019, we are reclassifying Medical City Dallas within our MOB segment. This property is a fully integrated medical campus and we determined that surgically splitting the income into two separate reporting segments as we had done in the past was not consistent with peer disclosure or how these assets would be valued in the private market.

With that, I would like to turn the call over to Scott.

[Scott Brinker, Chief Investment Officer]

Okay. Thank you, Pete. There is a lot to cover on the investment front. We are using our deep relationships to acquire and develop well-located real estate where HCP and its partners have superior expertise. For example, in life science, we are expanding our footprint in Boston through our relationship with King Street. In January, we recapped their property at 87 Cambridge Park Drive in West Cambridge. Yes, it has a superb location just a 1-minute walk from the Alewife T stop. This $71 million acquisition comes with a near-term mark-to-market opportunity and should produce a 6% stabilized cap rate. In a separate but related transaction, also being done with King Street, we acquired a vacant land parcel that is directly adjacent to the acquisition property in West Cambridge. Within the next few years, we intend to develop a second building creating a Class A campus.

We are also expanding in the two premier life science markets on the West Coast. In November, we acquired our JV partner’s minority interest in four buildings for $92 million, 2 of the assets are located in Torrey Pines, the leading submarket in San Diego. The other two buildings are located in South San Francisco and are nearing the end of a successful redevelopment. We have already leased the vast majority of the space and expect to achieve a 6% stabilized cap rate on the 4-property JV buyout. Also in November, we went under contract to acquire Sierra Point towers for $245 million, which is a 6% stabilized cap rate. The towers are highly strategic to us given the campus is next door to our development at The Shore, a project that has tremendous momentum. The acquisition includes excess surface parking, so we can densify the campus over time. With this strategic and coordinated capital deployment, HCP is creating a Class A life science campus with more than 1 million square feet.

Moving to medical office, we are working on a number of potential on-campus development opportunities with HCA. We expect to announce new projects in 2019 and beyond driven by a 20-year history of working together successfully. Transformation underway in our senior housing business is equally compelling, but harder to see, because we had to take two steps backward to take three steps forward. The HCP senior housing business that is being created will be unrecognizable from what existed previously. The entire business is being transformed: the portfolio, operators, markets, deal structures, the team and systems.

In 2018, we took decisive actions that while dilutive to earnings in the near-term, were absolutely necessary to create a winning senior housing business over time. We sold $1.5 billion of non-core senior housing last year and that’s in addition to the $2 billion sold in 2017. What remains is a higher quality real estate portfolio. We transitioned 38 properties to new operators who are completely focused on capturing the embedded upside. We are now seeing a nice lift in occupancy from the first wave of transitions last March and we expect continued improvement moving forward. We added two best-in-class operating partners, Discovery and LCS. Relationships like these will be instrumental to our success in senior housing. We put 10 well-located, but older assets into redevelopment. The building enhancement will position these properties to perform over the long-term. We exited or went under contract to exit 5 very small operator relationships, which will help make our platform more efficient. Finally, we built out systems and remade the org chart, including adding Jeff Miller to lead senior housing asset management. I know firsthand that he is a great addition to the winning culture being built at HCP.

Moving to the fundamentals in our three core segments, the medical office outlook in 2019 remains solid and life science fundamentals remain very strong with demand exceeding supply. We continue to be cautious about senior housing in 2019. I will provide some additional color if there is a longer term story that’s more relevant. We expect rents to grow in the 3% range in 2019, but wages are likely to grow at least 4% due to low unemployment and high demand for well-trained staff. Importantly, senior housing is a very local business and in many of our SHOP trade areas, the number of new deliveries in 2019 will exceed prior years. This will pressure occupancy.

Taking a step back though, we are encouraged by three important trends. First, the penetration rate is growing as the physical, cognitive and social benefits of senior housing are becoming better understood. Second, new starts have declined to a level where supply and demand should be more in balance within the next 2 years. And finally, the growth rate for the 85+ cohort, which actually hit a trough in 2018, is now at the very beginning of an upward slope that will gather momentum over the next 10 years and act as a tailwind for several decades.

I will now turn the call back to the operator for Q&A.

[Operator]

[Operator Instructions] Our first question today comes from Nick Yulico from Scotiabank. Please go ahead with your question.

[Nick Yulico, Scotiabank]

Thanks. So, first question is just on development and redevelopment, you talked – you have $600 million to $700 million of spend in the guidance and on the development page you only have $750 million left to spend on everything that’s listed there. So, what are you assuming in terms of additional projects being started, how should we think about that?

[Tom Klaritch, Chief Operating Officer]

Hey, Nick. This is Tom Klaritch. We look at the HCA development program, we have kicked that off. Right now, we have one project that’s announced. We have got 3 or 4 that we are in discussions with and there is a pipeline behind that that will be coming into the schedules later. Life science, as you know we accelerated the start of Phases 2 and 3 of the Shore, because there has been such great leasing activity there and there is anticipated several senior housing projects as we move forward. So we would look at 2019 being a fairly big year because of the acceleration of those projects at the $600 million to $700 million range and then we have a solid pipeline of about $500 million a year for the next 2 to 3 years at a minimum.

