Good day, ladies and gentlemen, and welcome to the First Quarter 2012 HCP Earnings Conference Call. My name is Anita, and I will be you coordinator today. [Operator Instructions] Now I would like to turn the presentation over to your host for today's conference call, John Lu, Senior Vice President. You may go ahead, sir.

Thank you, Anita. Good afternoon and good morning. Some of the statements made during today’s conference call will contain forward-looking statements, including the statements about our guidance. These statements are made as of today’s date and reflect the company’s good faith, beliefs and best judgment based upon currently available information. The statements are subject to the risks, uncertainties and assumptions that are described from time to time in the company’s press releases and SEC filings. Forward-looking statements are not guarantees of future performance. Some of these statements may include projections of financial measures that may not be updated until the next earnings announcement or at all. Events prior to the company’s next earnings announcement could render the forward-looking statements untrue, and the company expressly disclaims any obligation to update earlier statements as a result of new information. Additionally, certain non-GAAP financial measures will be discussed during the course of this call. We have provided reconciliations of these measures to the most comparable GAAP measures, as well as certain related disclosures, in our supplemental information package and earnings release, each of which has been furnished to the SEC today and is available on our website at www.hcpi.com. I will now turn the call over to our Chairman and CEO, Jay Flaherty.

Thanks, John, and welcome to HCP's 2012 First Quarter Earnings Conference Call. Joining me this morning are Executive Vice President, Chief Investment Officer, Paul Gallagher; and Executive Vice President, Chief Financial Officer, Tim Schoen. Let us begin with a review of our first quarter release of this morning. And for that, I turn the call over to Tim.

Thank you, Jay. Let me start with our first quarter results. Our real estate portfolio performance exceeded plan, generating same property cash NOI growth of 4.7% compared to the first quarter of 2011. The results were primarily driven by contractual rent increases and a one-time rent payment of $4 million from Google. Paul will review our performance by segment in a few minutes. We reported FFO as $0.64 per share, which included a nonrecurring charge of $0.03 per share in conjunction with the redemption of all outstanding preferred stock with a weighted average dividend yield of 7.15%. The redemption charge pertains to the non-cash write-off of the original issuance cost. Excluding this charge, FFO, as adjusted for the quarter, was $0.67 per share and FAD was $0.54 per share, representing year-over-year increases of 20% and 10%, respectively, primarily driven by last year's HCR ManorCare acquisition and strong 2012 cash, Same Property Performance. During the quarter, we made investments of $40 million to fund development and other capital projects, and sold one medical office building for $7 million, recognizing a gain of $3 million. Turning now to financing activities and balance sheet. On the capital markets front, we were active during the first quarter and raised $809 million consisting of: $450 million of 7-year senior unsecured notes with a coupon of 3.75%; and $359 million of common stock at a price of $39.93 per share. Proceeds from these offerings were primarily used to clear out the revolver balance at year end and redeem all outstanding preferred stock at par. On April 23, we retired our Series E and Series F preferred stock for a total of $296 million. Going forward, this equity for preferred swap will be accretive to FAD in 2012 and further strengthen our fixed charge coverage ratio. In…

Thanks, Tim. Now let me review HCP's first quarter portfolio performance. Senior housing. Occupancy in our same property senior housing platform was 85.7%, a 20 basis point sequential increase over the prior quarter and a 60 basis point decrease over the prior year. Same-store cash flow coverage for the portfolio declined 3 basis points to 1.15x, driven by outsized fixed rent bumps on our transitioned assets. Current quarter year-over-year same property cash NOI growth for the senior housing platform was up 1.9%. Growth was driven by normal rent steps including higher rents for assist -- assets transition to new operators offset by a decline in working capital recoveries collected from transitioned assets. Net of the effects of working capital, NOI increased 3.5%. In our RIDEA portfolio, occupancy decreased 100 basis points sequentially to 88.5%. Rates increased 4% over the first quarter 2011 and margins remained strong at 41% with the portfolio performing at budget. Post-acute/skilled nursing. Coverages in our post-acute/skilled nursing portfolio metrics now reflect one quarter of lower reinvestment [ph] rates under CMS' 2012 final rule for therapy. HCR's fixed charge coverage ratio was 1.53x, a 13 basis point decrease from the trailing 12-month period ended December 31, 2011. Adjusting for nonrecurring expenses in the fourth quarter 2011, the fixed charge coverage for the same period was 1.57x. Preliminary results for the first quarter of 2012 are consistent with the fourth quarter of 2011. Cash flow coverage in our legacy portfolio was 1.64x, a 20-basis-point decrease over the prior quarter and a 3-basis-point increase over the prior year. Year-over-year same property cash NOI for the first quarter increased 3.3%, driven by normal rent steps. Hospitals. Same property cash flow coverage increased 23 basis points to 4.52x, driven by strong fourth quarter performance at our Medical City Dallas and Hoag…

