HCP (HCP) Michael Dale McKee on Q2 2016 Results - Earnings Call Transcript

| About: HCP, Inc. (HCP)

HCP, Inc. (NYSE:HCP)

Q2 2016 Earnings Call

August 09, 2016 12:00 pm ET

Executives

John Lu - Executive Vice President - Corporate Finance & Investments

Michael Dale McKee - Chairman, President and Chief Executive Officer

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Mark Ordan - Senior Advisor, HCP, Inc.

Analysts

Landon Park - Morgan Stanley & Co. LLC

Jordan Sadler - KeyBanc Capital Markets, Inc.

Juan C. Sanabria - Bank of America Merrill Lynch

Nick Yulico - UBS Securities LLC

Kevin Tyler - Green Street Advisors, LLC

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

Smedes Rose - Citigroup Global Markets, Inc. (Broker)

Michael Carroll - RBC Capital Markets LLC

Richard Charles Anderson - Mizuho Securities USA, Inc.

John P. Kim - BMO Capital Markets (United States)

Michael W. Mueller - JPMorgan Securities LLC

Omotayo Tejumade Okusanya - Jefferies LLC

Operator

Good morning and welcome to the HCP Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note that today's event is being recorded.

At this time, I'd like to turn the conference call over to John Lu, EVP of Corporate Finance. Sir, please go ahead.

John Lu - Executive Vice President - Corporate Finance & Investments

Thank you, Jamie. Today's conference call will contain certain forward-looking statements, including those about our guidance and the financial position and operations of our tenants. These statements are made as of today's date and reflect our good faith, beliefs and best judgment based on current information. These statements are subject to the risks, uncertainties and assumptions that are described in our press releases and SEC filings, including our annual report on Form 10-K for the year ended 2015.

Forward-looking statements are not guarantees of future performance. Actual results and financial condition may differ materially from those indicated in these forward-looking statements. Future events 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 on this call. We have provided reconciliations of these measures to the comparable GAAP measures in our supplemental information package and earnings release, both of which have been furnished to the SEC today and are available on our website at www.hcpi.com.

Also during the call, we will discuss certain operating metrics, including occupancy, cash flow coverage and same-property performance. These metrics and other related terms are defined in our supplemental information package.

I will now turn the call over to our CEO, Mike McKee.

Michael Dale McKee - Chairman, President and Chief Executive Officer

Welcome, everyone. Joining me today is Justin Hutchens, our Chief Investment Officer, and John Lu, our Executive Vice President of Corporate Finance. And I'm pleased to welcome back Tom Herzog on his first earnings call since returning as our Chief Financial Officer.

We look forward to sharing with you our quarterly results and updates on several significant initiatives. But before diving into the details, I want to step back for several minutes and give you some additional color on the rationale behind some major changes at the company. They have a purpose.

I will start by saying this is an exciting time at HCP. It's a Renaissance of sorts. I've been referring recently to the stage we are entering into as HCP 3.0. I've been fortunate to be a witness to and a participant in each of the generational periods of HCP since its formation in 1985.

The first generation was represented by our friend and founding CEO, Ken Roath. Well known to many of you, Ken established our company as one of the first healthcare REITs and grew it significantly with a solid foundation and a stellar reputation.

Jay Flaherty is identified with our second generation. Over his decade of leadership, he repositioned the company to a significant extent by moving away from properties reliant on government reimbursement and into larger transactions that provided scale as privatization and consolidation swept through the industry.

Lessons learned, one large transaction that we all take responsibility for was our purchase of HCR ManorCare in 2011. At the time of the purchase, this leading skilled nursing post-acute company was widely acclaimed as best-in-class, but it was also heavily reliant on government reimbursement. All of you know, that over the last five years, the skilled nursing post-acute space has been rocked by numerous sequential challenges.

The cumulative impact has been strongly felt across the sector. When these issues came more into focus, we asked Lauralee Martin to take the helm and bridge us to the next generation. We knew we were giving her a tough hand to play, but none of us were able to predict how difficult the last few years would be as this space continued to be jolted by one decision or another, imposed on it primarily by the payers shift toward Medicare Advantage and the net effect of sequestration cuts.