[Nick Yulico, Scotiabank]

Okay. And I guess assuming that you start additional projects with HCA or some other projects, I mean, just remind us how to think about timing of if you are spending money in the next year, what, when those projects would come online from an NOI benefit standpoint?

[Tom Klaritch, Chief Operating Officer]

Yes. Usually you are looking at, in the medical office development, about 12 months to build the shell and core. It’s about 6 months later to build out the tenant improvements on the initial leasing. And then we look at a kind of 2 to 3-year lease-up to stabilization. Life science, we have seen a lot better activity in leasing, so many of these projects that we are starting have or are in process are 100% leased and we have very good leasing activity, so little big longer on the shell and core on those and design. It’s probably 18 months to 2 years and then lease up similar, 6 to 9 months.

[Pete Scott, Chief Financial Officer]

Hey, Nick. This is Pete here, too. One other thing if you look at our investor deck, there is a nice page that goes through all of our active developments, but there is also a shadow pipeline that’s not within that active pipeline. There are some projects. A lot of it is life sciences, as well, BML-III. We have got our Forbes site as well in South San Francisco. We have got some land in Torrey Pines as well as another site called Directors Place, which is near Torrey Pines as well and then 101 Cambridge Park Drive acquisition that we announced today. That’s a piece of land that we also will put into our shadow pipeline as well. So, we have got a nice robust, active pipeline, but also we are backfilling the shadow pipeline.

[Nick Yulico, Scotiabank]

Okay, thanks for that. Just last question is on the dividend, it hasn’t been raised in a while. The guidance for the year assumes it’s not raised again. You have talked about this is transition year, you are eventually returning to growth. I mean, how should we think about how the board is thinking about getting back to dividend growth and just also wondering why it was assumed that even at the end of this year there wouldn’t be any dividend growth – dividend raise?

[Tom Herzog, President and Chief Executive Officer]

Yes, Nick, this is Tom Herzog here. Fair question, where we stand right now was with the restructuring that we did, the dividend coverage is a little higher than what we would consider ideal and we will grow back into that dividend as income growth starts to recur in 2020. So I would say this year even as we get into next year we have to make another assessment as we go into 2020, but we will probably capture some additional coverage before we increase the dividend is my guess, but that is a future board decision.

[Nick Yulico, Scotiabank]

Okay. Thank you, Tom.

[Tom Herzog, President and Chief Executive Officer]

You bet. Thanks Nick.

[Operator]

Our next question comes from Jordan Sadler from KeyBanc Capital Markets. Please go ahead with your question.

[Jordan Sadler, KeyBanc Capital Markets]

Thank you. I wanted to just touch base on some of the acquisition and disposition activity baked into guidance for 2019. Curious around the acquisitions how much of that is already baked and then what types of assets would already be in there sorry, what types of assets you’re looking at?

[Pete Scott, Chief Financial Officer]

Yes, so hi, Jordan. It’s Pete. Why don’t I just quickly touch on the sources and uses and then I’ll hit on the acquisitions and dispositions, and Scott can jump in if he has some additional color to add but from a, uses, perspective within our guidance, we’ve got acquisitions of, we said, $900 million; development and redevelopment at the mid-point of $650 million; and then the balance is a couple hundred million of capital spent. That all adds up to about $1.750 billion. The funding of that is through non-cores sales of $500, which was within our guidance, the draw-down of our equity forward of $430 million, and then the balance of that to get to $1.750 billion of some additional get capacity we have. We ended the year in the mid-5s. We have capacity to go up into the high-5s. When you think about the acquisition of $900 million, some of that’s already been announced. We announced the Cambridge Park Drive acquisitions today, 87 and 101, as well as Sierra Point Towers. That’s about $350 million combined. So, the balance in that $900 million is spec, and we’ve got a nice pipeline of things that we’re looking at right now, nothing specific to disclose. On the disposition side, the $500 million $100 million is actually already closed. It was some non-core senior housing stuff, and then we had this Poway land that closed in January already. And then within that is the UK final piece of about $100 million. So, the balance of $300 million is just general pruning within the portfolio, but important to just think about those components.

[Tom Herzog, President and Chief Executive Officer]

And I would add, Jordan, that most of that has been identified. We’re not ready to provide the details, but we do have a game plan around that.

[Jordan Sadler, KeyBanc Capital Markets]

Okay. And then just as a follow-up for Scott, I sensed a little more optimism or a little bit of a more positive tone on senior housing. I’m wondering if I’m reading that correctly. I know you were looking out into the future, but it seemed that way to me reading, between the lines. Anything else you might offer that you’re seeing at the property level as you have gone through this process of transitioning the portfolio and transitioning to new operators and just making your way through it to a greater extent?