Thanks, Paul. We are in an exceptionally nice spot right now. First, our portfolio continues to outperform, allowing us to raise our Same Property Performance and FAD guidance for 2012 after just one quarter of results for the year. Secondly, with a very active quarter of financing, our balance sheet metrics are their strongest in history. Third, our sustainability initiatives continue to produce successful outcomes. And finally, our 5x5 business model is sourcing a significant level of high-quality acquisition opportunities. With that summary, Paul, Tim and I are delighted to take your questions. Anita?

[Operator Instructions] Your first question will come from the line of Adam Feinstein with Barclays Capital.

Bryan Sekino here also. Jay, maybe just as a starting point, maybe just talk a little bit about the deal environment. And clearly, you guys have a very strong balance sheet and a lot of opportunities for deals. But just curious to get your thoughts in terms of just the types of deals that you're seeing, and, I guess, with the financing markets being very strong, I guess just what are the implications and so just -- so I guess a bigger picture question, but just curious in terms of what your updated thoughts are about the deal environment?

Yes, that's great. I would say we're in a funny period right now. And probably, it's most analogous to the 6 months that existed prior to the passage of health care reform. And, Adam and Bryan, if you recall, for those 6 months, the fourth quarter of 2009 and the first quarter of 2010, we saw a complete absence of acquisition activity. And then with the March 2010 passage of health care reform, it was as if -- almost as if a whistle blew to start the football game. And what a game it was, with the ensuing 12 months of transaction volumes exceeding the prior 3 years combined. Fast-forward to now. You have the likely June 2012 Supreme Court ruling on the validity of the health care reform bill. You've got the sequestration at year end, which is likely to give rise to the mother of all lame-duck sessions. You've got pending CMS reimbursement rulings. You've got the November Presidential election. And if that's not enough, you've got the European economy largely in a recession at this point, continued Middle East tension and a subpar U.S. economic recovery. In anticipation of this very significant ramp in transaction activity, I don't it's any real mystery as to what we've been doing. We've simplified and strengthened our balance sheet. We've repriced our $1.5 billion revolver on very favorable terms, we've banked some excess cash, and we've made sure, that for our existing portfolio, all the trains are running on time so that have minimal distractions going forward. So that's how I'd -- that's the observation I think I'd make, Adam.

Okay, that's very helpful. Maybe one quick follow-up question. Jay, just -- if I could follow up on the acquisitions or investments that you guys are seeing in your 5x5 model, just maybe if you could provide us with some additional color on the types of investments that you're seeing, be it similar loan-to-own strategies that you've done in the past or some loans for CapEx that you've done with Brookdale, could you -- if you could provide us any color, that would be helpful.

Again, I think, if you -- understanding our 5x5 model the way you guys do, which is to say that while there may be 25 hypothetical areas for us to focus on, there really are less than half that. The interesting thing right now is that we've got very significant dialogue across each of those 10 or 11 target areas. So it certainly includes the ones that you've indicated, but it's broad-based. And in my experience, Paul's experience, the best leading indicator, if you will, as to what sort of acquisition volumes you end up closing at a given point in time is absolutely the quality and the intensity and the breadth of the dialogue. And that's quite strong right now.

Your next question will come from the line of Derek Bower with UBS.

Just a follow-up on the acquisition commentary. Just in light of the prior comments, given that you've been pretty quiet on the deal front over the last few quarters, especially compared to your peers, can you just comment if that's more a reflection on your view of private market valuations or if perhaps there's more larger deals on the table that may be occupying your investment team's time, just if you could comment on that.

Yes, I think I'd just reiterate, Derek, my earlier comment that within the context of our 5x5 model, we've got extremely active dialogue right now.

Okay, fair enough. And then on just on the RIDEA operating margins, the 41%, is there a seasonal benefit there in the 1Q that we should be thinking about? And how do you expect that to trend for the remainder of the year?

We would probably expect it to trend over the course of the year up a little bit, but probably no seasonality in that particular number.

Derek, if you go back to the high-water mark of that portfolio, which I guess would have been about 3 years ago, I think at one point, those margins touched 42%. So again, this is -- we're pleased with -- we're early days still. We've only got, I guess, 2 quarters in the books, but we're pleased with the performance of that portfolio, with what Brookdale is doing there and very much validates our approach on that particular portfolio, to use -- to move away from a triple net structure and use RIDEA there.