In the last few months, the board and I evaluated where we were and what the future could look like. In addition to the spin and the other initiatives in play, we determined that the best course was to move HCP 3.0 forward by starting to put the face on the team that would take the company forward into the next generation of evolution and growth. With the initiatives we have announced and some we will announce shortly, all of us are confident and excited about our prospects for near and longer term performance and growth. I want to express my heartfelt appreciation for the effort and contribution that Lauralee gave us, getting us to the point that we can now launch this next stage.

Let me also report that the team that will take us forward is coming together very well. There is some blending of new folks, an encore appearance and those that have been around for many years. They are working marvelously together, and I am confident that you will see tangible positive results soon from the groundwork that is underway.

In assembling this team, there is a method to our madness. It's been noted by many of you that we've added some key executives, like Justin Hutchens and Kai Hsiao, with strong reputations as leaders and operators of large healthcare companies. And we've added other new team members who aren't as publicly visible with similar backgrounds.

Our long-tenured executives, Tom Klaritch and Jon Bergschneider, who run our Medical Office and Life Science platforms, are as well regarded as anyone in their respective roles. And with Tom Herzog returning to our team, we have someone widely regarded for his conservative yet progressive thinking around balance sheet, cost of capital management and strategic capital allocation. We'll stack this talented team up against any in the industry.

Now looking ahead, one of the biggest questions we face, like many REITs, is how do you plan to grow going forward? Well, our assessment is that there is plenty of room to grow, but it will be a different strategic path than in the recent past. Much of the growth in the future will come through affiliations with provider networks and picking experienced operators and partnering with them for growth. The good news is that the healthcare real estate market remains large and, in many areas, highly fragmented.

HCP is being shaped to be the capital partner of choice because we understand the needs of the operator and we know how operations either succeed or fail. We believe that our ability to attract and underwrite potential investments will benefit from the internal resources assembled. And we believe we will quickly become a trusted partner to selected new operators and emerging provider networks because we talk their language and have an appreciation of their needs. We understand business needs because we have run businesses and we have walked in our tenants' shoes.

So when we talk about a new generation, HCP 3.0, we are talking not just about change, but strategic change to meet the market where it is and where it's going. With that said, there are some key overhangs that we are aggressively addressing to position us for growth.

First, we are obviously addressing the issues related to HCR ManorCare with the spin transaction. Second, although we have a high degree of confidence in Brookdale Senior Living, we recognize reducing our portfolio of concentration in Brookdale as a high priority. Third, we have somewhat elevated leverage as compared to our peers and historical averages. We are prepared to improve our balance sheet metrics progressively over the next two years to three years. Fourth, as you continue to get to know our next generation of leaders, we believe that you will quickly gain confidence in our ability to execute and to grow prudently. And finally, as part of sustained credibility, we will be a leader in transparency, predictability and clarity to the fullest extent possible.

Let me acknowledge up front that this earnings call has some inherent limitations because some of what we are doing is still in progress and detailed information in some areas is restricted by the fact that we are in registration with the SEC for our spin transaction and we are not yet effective. We will do the best we can to be responsive to your questions, but we really look forward to getting through the next several months when all of the things we are doing will become much clearer when the comprehensive plan we are implementing can be shared with you fully.

Today, we will cover details of our second quarter results and portfolio performance. And we'll give you an update on our spin-off of HCR ManorCare, which is well underway and expected to be completed early in the fourth quarter. I'm happy to report that we now have a name for the new spin company. We call it Quality Care Properties, or QCP. I'm also happy to report that the remaining 75% of our portfolio, which is predominantly private pay is performing at or above plan and will anchor HCP's organic growth following the spin.

Let me now turn things over to Tom Herzog, who will focus on our quarterly results and financial performance.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Thank you, Mike. Today I will cover several topics. First, our second quarter results, second, an update on our dispositions and RIDEA II transaction, third, our balance sheet and financing plan and, finally, our updated 2016 guidance.