[Scott Brinker, Chief Investment Officer]

Yes, happy to cover that, Jordan. I mean, I would say there continues to be pretty wide disparity among markets and operators. We have a number that are performing quite well, even in the current environment. But overall, we still see 2019 as a challenging year for HCP, at least in part because of the carryover impact of the transitions, which are starting to show improvement, which is one of the reasons for optimism. There’s a lot of upside there to be recaptured. I think we will start to see sequential improvement in that portfolio in 2019. I would just point out that the year-over-year growth rate will almost certainly be negative for at least the first half of 2019, just to be clear on that. But we are seeing improvement sequentially, and I think by the end of the year there’s a good chance that you’ll start to see year-over-year increase in the NOI growth and hopefully into 2020 and 2021 rather than down 33. You start to see some materially positive percentage increases for growth, but again, it’s a relatively small dollar amount in absolute dollars. We’re only talking about $4 million in that transition portfolio in 4Q, but the growth rate sure sticks out. We’re optimistic that in 2020, 2021 it will stick out, as well, but with a positive number in front of it. So, the optimism is more looking into 2020 and 2021, Jordan. I think ‘19 is difficult, in part because of the core portfolio which, amazingly, had a great 2018. We were up almost 2% in the core portfolio year-over-year. That, I think, would compare well to pretty much anyone in the sector, but we did see performance tail off into 4Q, which is one reason we’re less optimistic about the growth rate in 2019 for that core portfolio. Maybe the final point I’d make is just two-thirds of the portfolio roughly is still in triple net where we’ve got contractual rate increases and we’re projecting about 2% growth in 2019. So, it’s a good time to have a waiting toward triple net. Tom, I think you wanted to add something?

[Tom Herzog, President and Chief Executive Officer]

You know, what I would add, Jordan, as we’ve looked at our senior housing business, certainly there’s some more work to do, clearly, and with that comes the potential for some strong upside. I think the optimism that you’re hearing is that we have systematically taken that business apart and are rebuilding it, literally in all aspects. We have rebuilt the team. We have put in place infrastructure and systems and have data and reporting. The portfolio today looks nothing like what it looked like a few years ago. The operator mix has been changed dramatically. With more work to do and things that we’re working on that we’re not ready to announce yet, but over time we will. So, it’s been a systematic process, and we are definitely playing the long game on this one, because we believe we can create a very good business in a business that’s quite inefficient, meaning that there are going to be some that do well and some maybe not so well. We’d like to be part of the group that does well in this business, because we see long-term prospects being very good. That’s probably the optimism that you’re hearing within the comments.

[Jordan Sadler, KeyBanc Capital Markets]

Got it. Thank you.

[Tom Herzog, President and Chief Executive Officer]

Thanks, Jordan.

[Operator]

Our next question comes from John Kim from BMO Capital Markets. Please go ahead with your question.

[John Kim, BMO Capital Markets]

Thank you. Good morning. I had a question on your development disclosure on page 22. You provide a stabilized occupancy date for your developments, and then there’s a footnote saying six months later you’ll have economic stabilization. So, should be looking at this as the occupancy is the FFO contribution and the stabilization date, which is three to six months after, is the AFFO contribution?

[Tom Herzog, President and Chief Executive Officer]

That’s probably a good way to look at it. Really the occupancy starts on these projects almost at six months after completion. The stabilized occupancy is when it gets – for a medical office we normally consider that in the 85 plus range, similar for life science. Each segment could take a little bit longer to get to stabilization, if that answers the question.

[John Kim, BMO Capital Markets]

Well for instance, the Ridgeview and the Cove, is that going to are those going to contribute to FFO this year?

[Tom Herzog, President and Chief Executive Officer]

There is some, yes, it will toward the latter half of the year. Now, there is a pre-rent component typically within the leases in life sciences. So, it will contribute first to FFO, but then there’s typically a six-month lag or so before it contributes to FAD.

[John Kim, BMO Capital Markets]

Okay. And then a follow-up on your guidance, some of your peers don’t include acquisitions in their guidance. So, I’m wondering with this $900 million, which Pete said some of that’s already been announced, is this figure realistic? Is it sort of a conservative number and how much of this is driven by your cost of capital?

[Tom Herzog, President and Chief Executive Officer]

I would describe it this way. Typically, we wouldn’t put future acquisitions in our guidance, but as you’re well aware, when we took certain actions in 2018 that raised a lot of capital, we paid down debt below the level that we considered to be the optimal place to function, and we had a forward equity issuance. We have had a number of different transactions in line that we’ve been working on that would utilize those proceeds. It’s been part of a bigger plan. Therefore, in this particular case because these funds are so obviously available, it would only make sense to you as you’re trying to understand our numbers if we provide to you the acquisitions that we do see coming our direction in totality. Otherwise, typically we would just if we didn’t have the funds raised already and have access to them, we typically would exclude them.