Great, got it. And then just lastly, the 4.7% cash NOI growth, what would that number be excluding the Google lease?

Excluding the Google lease for life science, that would be in the 3.5% range.

Do you know what it would be for the entire portfolio?

Actually, it would be -- I'm sorry, for life science, it would be closer to 3%. For the entire portfolio, on a normalized basis, it would be around 3%.

Your next question will come from the line of Jorel Guilloty with Morgan Stanley.

I want to get some clarity on Paul's comment regarding the 1Q '12 HCR ManorCare exposure ratio. So Paul mentioned that the results were consistent with 4Q, does this mean that the coverage ratios for 1Q '12 are expected to be 1.57x?

No, the 1.57, Jorel, is a 12-month. We had disclosed on the -- so that's a 12-month. Fourth quarter was the first quarter of the roll down in the RUGs-IV benefit.

Yes.

But Paul said that the first quarter of 2012, which is actually the second quarter of activity without the RUGs-IV benefit, is consistent with the fourth quarter.

Okay. But no -- I guess there's no coverage ratio that you announced as of now for that?

We -- what we just said, it's consistent. So we typically show our quarterly coverages in our triple net lease portfolio on a trailing quarter basis.

Okay. The other question I have is even though the cuts have been in place for about 6 months now, do you feel comfortable with the post 1.5x fixed charge coverage ratio that you suggested for HCR ManorCare previously?

I suggested for -- we are very, very comfortable with how HCR has made the transition to the new cost environment. In part, they've done it by cost reductions, but their real focus has been maintaining and increasing their capability to care for complex patients. And they've got the largest share of that resident population, and we expect that share will grow here over the next 12 to 18 months.

Your next question will come from the line of James Milam with Sandler O'Neill.

I just wanted to follow up a little bit more on the acquisitions. I guess 2 things. One bigger picture, and I know, Jay, you've kind of touched on this a couple times. But are there specific portfolios or assets that you guys have your eye on in case there is maybe a disruption in the capital markets given the risk that you presented? And then second, can you just talk a little bit about the buyer of the St. Louis MOB? And what type of institution that was? And if you think there are more buyers out there willing to pay, what seems like low yields to us, just given I guess, kind of the search for yield in the environment that's going on right now?

Yes, sure. Let me take the second question first. The buyer of that MOB was actually the hospital system. So as is often the case, we've talked about this in the past, with the advent of increasing technology, medical office buildings, which maybe 5, 6, 7, 8 years ago, were primarily used for office visits. With the technology advances, you're now seeing noninvasive kind of procedures that don't require a stay in hospital, moving into the medical office building portfolio. So this hospital had a strategic interest in acquiring that, and that's what happened. So that's -- I think that's one of the benefits of having on-campus medical office buildings, quite frankly. With respect to your first question, in terms of the acquisition activity, again, the dialogue we have within our 5x5 model now is -- relates to very, very specific transaction opportunities. And so they certainly include some of the ones that you've alluded to.

Okay, great. And then just a quick one on the ManorCare, HCR ManorCare OpCo coverage. So it sounds like some of the reason why that fell a little bit more relative to -- I guess for one-time items in the quarter, are those things like severance cost and just things that had to do with dealing with the impact of the Medicare cuts? Is that the right way to think about that?

The fourth quarter of 2012 was the first quarter of a lot of the reductions in cost structure they put in place. But you've also got some kind of normal, at least normal for HCR, kind of fourth quarter true-up things relating to insurance reserves and things like that.

Okay. And would you guys be willing to provide sort of an annualized number off that fourth quarter result? Or do we need to kind of wait and see how the full year impact comes in?

We can provide it if you want. I'm not sure that, that would be terribly relevant because I think you'll see HCR performance continuing to improve as they fully have now transitioned to the new environment. And so, you can do anything you want with numbers, but I think their core business platform is performing nicely. But more importantly, from our standpoint, it's gaining momentum.

Your next question will come from the line of Jeff Theiler with Green Street Advisors.

I have a question related to senior housing. One of the more successful areas in senior housing over the past couple of years has been memory care. But when I talk to people in the industry conferences and so forth, it seems like there's a lot of interest about development and redevelopment of the assisted living facilities into more memory care type units. I'm just kind of curious as to what your thoughts were on the memory care space in particular, and then what you're seeing in terms of overall development activity in senior housing, more broadly.