I'll start with our results. During the second quarter, we reported NAREIT FFO of $0.71 per share, which included a negative $0.03 per share of transaction-related costs, substantially all of which were spin related. Excluding these costs, we reported FFO as adjusted of $0.74 per share and FAD of $0.72 per share. Also impacting the quarter were gains of $0.03 per share that resulted from monetizing our share in the appreciation of two participating development loans in our Senior Housing segment.

Note that there was a similar gain of $0.02 per share in the prior year period. Both NAREIT FFO and FFO's adjusted for the quarter reflect an $0.08 per share year-over-year reduction from placing the HCR ManorCare lease on cash basis beginning on January 1 of this year as discussed on our February earnings call. Looking at same property performance, our overall year-over-year same-store cash NOI grew at 4% in the second quarter.

Excluding HCR ManorCare and the other 28 assets included in the spin to QCP, HCP RemainCo generated solid year-over-year same-store cash NOI growth of 4.4% for the quarter, led by strong leasing momentum in Life Science which grew at 8.6% driven by the burn-off of rent abatements, contractual rent steps and lease-up activities bringing occupancy to a new all-time high of 98.7%, and strong RIDEA growth of 5.6% in the quarter which Justin will cover momentarily.

Moving on to dispositions and RIDEA II transactions, we're on track to complete $1.25 billion of dispositions in 2016 inclusive of the previously announced RIDEA II transaction of which $350 million has closed and the remaining $900 million is committed and expected to close by year-end.

As will be further discussed in a moment, proceeds will be used primarily to reduce leverage and recycle into other investments. Significant transactions include $130 million from the sale of a portfolio of five skilled nursing and two assisted living facilities operated by Trilogy which closed in June, $15 million from the monetization of two senior housing development loans during the quarter, $470 million of total proceeds to HCP from the pending RIDEA II joint venture transaction announced last quarter, from selling of 40% stake in debenture for $110 million and raising $360 million of new third-party debt.

Note that this has been revised from our previously disclosed estimate of $740 million due to our decision to reduce the size of the new third-party mortgage debt allowing us to reduce leverage more quickly compared to our previous plan. The transaction is expected to close in the fourth quarter.

The majority of the remaining $600 million of dispositions represents previously announced transactions including Phase I of the Genentech purchase option expected to close November, and the sales of Life Science facility, a Medical Office building, and non-strategic HCR ManorCare assets.

Next, our balance sheet and financing plan. During the quarter, we prepaid $200 million of mortgage debt at 6.6%. Our financial leverage improved by 90 basis points from the prior quarter to 44.6% at the end of the second quarter. And we ended the quarter with $1.2 billion of immediate liquidity from our revolver, plus unrestricted cash.

Now, I'll provide an update on our overall financing plan for HCP and QCP. Our current financing plan anticipates raising up to $3.8 billion of proceeds in aggregate from a combination of, first, $0.9 billion from dispositions and the RIDEA II transaction during the second half of the year as reflected on our guidance, which I just discussed; and second, $2.9 billion not included in our guidance from QCP financing to be distributed to HCP and additional asset sales.

The $3.8 billion of proceeds will be used as follows. First, the repayment of $3.3 billion of debt consisting of $2.4 billion of bonds and secured debt maturities at a 6.3% blended rate representing substantially all scheduled debt maturities until the end of 2018, plus, $0.9 billion currently outstanding under our revolver. And the remaining proceeds of $0.5 billion will be used to finance pending acquisitions during the second half of 2016 totaling $0.2 billion with the remainder used for spin transaction costs, debt prepayment costs and committed development fundings.

Our updated financing plan improves HCP RemainCo's balance sheet relative to our targets communicated last quarter. Our target net debt to EBITDA is expected to improve from 6.6 times to 6.25 times, and our target financial leverage to improve from 45.5% to 43.5%.