[John Kim, BMO Capital Markets]

That’s helpful. Thank you.

[Tom Herzog, President and Chief Executive Officer]

Thanks.

[Operator]

Our next question comes from Drew Babin from Baird. Please go ahead with your question.

[Drew Babin, Baird]

Hi good morning. Quick question on the development pipeline as you go through The Cove at Oyster Point and Sierra Point, the remaining phases at those projects, can you talk about the sequencing of yields on that as they deliver? I know some of these projects, a lot of infrastructure was put on kind of in the initial phases and the yields kind of build over time, but a little more specifically, what should we expect with those?

[Tom Herzog, President and Chief Executive Officer]

Yes, if you look at the various phases, normally the last phase, as with The Cove, there are no amenities or parking garage. So, we’re looking at a much higher yield on that in the upper 9s. The same is true of Sierra Point. The overall return on The Shore at Sierra Point is in the low 6s. If you look, Phase I had the amenity package. Phase II will have the parking garage. And again, the final phase, Phase III, has none of that. So, the Phase III is more in the low 7 range while the other two phases are in the low 6s.

[Drew Babin, Baird]

Okay, that’s helpful. And then just one question on the triple net portfolio, in the profile on Page 28 of the supplemental, it looks like there is one lease with about 0.75x coverage, that’s about 2% of your overall revenues with no corporate guarantee, I was just wondering if you could talk a little more specifically about what that is, when it expires, and what might be done to deal with that?

[Scott Brinker, Chief Investment Officer]

Yes, Scott here. I will cover that. I think you are referring to one of the Sunrise leases the lease matures in about 10 years. It’s a complicated ad rent structure that we inherited more than 10 years ago and you have heard us talk on previous calls about the potential to convert some of the Sunrise ad rent leases into SHOP. I would put that in the category of a potential conversion. But despite the payment coverage showing up as 0.75 on the schedule that would not be diluted to our earnings because of the way the complicated rent waterfall works. At the end of the day, the rent that HCP receives is quite consistent with the EBITDA that’s generated at the property.

[Drew Babin, Baird]

Okay. And I guess just one more follow up on the topic of Sunrise. As you look out to 2020, the triple-net maturities obviously you’ve talked before about potentially converting some, if not all, of this to SHOP. I guess how do CapEx costs play into this, where if it’s a SHOP asset you’re paying a management fee, you’re taking on the CapEx burden? Could it potentially be more economical to stay triple net with a lower rent payment, or do you kind of think about it as a troughing in the cycle might be better, all things considered, to just go SHOP?

[Scott Brinker, Chief Investment Officer]

Yes, it depends. Not all the situations are the same. Across the board, if you see us convert triple net into SHOP, you can be assured that it would be higher quality real estate and an operating partner that we have a lot of confidence in. If we don’t check those two boxes, I think it’s highly unlikely that we would look to convert to SHOP. And then on Sunrise in particular, which is the most likely candidate for conversion, because of the complicated way the waterfall works, the CapEx is actually paid before the rent, so there would not be any leakage in the SHOP structure there.

[Tom Herzog, President and Chief Executive Officer]

I would add to that when you think about the Sunrise conversion of those assets, again it’s a structure that’s dated. SHOP has taken its place. So, when you think about our motivation to do it, it creates alignment with our operator that’s a lot less confusing to you. Frankly, it’s less confusing to us because all these arrangements are different; it’s a major headache. And from an earnings perspective, it’s relatively a push, and that’s how I would look at it.

[Drew Babin, Baird]

Okay, that’s all very helpful. Thank you.

[Tom Herzog, President and Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead with your question.

[Michael Carroll, RBC Capital Markets]

Yes, thanks. Scott, I wanted to touch on the transition SHOP portfolio real quick, I know you made some remarks in your prepared comments. I just wanted to confirm, had those assets been stabilized already, and have you seen declines in, I guess, executive director departures and employee turnover and things like that?

[Scott Brinker, Chief Investment Officer]

I would definitely not call them stabilized. We transitioned 38 in total. The first wave of transitions occurred in March, but nearly half of the transitions occurred in the second half of 2018. So, there’s still quite a divergence, even within the transition portfolio and performance, and the ones that transitioned earlier have started to see a nice increase in occupancy and at least signs that expenses are getting closer to normal levels or that they will return to normal levels. The assets that transitioned in the third and fourth quarter are still going through a period where occupancy is way down, hasn’t yet started to recover. And we just have some crazy increases in expenses that just will not recur. Just as an example, repair and maintenance are up 60 % year-over-year, and insurance is up 80%, and contract labor is 10x the normal level. I mean, they’re just absurd numbers that we could through the exercise of normalizing all of this stuff, and it would be an enormous number. I mean, back of the envelope was like $1 million of expenses that I think you could reasonably call transitory in nature on a base of $4 million of NOI. So, we didn’t normalize any of those things, but we keep trying to say this is such a small pool with such small dollars, with such unusual elevated expenses that the numbers this quarter are ugly, but we are going to recapture that. It’s just a matter of time.