Well, I think we're big proponents of the memory care. In fact we've funded a number of expansions or redevelopments, if you will, of our existing independent living and senior housing, to position our portfolio for that. In fact, that was one of the key reasons we went with Brookdale on the RIDEA joint venture we have. That was a central thought there in terms of the, a, the opportunity, but more importantly, Brookdale's ancillary revenue platform. So that's absolutely a trend that we like, a trend that we've taken advantage of, and a trend that we anticipate will continue going forward. I don't think we're in the camp where we would want to develop our own standalone memory care properties, Jeff. I think we view that as again, part of a continuum within either an actual CCRC sort of setting or effectively, a virtual CCRC setting when you've got operators that are in the process of putting critical mass into local markets. Now with respect to the second part of your question, which was development. Realize that we've got about a 5 or a 6 community development program right now that we talked about, Paul talked about in some length on last call. That is going well. It's -- we're ahead of where we thought we'd be. But I think we're going to be very moderate and disciplined in terms of ramping that up. I could see us continuing to grow that, but I don't think you should expect that to be doubling or tripling in terms of the shareholder capital that we deployed at that opportunity.

Okay. And then just in terms of competition from other people on the supply side, are you seeing that pick up yet or not so much?

There's some new supply, but it's minimal. I mean I think one of the things we benefit from is it's still, the construction financing made available by the banks, it's still quite minimal. My guess is if you start to continue to see some improvement in the U.S. economy, I think that will probably increase a little bit, at which point, you could see some additional supply. But for now, we're in a nice spot given our cost of capital advantage and our ability to deploy that with the sort of programs that we've got going right now.

Your next question will come from the line of Daniel Bernstein with Stifel, Nicolaus.

Jay, I just wanted to go back to your original -- your first comments about risks that are coming in the economy, Congress and the election. If you had to rank in order your concerns, what would they be? Is it, all of it together concern you, or are there certain items within that, that are causing you to be concerned?

I don't really view them as concerns. I view them as catalysts for some opportunities. I think our stepping off point is that the portfolio that we have constructed right now is, if not bulletproof, extremely well protected, to whatever might come our way. If you're at 3.5% to 4% Same Property Performance, cash, for this year, next year, the year after, and you lever that 40 parts debt, 60 parts equity, that gets you to plus or minus 6% of FAD growth, with not a lot of things that are going to go bump in the night. So that's our starting off point, which was the last part of my comment, that right now, in addition to the moves that Tim and Matt have made with respect to the balance sheet and the revolver, Paul's got the portfolio really humming, which is nice because we don't have to spend time allocating resources, time resources to things that aren't humming along. So that's very good. So I think that's the most important part from HCP shareholders' standpoint. I think going forward, I think a lot of the stuff is more -- not that there's going to be necessarily a good result or a bad result, but it'll just be, the uncertainty will clear. And that's why I made the analogy to the March 2010 passage of the health care reform. A lot of the deals that ensued for the next 12 months, the economics didn't necessarily change a whole lot because of health care reform. It was just that the uncertainty was removed. And I think that's a little bit of what's going on with that. I would say the most -- absolutely, the most important of the issues that I flag there is the pace of the U.S. economy. And then related to that, the U.S. housing market and the unemployment. I think those are the 3 things that we watch the most.

And you've refinanced a lot of, I guess, preferred, and you fixed your balance sheet this quarter. It looked like there was some debt in the JVs that are also higher cost. Is that correct? Is there any opportunities to refinance some of the debt in the JVs and maybe get a little bit extra cash flow out of those?

Well, the big opportunity -- the big near-term opportunity, of course, is next month's $250 million of 6.45% debt. Obviously, you can see, in terms of where our existing debt trades, that's a very significant opportunity. Away from that, there are certainly some secured debt in the joint ventures. For the most part, kind of, I think the make-whole penalties and things like that, make that relatively unattractive from our standpoint. We'd prefer to be taking that capital and growing the portfolio by external acquisitions. Tim?

Dan, on a pro rata basis, the -- our share of that JV [ph] debt's only about $9 million for 2012.

In terms of what's maturing.

In terms of what's maturing. So that's a very small number for the next couple of years. It's actually $11 million, $12 million over the next couple of years.

And then the other question I had is on the RIDEA assets. The occupancy was down 1% in the quarter. And obviously there's always seasonality in 1Q. But your same store occupancy on the leased assets was up. So if you can talk about maybe the differences in those portfolios and what may be causing that difference, is it asset type, geography or...

No, I think you should view that portfolio as not stabilized right now. Remember, we're affecting, with our operating partner, Brookdale, a fair amount of change there. We're repositioning some of those communities. We're expanding some of those communities. We're putting some memory care in some of those communities. So we're putting -- like in Houston, we're doing a very large dining upgrade. So I think, notwithstanding that, we've had a nice move on rates and the margin is what it is. So again, this completely validates our thought process there to -- that we would have a better economic return for our shareholders by positioning that with a quality partner like Brookdale in a RIDEA format, as a triple net. That'll continue to perform well and increase its performance over the next 12 months.

But I shouldn't play too much on quarter-to-quarter?

I think the better thing will be to look out 12 months and then look back and -- I think we -- remember, when we bought the joint venture out, I believe, we talked about the fact that while we had bought it with -- at a cap rate of 7.7% in terms of trailing 12 months in-place income, we felt that with what Brookdale could do with their model over an 18- to 24-month timeframe, that you could see that adjusted cap rate reset from 7.7% up to 9%. And we still feel good about that opportunity, Dan.

Your next question will come from the line of Rich Anderson with BMO Capital Markets.

Just a couple of quick questions, and then a bigger picture question. I guess to Tim, was the insurance recovery that you're expecting in the second quarter and the $4 million Google payment, in your previous guidance, or are those new additions to the new guidance?

The insurance recovery and the Google payment was in our guidance.

Okay. That's what I thought. And, Jay, just maybe to refine the acquisition question a little bit for you, what -- of the 5x5 matrix that you talk about, what property type within that, do you think fits best in an environment that you're describing, with a lot of uncertainty, that you would say, this is the -- maybe the least risky or the best fit in the environment that you're in right now?

Well, if you want to call the ballgame based on lowest risk, that would probably be...

I think risk is part of the conversation, but...

I'm just thinking your question. You defined the question in terms of risk. If you want to know what the lowest risk piece of our economic business model is, it's probably on-campus medical office buildings where the hospital is the #1 or #2 market share hospital system in a growing area. But that's just, that was -- from our standpoint, we wouldn't stop there. That would be an important input, but the opportunity to increase cash flow once a property or portfolio of properties is acquired, the valuation, there's a whole lot of other elements that go into that decision to pull the trigger.

Okay. But what would be some of those other elements where you'll pull the trigger in this environment?

Valuation, condition, i.e. fiscal obsolescence, CapEx obsolescence of the portfolio that we're acquiring, quality of the counter party, both from the standpoint of -- you've heard me talk forever about, we want to have counter parties that have 3 criteria: quality outcomes, efficient operations and critical mass. So those are the whole -- it's kind of a -- it's a large algorithm that comes into play.

Do you think life sciences is well placed right now in this environment?

I think life science located in one of the 4 or 5 concentrations that are the recipients of the NIH grants is how I'd start that discussion. However, then you have to get and look at the characterization of the tenants. Are they more VC-backed private companies that are working 1 or 2 drugs through a Phase I, Phase II, Phase III ultimately FDA approval process? That would have a lot of risk associated with it. Or are they very substantial companies like Amgen, like Genentech, like Takeda, like Pfizer, like Google, like LinkedIn, sorry. That would have a different element to it. And then I think you really need to think about -- this isn't going to impact anything in terms of 2012, 2013. And we could have blinders on because we're sitting out here in the, what used to be known as the Golden State. But if the U.S., over the next several years, if because of fiscal policy, monetary policy, the U.S. economy as a whole begins to look like California, then I think we need to be cognizant of the country losing its leading position in life science expertise. I think you folks have probably seen the net move-outs versus move-ins in the state of California. There was a piece over the weekend that now even indicated that we've got the reverse migration out to Mexico, which is a huge sea change for the last couple of years. So if a lot of those things continue to not be addressed by Washington and, effectively, the can is kicked down the road, at some point, there's going to be an impairment, I think, in the nation's global leadership position in life science. So that's something that we watch. Again, that's not going to change overnight, but I think we've got to be thinking about that.

And then lastly, just, I think more of a comment. I think your coverage or your unwillingness to provide an outlook on a full year coverage, including all of full year CMS cuts on your HCR ManorCare portfolio, I mean, I think it's probably fairly easy math. I don't think anyone just thinks it's going to be an absolute disaster with that quality portfolio. But I think maybe if you provided some color, like many of your peers are doing, that would relieve some tension, in my opinion. And I just offer that, and hopefully you can reconsider and provide us a number in the next conference call.

Well, we'll certainly take it under advisement. They're just not -- as you know, there's not a lot moving around. But we like to give guidance on our company's results. We think it's a little inappropriate for us to be giving guidance on another company's results, particularly when they have their own strategic plan that they're...

You can take their results out of it, and just say what happens to your results in terms of coverage. Anyway...

We're certainly willing to take a peek at that.

Your next question comes from the line of Quentin Velleley with Citi.

Just in terms of, I guess, some of the uncertainty that you've been speaking about in the U.S. and the pause in transactions that have occurred in the U.S., have you sort of been spending some more time looking at overseas or global markets as a place of investment?