[Michael Carroll, RBC Capital Markets]

Okay. And I think on a prior call you highlighted that by stabilizing these assets you can generate about $25 million of incremental NOI. Is that still a good estimate for stabilizing these assets and where that NOI number can go?

[Scott Brinker, Chief Investment Officer]

Yes, I think that’s still a good estimate. The big question is timing, and I think we are going to start seeing improvement in 2019. At the same time, a number of the assets didn’t transition until late in the year, and those will take some time. We’ve put seven of the 38 assets into redevelopment, and there’s massive upside on those, but it’s actually diluted in 2019, like any redevelopment. Then we start to see some real benefit in ‘20, ‘21, and ‘22.

[Tom Herzog, President and Chief Executive Officer]

And Scott, correct me if I’m wrong. We might have $4 or $5 million of the $25 built into our numbers, which could be higher, it could be lower. The timing is difficult to determine, but just for a basis for the analysts to use, probably $4 to $5 million is spent on corporate, correct?

[Scott Brinker, Chief Investment Officer]

Correct.

[Michael Carroll, RBC Capital Markets]

Okay, great. And then the redevelopment is that in your development page, the 10 that has the total budget of about $80 million to complete those?

[Scott Brinker, Chief Investment Officer]

That’s right.

[Michael Carroll, RBC Capital Markets]

Okay, good. Thanks, Scott.

[Operator]

Our next question comes from Nick Joseph from Citi. Please go ahead with your question.

[Nick Joseph, Citi]

Thanks. I just want to understand the thought process behind the refinancing of the 2020 debt given the low coupon, and then is there a cost associated with the early repayment nadir?

[Pete Scott, Chief Financial Officer]

Hey, Nick. It’s Pete here. So, what I would say about that is there wouldn’t be a cost just given the low coupon that that bond trades at. It actually trades at a discount to par now. So, if we take it out early, we have to pay par on that, but nothing above and beyond par. But we’ve to pay part of maturity anyways, too. As you think about refinancing that, we obviously would love to keep that low rate as long as possible, but we have to pay that debt back anyways in early 2020. By incorporating it in our guidance, it gives us some flexibility if the bond markets are cooperating to do something earlier, if we so choose. We also have very little secured debt, as well, if we so choose to do something there, although our goal typically is to do the unsecured bond market from an issuance perspective. From a rate perspective today, where would we issue? Somewhere between 4% and 5%, but it depends upon tenor, the longer the tenor, the higher the rate. I would say on a 10-year basis, we are probably right in the middle of that. Maybe we could do a little bit better today, but, again, we assumed a mid-year refinance of that.

[Nick Joseph, Citi]

Thanks.

[Operator]

And our next question comes from Vikram Malhotra from Morgan Stanley. Please go ahead with your question.

[Vikram Malhotra, Morgan Stanley]

Great. Thanks for taking the question. The life science segment continues to be very strong; the guidance certainly suggests that. I’m wondering if you can give a bit more color on the components of that same-store NOI between sort of occupancy rent spreads and just given the expirations over the next 2 years where do you think those are relative to market?

[Tom Herzog, President and Chief Executive Officer]

Yes, good question, Vikram. Obviously that market is performing well, and 2018 was really a banner year across the board for the industry. Our occupancy is already quite high in the mid-to-high 90s, so the vast majority of that same-store growth above and beyond what you would expect normal escalators being around 3% is from the mark-to-market on the rents. Rents have gone up pretty dramatically the last couple of years in all of our markets, especially San Francisco. And so what I would say from a mark-to-market perspective the next couple of years, the rents expiring in ‘19 and ‘20 as we look at it are about 15% to 20% below market. So, while we’re having a nice year this year in life sciences as part of our guidance, we see this trend persisting for at least another year perhaps beyond, which gives us some comfort with regards to the developments and other things we’re doing within that segment.

[Vikram Malhotra, Morgan Stanley]

Okay. And to clarify that, when do the new developments roll into same-store?

[Scott Brinker, Chief Investment Officer]

Typically, it’s about a year after it hits its stabilization period. So, for example, right now none of The Cove projects, Phases II at least, I don’t think Phase I is actually in our same-store at this point in time. We really wait for a full-year to wrap around for a good year-over-year comparison.

[Vikram Malhotra, Morgan Stanley]

Okay, great.

[Tom Herzog, President and Chief Executive Officer]

Exactly. We don’t apply judgment on that. If you go back to our glossary on our sub – on the stabilization period, you’ll be able to read very specifically, just so you don’t think there’s judgment that we apply.