Again, Quentin, I think we take a look at everything that's moving around. Some of that is with an eye of potentially making some investments, some of it is with an eye towards getting up to speed and learning about different markets. So that's just a constant -- that's a constant part of our -- of Paul's team's acquisition thought process. And it doesn't go up or go down because things are slow or not slow. As I mentioned, dialogue-wise, things are quite active right now so -- but that's certainly in the mix.

Your next question will come from the line of Jana Galan with Bank of America.

I was wondering, can you break out the 2012 guidance for Same Property Performance by segment? Or maybe just talk to which segments do you think will kind of outperform that range.

Sure. We did all that on the last call. But, Tim do you want to review that for Jana?

Sure. In terms of segments, it's actually similar to what I gave in my February 2012 guidance. To give you a shorter answer, the 2 areas that are up are senior housing portfolio and our life science portfolio, and both of those are up in the order of magnitude, 20 to 30 basis points, from the last February guidance.

So senior housing should pick up from the first quarter?

From my last guidance, senior housing and life science are the drivers there.

And then maybe just to talk about the expense savings, if that $500,000 in the MOB portfolio, can we do that going forward? Or is part of that a little bit of seasonality or better weather?

Well, I think you've got a couple things going on there. Most of that savings was coming off our sustainability initiative that Tom Klaritch has done a great job on. By the way, as an aside, I'd congratulate NAREIT. They've really kind of set the bar out there in terms of establishing metrics and working with Washington and things like that to make this very important initiative, to incorporate that into all of its member companies. But a big chunk of that was the sustainability. There was a little bit of seasonality in there. But we've had now, for several quarters, thanks to Tom Klaritch and his team, very nice gains relative to cost savings, energy savings because of that sustainability commitment that HCP is [indiscernible].

Your next question will come from the line of Nicholas Yulico with Macquarie.

I just wanted to see on the medical office side, with cap rates coming down so much and you keep hearing about new pension funds interested in the sector. Does it make sense for you guys to think about exploring, doing another institutional fund?

We think about that as part of our calculus. Our stepping-off point, though, is that the economics have to clear the bar if -- for a 100%-owned portfolio. There were some companies in some other sectors that got a little sideways back 3 or 4 years ago when they were moving forward on acquisitions, joint venture format, that they really needed the extra juice from the joint venture in order to make the math work. So from our standpoint, we would certainly consider that. We have, we obviously have a very meaningful platform in that regard. But the extra juice would be gravy on top for our shareholders who wouldn't use that to justify doing a JV.

Okay. And then back in fourth quarter, I know you gave the actual calendar fixed charge coverage of 1.37 for HCR ManorCare. Were you saying earlier today that the, that coverage is sort of very similar in the first quarter, when you were talking about a sort of a similar coverage level?

Yes, I think the word -- Paul's words were "very consistent."

Okay. And then just lastly on -- also on HCR ManorCare. Is there any reason to think that the coverage decline that has gone on, has it all been due to leverage picking up at the OpCo at all?

No. Absolutely not.

Your next question comes from the line of Todd Stender with Wells Fargo.

Jay, just circling back to your comments on California, and then really looking at the life science specifically, what are your tenants saying? Or really better yet, what are they doing? If the brand name biotech companies are really -- the tech companies, are you seeing them expand? Are they going into other states maybe a little more business friendly, like South Carolina or Texas, just seeing what you're seeing from the tenant perspective?

Yes, well I think, not only is that an interesting question, but you qualified it the right way. Forget about what they're saying. Look at what they're doing. I think it was Google or Apple, someone just made a very significant decision to put a number of its employees down in Austin, Texas. So 1 or 2 decisions does not a trend make, but I think the state of California, and going forward, I think the country as well, need to kind of keep an eye on that. So it's early days. We're watching it. Again, from our standpoint, it really -- it doesn't impact our existing portfolio, given the quality of the tenants we have in our life science portfolio and the fact that we're at approximately 90% occupancy with very long-dated leases, very little lease roll, and we're a grand total, I think, of 750,000 square feet of leasing from taking the entire portfolio, 100% leased. So it's really -- it really impacts, Todd, more of our thinking in terms of whether we want to go bigger or not into the space. And that's the context in which I presented that.

Okay. And really, it's a highly specialized space with high barriers to entry. How long would it take for new supply to come into the market? Really, from breaking ground to being open? And what kind of regulatory overhang...?

Yes, I think I'll kick that to our former head of life sciences. Tim?

Assuming you have the land entitled like we do, you're talking, depending on the build out, 18 months for a device-type use and 24 months up to a more intensive biology or chemistry use. That'll hopefully couch it for you.

That sure does. And I guess just looking at the direction of the rent renewals in the quarter. Any drivers behind that? Or really does life science have any seasonality, if some of the rents came down in Q1?

No. We had a big renewal that was flat, and it's really just one tenant that was driving that within our portfolio out of Hayward that's driving that negative mark-to-market. It's only about 30,000 feet. It's just a small [indiscernible], sort of a small denominator problem.

Your next question will come from the line of Michael Mueller with JPMorgan.

This is actually Molly McCartin on for Mike. I just have a quick question. And I believe you said on the last call, you gave the average pre-leasing for the redevelopment project was 33%. Do you have an updated number on that?

Yes, we do. It's up slightly, closer to 40%. It's in that 35% to 40% range, but closer to 40%.

And it's similar in there as a couple of that are pretty high. And there are some -- it's a wide range of pre-leasing?

Yes.

Okay. And then for the life science building that just went online in January, can you give a timeframe for stabilization?

Yes. We continue to talk to tenants in those buildings all the time. It's about 1/3 pre-leased, and we continue to have discussions. We like the size of that project. It's the reason we brought that project into the portfolio. It gives us 30,000 to 60,000 square foot, an opportunity to get the 30,000 to 60,000 square-foot tenants within our portfolio. And we didn't have that opportunity before. So it's pretty binary. We get another tenant, and that project will fill up fairly quickly.

Okay, great. And last question. For the same-store NOI guidance, what percentage of your portfolio is included in that this quarter?

Just over 60%.

Your next question will come from the line of Philip Martin with MorningStar.

Questions for you on your overall growth strategy. When you look at the overall growth strategy, can you characterize for us organic growth versus external growth? And where those trends are going? And how they may or may not have changed over the last 12 to 24 months?

Well, we can certainly, with a fair amount of precision, calibrate our internal and organic growth. The external growth is, as you know, we don't forecast that. But beginning this year, we have talked about an overall same property cash performance of plus or minus 3.5%. Now in fact we're trending above that. But again, if you go with, at 3.5% and you take our balance sheet metrics, which are 40 parts debt, 60 parts equity, that generates 5.5% to 6% FAD organic growth for this year, for next year and for 2014. The reason we've got the ability to go out with that sort of visibility in terms of length of visibility and precision is that the existing portfolio is largely contractual relationships with high-quality, credit-worthy counter-parties that has next to nothing in the way of any lease roll, and we've got minimal and manageable debt maturity. So when you put it all together, it's a relatively straightforward process to look at the organic FAD growth per share for each of the next 3 years including 2012. Now again, externally, I think I've made some comments at the beginning here as to what we're seeing and why we're seeing what we're seeing. So that'll be the wildcard. I think you should read into the fact that we wouldn't have taken the steps we've taken with respect to strengthening our balance sheet, banking some cash, reducing the line, the economics in terms of our revolving line of credit, were we not to anticipate a significant amount of ramp in the external acquisition, but that's just not something that we predict.

How about the makeup of the organic or internal growth? Certainly, there is lease maturities and fixed increases, et cetera. But how about in terms of value-add or redevelopment, repositioning? I have to assume health care systems, as they look to reposition or reconsider their investment in growth strategies around their real estate portfolios, maybe coming to you looking for ideas, et cetera. Just I'm trying to understand kind of the makeup of this internal growth if there's a little more on the redevelopment value-add and value creation side of the business.

Yes. That's actually a very good question. And the makeup of that 5.5% to 6% FAD growth per year for this year, next year and the following year is just a stabilized portfolio, okay? On top of that, which we do not include in the organic growth rate, so this is further juice for the shareholders, is the fact that we've got 94% of our portfolio stabilized. So that 94% is producing that economic return I just discussed, the 5.5% to 6%. However, we've got 6% of the portfolio, and when you have a portfolio the size of ours, that's $1.1 billion, that is currently yielding about 3%. So we've got 94% of the portfolio yielding approximately 8%, and 6% yielding 3%. You can do the math as well as anybody else, but if you move that other 6% from 3% up to 8%, you've got an enormous increase in cash flow. Now we're working on that hard, but we don't predict when that drops. But just to give you a flavor for some of the assets that are in that 6%, that would include our land holdings down in San Diego County. It would include our land holdings up in South San Francisco, most notably The Cove that we bought from Genentech last year. It would include our equity ownership interest in Brookdale and HCR and it would include the remaining balance on our Cirrus loan that Paul had given you an update on. So all that, all those things, which again, is 6% of the company, but more importantly, $1.1 billion of value, when they stabilize, would be additive to that 5.5% to 6%. So really, when you think about growth drivers for HCP, and we'll be giving some little more precision on this as the year evolves, you've really got 3 growth drivers. You've got the stabilized organic portfolio. You've got the non-stabilized portfolio that people are working quite hard on ramping that up. And then you've got external acquisitions. So it's a nice combination of growth levers. We're only out there talking about the first bucket. So if and when the second and the third buckets drop, you can rest assured we'll be talking about that as well.