[Vikram Malhotra, Morgan Stanley]

Okay, great. And then just a clarification on the expirations and the restructuring, potential restructuring you referenced. The triple-net expiration in 2020, is that mostly Sunrise, and is that what you were referring to as a candidate for restructuring into RIDEA?

[Scott Brinker, Chief Investment Officer]

Hey, Vikram, it’s Scott. The Sunrise lease that Drew mentioned is a 2030 maturity, so it shows up 10 plus years from now. The near-term maturities like 2020 be assured we’re actively asset managing each of those and have ongoing dialogs with the operators, but nothing to report at this point.

[Vikram Malhotra, Morgan Stanley]

So, that big $40 million, is that just a combination of a bunch of different operators?

[Scott Brinker, Chief Investment Officer]

Yes, that’s correct. Not one operator.

[Vikram Malhotra, Morgan Stanley]

Okay, and some could be RIDEA? There could be different outcomes for each? Is there any like majority are converting or not – is it too early to tell right now?

[Scott Brinker, Chief Investment Officer]

I’d say the majority of that is very high-quality real estate that would be a good candidate for conversion and there are a handful that are more likely sale candidates.

[Vikram Malhotra, Morgan Stanley]

Okay, great. Thank you.

[Scott Brinker, Chief Investment Officer]

Thank you.

[Operator]

Our next question comes from Chad Vanacore from Stifel. Please go ahead with your question.

[Chad Vanacore, Stifel]

Alright, thanks. So, I just want to roll back to the comments on the senior housing operating platform. I think Scott, you gave us rate expectation of 3% and that is that’s overall not just in place, is that right?

[Scott Brinker, Chief Investment Officer]

Correct.

[Chad Vanacore, Stifel]

Alight. And then was that expenses up 4% or was that just the wage and labor portion of expenses?

[Scott Brinker, Chief Investment Officer]

It’s really both, but it’s compensation expense that is driving most of it and that insurance expense is going to be elevated a bit in 2019 as well. So, both labor and total operating expenses should be in the, say, mid-4s for 2019.

[Chad Vanacore, Stifel]

Okay. Alright. And then just given that, that leaves us a component – a question on occupancy, because that would imply still a deeper occupancy drop. Is that – are we thinking about that right kind of what level of occupancy drop are you expecting?

[Scott Brinker, Chief Investment Officer]

Yes, and I’ll separate the core portfolio from transitions, core being about 3 quarters of the pool and Brookdale representing about 75% of that core portfolio. And I mentioned that occupancy trailed off in the second half of 2018. So, we actually see the core portfolio occupancy being down in the 150 basis points to 200 basis points year-over-year, best guess, it’s a small pool, that could change. But from where we sit today, that’s our best guess. And we do have some new supply impacting our local markets. The transition portfolio is likely to be more flat year-over-year given the current trends.

[Chad Vanacore, Stifel]

Alright. What’s the – how should we think about the difference between same-store NOI between that core and transitional portfolio? You think that transitional is dragging down the overall performance?

[Tom Herzog, President and Chief Executive Officer]

A bit, yes, a bit. We said 5% at the mid-point, and keep in mind that the core portfolio is roughly 70% of that pool, 70%, 75%. And I would expect that the core portfolio would do a bit better than the 5% with transitions a bit worse, but with very large differences from quarter-to-quarter. Transitions will likely start out pretty negative on a year-over-year basis and then get better throughout 2019 and hopefully show a nice positive number by the end of the year, whereas core is more likely to be just sort of low single-digits down throughout the year. But again, I’ll keep saying it, both of them are very small pools. There’s just a lot of variability in it. If something changes, we’ll let you know.

[Chad Vanacore, Stifel]

Got it. And then well, just one final question on that. How should we think about that trend throughout the year? Normal seasonality would be a dip in the first half and then recover in the second half. Should we expect that following or should we expect a kind of faster ramp-up in the second half?

[Tom Herzog, President and Chief Executive Officer]

Yes, I mean, it is seasonal and occupancy does tend to fall in the first quarter. At the same time from an NOI standpoint, the first quarter is usually quite good for senior housing because there are fewer days in the quarter and you pay most expenses on a daily or hourly basis, whereas rates are paid monthly so – usually. So, we usually see the first quarter as being quite strong on NOI even though it’s weak on occupancy. So, it’s somewhat counterintuitive. But I just wanted to point that out that I – we aren’t necessarily going to see the first quarter be a terrible quarter. If anything, it actually might be okay.

[Chad Vanacore, Stifel]

Alright. I’ll hop back in the queue. Thanks.

[Tom Herzog, President and Chief Executive Officer]

Yes.

[Operator]

Our next question comes from Tayo Okusanya from Jefferies. Please go ahead with your question.

[Tayo Okusanya, Jefferies]

Hi. Good afternoon or morning in California.

[Tom Herzog, President and Chief Executive Officer]

Hi, Tayo.

[Tayo Okusanya, Jefferies]

Still want to focus on the SHOP portfolio. The transition piece that you talked about, this idea of moving from $4 million of cash NOI in 4Q ‘18, and correct me if I’m wrong, but you said you could – when this is all kind of said and done, you could potentially be making $25 million in NOI in a quarter or was that an annualized number?

[Tom Klaritch, Chief Operating Officer]

Yes, let me clarify because there are different components. We transitioned 38 properties, and roughly 14 of those are in the same-store pool. So, there are 24 roughly properties that are not in the same-store pool. So, the annualized NOI today out of that pool is around $10 million in the fourth quarter. So, if you annualize it it’s closer to $40 million, and we think there’s up to $25 million of upside from there.

[Tayo Okusanya, Jefferies]

So, okay, so the $10 million a quarter is both for the same-store plus non-same-store?

[Tom Klaritch, Chief Operating Officer]

Correct.

[Tayo Okusanya, Jefferies]

Okay. And that’s $40 million a year and then the upside gets you to $65 million a year for the whole portfolio?

[Tom Klaritch, Chief Operating Officer]

Yes, rough numbers. Correct.

[Tayo Okusanya, Jefferies]

Okay, excellent. Now, could you just talk a little bit about what has to happen to move from $40 million to $65 million? Is this 500 basis points gain in occupancy? Is this reducing OpEx like what is that trigger?

[Tom Klaritch, Chief Operating Officer]

Yes, it’s mostly eliminating the transitory expenses, including the ones I mentioned earlier in the call and then recapturing occupancy. That portfolio is down roughly 1,000 basis points from 2 years ago. And when we talked about the $25 million of NOI recapture, it was primarily from recapturing the lost occupancy and eliminating the transitory expenses.

[Tayo Okusanya, Jefferies]

Got it. Okay, thank you. And then on the HCA side of things, again, it’s great to kind of see a project starting off with them. Could you kind of remind us again about the relationship itself and kind of how big this could potentially become over time?

[Tom Klaritch, Chief Operating Officer]

Sure. This is Tom Klaritch again. The relationship goes back many, many years. If you look back in the ‘90s for example, HCP did a lot of development work for both HCA and HealthTrust. In 2000, we acquired MedCap Properties, which was HCA’s kind of spin-off medical office building portfolio. And personally, I’ve been both in HCA CFO and then helped put together the MedCap Properties. So, I’ve been kind of affiliated with the company since the late ‘80s. So, it’s a very good relationship we have there. If you look at the projects, what started out when we were first talking about it was about a $200 million potential pipeline, that’s actually grown since then. We would anticipate given the projects that we’re working on right now and what’s in the pipeline probably to be $60 million to $100 million a year in spend on that program for the next 3 years to 5 years.

[Tayo Okusanya, Jefferies]

That makes bit of sense. Okay. Alright, that’s it for me. Thank you.

[Tom Klaritch, Chief Operating Officer]

Thanks, Tayo.

[Operator]

[Operator Instructions] Our next question comes from Daniel Bernstein from Capital One. Please go ahead with your question.

[Daniel Bernstein, Capital One]

Hi. I’m just trying to reconcile a little bit the – you’ve given your senior housing guidance combined SHOP and triple-net, which implies to me you were kind of indifferent to the structures versus the longer-term positivity you’re having around 2020, 2021 fundamentals for senior housing. Do you – are you truly indifferent to one structure versus the other? And then if we went out 2 years or 3 years, are we going to see the mix of RIDEA versus triple-net very different for you guys versus where it is today? Do you want to be a little bit more like your peers 30%, 40% RIDEA or would you rather stick to triple-net?

[Scott Brinker, Chief Investment Officer]

Hey, Dan, it’s Scott, I’ll start and I think Tom has some comments as well. I wouldn’t say we’re indifferent. I would say that if we have a high-quality real estate property and an operator that we have high confidence in, we’re happy to do the RIDEA structure. We think it does typically align interests more between the owner and the operator and we think that can be a very successful investment structure over a long period of time. We would be happy to put those same properties and operators into a triple-net structure as well, if that was of interest, it’s usually not to the operator, but if it was, we’d be happy to pull senior housing assets into triple-net. I think the real distinction for us in terms of ownership structure is on the more Class B properties and older assets, maybe operators that we don’t have as much confidence in, those would be more likely candidates for triple-net. And I think Tom wanted to make a comment more about the guidance and combining.