Okay, I appreciate that. I just want a little more clarity and level of magnitude, and that helped. Lastly, and I'll yield the floor, when you look at your post-acute/skilled nursing portfolio, over the last few years, has this portfolio experienced any meaningful change in payer mix and/or margin as health systems again reposition or integrate the care better, deliver the care in a different way, et cetera?

Well, you're talking about the post-acute/skilled portfolio?

Yes, really the skill as opposed to the LTACH.

Well, we -- remember we -- we don't include LTACH in skilled, by the way. We really sold out of all of the institutionalized, Medicaid-based skilled nursing properties. We did that back in '06. So what you have left is really 2 portfolios. One is what Paul referred to as our legacy portfolio in this space. And that's been kind of cherry-picked. That's the stuff we didn't sell. We liked it. We've restructured it. We've got it master leased. And that's clicking along at a coverage of what?

One second, I'll give it to you. 1.64x.

1.64x. And if you were to take a look and take a snapshot of that portfolio and look at metrics like quality mix, margin and things like that, they would all be significantly higher than the large portfolio that we sold back in '06, so you draw a box around that. Then you move to HCR, and there you've got another standard deviation or 2 move up both in terms of quality mix and in terms of margin, because they've really distinguished themselves as the leader in that space. So you had asked the question over the timeframe in the last couple of years. If you asked your question that way, I think I'd point you in the direction of our, what we call our legacy portfolio, realizing that the HCR portfolio didn't come in to our company as an owned portfolio until April of last year.

Exactly, okay. The skilled care portfolio is really looking at type of care that they've provided historically and their role. I've been interested to better understand the role of the skilled nursing community today versus 5 years ago given the payer mix, given uncertainties with Medicaid, Medicare, et cetera. And it doesn't sound like it's a broad-based opportunity. It sounds like it's more of a system-by-system opportunity.

I'm not sure it's system-by-system. If you're talking about a portfolio or the sector that would be most consistent with what we sold, I would tell you that, that business is not going to go away. Recall that, that's funded largely by the state. So you need to be very careful in terms of how the various states' budget deficit and surplus situation is and is likely to be. And then if in fact there's this big -- if you get something that starts to look like what Paul Ryan is talking about, a lot of that, forget about reimbursement and stuff like that. A lot of that is a shift from the federal government to the state government. So I think you need to think about that. But I would say that the institutionalized Medicaid, preponderance of Medicaid revenue, skilled nursing business is a business that's not going away. It's going to be a low margin business. And with the right capital structure and with the right operators, that's a legitimate business. I don't think that's going to go away.

Your next question will come from the line of Karin Ford with KeyBanc Capital Markets.

Jay, the items of uncertainty that you listed earlier that is causing delay in some of the transaction activity, are those things concerning the sellers? Or are they concerning HCP as a buyer and causing sellers to be hesitant or you to be hesitant or both?

Well, I think it's largely on the part of the sellers. Again, I think, that's why I said, I don't think -- I think what needs to happen here is just some resolution of these issues. I think it's the uncertainty that people tend to not like. I mean, people can make -- and by the way, not to say there's going to be a complete absence of transaction activity for the next couple of months, because there are going to be some transactions, and I anticipate we'll be involved in them. But a lot of what's going on here is that people want to know, are we dealing with health care reform in 2014? Are we -- is that going away? And then we'll probably cut a market health care reform in the lame-duck session later this year, in large part because of the pressure coming from the aerospace defense industry that does not want to see the sequestration occur? So there's a lot of things like that, that are going on. But I don't think -- I think some of those issues, depending on how they drop, might impact valuations. But it's not at all to suggest that there'll be an absence of transactions going forward. It's just that for now, there's some period of uncertainty, and people would rather -- sellers go to their Boards of Directors, their investment committees, and they say, well, what happens if this happens? And they say, I don't know, but in 2 or 3 months, we'll know. And they say, well, why don't you wait?

Got it. Has HCP been close on any transactions this year that have fallen through?

We never, as you know, Karin, we never comment on speculative deals, things like that. We confine our comments to deals that we've closed or signed. Okay, everyone. I thank you for your time, and thank you for your continued interest in HCP. Take care. Have a good day.

Thank you for your participation. This does conclude today's conference call. You may now disconnect.