[Tom Herzog, President and Chief Executive Officer]

Just reporting and the guidance, I’ll tell you, Dan, how we think about that is when we won the business from a management team perspective, it really is across the three lines of business: life science, MOBs, and senior housing that we’ve been talking about for the last 2 years, 3 years. And we did want our reporting to reflect how we look at the business, how we drive the business. In senior housing, we asset manage. We look at it from a capital allocation perspective et cetera along those three lines of business. So, we did want to have some reporting that reflected that. At the same time, we did not want to have you lose any information for your modeling purposes or your understanding of the components. So, of course, we left that all in place, in addition to adding some additional disclosure to give you quarterly information between the three buckets of core, transition, and of course, you have triple-net. And we’ve guided it the same way. So, that is how we came with the conclusion that we thought that would be more useful for somebody that wants to look at it from a little higher vantage point and look at it the way that we have a tendency to manage it around profitability of our company as we continue to grow and those that prefer to continue to look at it with a little bit more detail. So, all that information is in there.

[Daniel Bernstein, Capital One]

Okay. I appreciate that. I think in the interest of time, I’ll hop off. Thanks

[Tom Herzog, President and Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from Todd Stender from Wells Fargo. Please go ahead with your question.

[Todd Stender, Wells Fargo]

Hi, thanks. Yes, just a quick one for me. What returns are you forecasting? When you look at the Torrey Pines and the South San Francisco assets that you just acquired, you took out the joint venture partner interest. Can you kind of compare what you were earning on a yield perspective? I imagine there were some management fees tucked in there versus what you’re going forward yields going to be?

[Tom Klaritch, Chief Operating Officer]

Yes, I’m happy to take that one. We thought this was a great use of capital for HCP. We are happy to consolidate and own 100% of these four assets. The two in San Diego are largely stabilized. So there is really no change in returns. The two in San Francisco had been undergoing redevelopment for the past year or so. They are now 75% leased and 100% committed. So when we talked about the 6% stabilized cap rate that should be fully in place by 2020.

[Todd Stender, Wells Fargo]

Okay. Thanks, Scott. Because you had some management fees I imagine tucked in that you will lose, any real change there? It doesn’t sound like there is?

[Scott Brinker, Chief Investment Officer]

Yes. Hey, Todd. No, that actually was a joint venture that was setup even before HCP bought Slough about 20 years ago and there were not really any asset management fees associated with that of note.

[Todd Stender, Wells Fargo]

Okay, got it. Thank you.

[Scott Brinker, Chief Investment Officer]

Thanks.

[Operator]

And our next question comes from Michael Mueller from JPMorgan. Please go ahead with your question.

[Michael Mueller, JPMorgan]

Thanks. Just a quick one, I was curious putting Med City Dallas in the MOB bucket for 2019 have any material impact on the 1.75 to 2.75 same-store guide?

[Tom Klaritch, Chief Operating Officer]

This is Tom Klaritch, Michael. No, it didn’t have really a material impact on it at all. I think it was just around 10 basis points. So, that was it.

[Scott Brinker, Chief Investment Officer]

Okay, yes. Mike, moving that is more around putting it within the – we think the appropriate segment from a cap rate perspective. In fact, it might actually go under a better cap rate than a Class A medical office building, but tucked away in our hospital segment, it typically was getting a cap rate that we didn’t think was appropriate for that type of integrated facility and we moved it over there. It didn’t have anything to do with same-store growth and how that would impact it in 2019.

[Michael Mueller, JPMorgan]

Okay.

[Tom Herzog, President and Chief Executive Officer]

Yes, it’s a pretty unique and special structure. If it’s not one that you are familiar with at a future investor conference we should take a few minutes and talk about that one. It’s kind of one of the – it’s one of the gems in our portfolio that’s worth understanding.

[Michael Mueller, JPMorgan]

Yes. I was asking, because I think when you were talking about the 2018 same-store rundown for other, you flagged that one as having very good performance. Okay, thank you.

[Scott Brinker, Chief Investment Officer]

Thanks.

[Operator]

[Operator Instructions] Our next question comes from Lukas Hartwich from Green Street Advisors. Please go ahead with your question.

[Lukas Hartwich, Green Street Advisors]

Thanks. Hey, guys. Just one for me, so the total SHOP portfolio the 93 assets, how far below peak NOI is that portfolio?

[Scott Brinker, Chief Investment Officer]

I don’t have that handy. I can tell you that the 46 assets in same-store are about 4% below 2017. The balance of that 93, so about 47 assets, a lot of those are triple-net to SHOP conversions and that portfolio performed generally consistent with the SHOP to SHOP conversions that are in the same-store pool. Then there are a number of redevelopments in the balance and those would be very misleading to look at current NOI and then the balance are assets that were actively being marketed for sale. So that’s the best I can do off the top of my head, but we can follow-up with more specifics, Lukas.

[Lukas Hartwich, Green Street Advisors]

Great. Thanks.

[Operator]

And ladies and gentlemen, at this time I am showing no additional questions. I would like to turn the conference call back over to management for any closing remarks.

[Tom Herzog, President and Chief Executive Officer]

Thanks and thank you all for your time today. Much appreciate your continued interest in the company and we look forward to talking to you all soon. Bye-bye.

[Operator]

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending today’s presentation. You may now disconnect your lines.