Finally, our 2016 guidance. Full year 2016 guidance updated today represents our performance of expectations for the entire HCP portfolio and does not reflect the spin transaction. It does reflect the impact of the $1.25 billion of dispositions inclusive of RIDEA II that I just discussed, our announced investment activities and contractual ramp from HCR ManorCare inclusive of the 3% rent escalator that took effect on April 1.

With that said, HCP's portfolio continues to perform well and we expect our full year 2016 NAREIT FFO to range from $2.72 to $2.78 per share, reflecting $0.08 per share of transaction costs primarily for spin-related professional fees realized before completion, which are expense as incurred, and $0.03 per share of previously announced severance-related charges in the third quarter.

Excluding the transaction cost and the severance-related charges, we are raising FFO as adjusted to $2.83 to $2.89 per share from the previous range of $2.77 to $2.83 per share inclusive of the $0.03 per share gains I described earlier. And we're also raising our FAD guidance to $2.68 to $2.74 per share from the previous range of $2.65 to $2.71 per share. We are reaffirming our overall same-store cash NOI year-over-year growth forecast of 1.5% to 2.5% and are projecting same-store growth for HCP RemainCo's portfolio which primarily consists of private pay Senior Housing, Life Science, and Medical Office assets to increase between 2.3% and 3.3% when excluding the asset that's been spun off to QCP.

While not reflected in our 2016 guidance, the incremental impact from the spin transaction would include transferring approximately $485 million of annual in-place rental income to QCP and prepaying HCP debt using cash proceeds raised by QCP in additional asset sales. Additional future spin transaction related costs, including impacting EPS, and NAREIT FFO will be provided upon completion of the transaction.

Now, let me turn the call over to Justin.

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Thank you, Tom. We had a relatively quiet quarter announcing $111 million of investments in the Life Science segment, bringing our year-to-date total investments to $475 million, substantially all in private pay sectors. But more importantly, let me highlight the performance of the remaining 75% of our portfolio that will anchor HCP's future organic growth and why we believe this portfolio stands up among the best in the industry.

HCP post-spin will have 95% of our income derived from private pay sources across Senior Housing, Life Science, and Medical properties. In Senior Housing, as Tom mentioned, we had another quarter of strong growth in our 70 communities, thanks to our RIDEA portfolio of 5.6%, bringing our year-to-date growth to 7.5%, driven by occupancy improvement of 150 basis points in the quarter, which was 170 basis points above the overall industry. We were also able to achieve strong rate growth of 3.5%, again, ahead of the industry average.

The benefits of our revenue-enhancing capital investments are beginning to take shape, and we feel there is further room to grow in our markets. Our portfolio is positioned in markets with high senior population growth, and has shown resilience to the threats of new supply. Fewer than 15% of our communities have been impacted by recent openings since the start of 2015. Occupancy in our top-five markets improved 100 basis points in the second quarter from prior year to 91%, while growth for the remaining portfolio was even stronger. Our diverse portfolio by geography and care mix allows us to mitigate the concentration risk of new supply and labor challenges.

Although our communities located in our top markets enjoyed NOI growth comparable to our peers, our communities located outside the primary markets enjoyed same-store NOI growth of 13% over the prior year. We firmly believe that quality returns are determined by local market fundamentals, and the execution of the operations.

As Mike mentioned, we value our Brookdale relationship. We are diversified within Brookdale across independent living, assisted living, memory care and continuum care retirement communities and a variety of structures including triple-net leases and RIDEA joint ventures and we are encouraged by the direction of the company. However, we are mindful of the Brookdale concentration post spin to remain focused on the performance management of their communities through the team's efforts. We are focused with Brookdale on finding mutually beneficial ways to address our concentration and improve the overall quality of the portfolio.

On the MOB front, 82% of our properties are located on campus with 95% affiliated with over 200 health systems. One of the hallmark characteristics of our MOB platforms is its consistent and predictable performance, evidenced by having 75% tenant retention rate year-to-date and 2.7% same-store growth outlook for the year at the midpoint.

We are the largest owner and developer of life science real estate on the West Coast concentrated in two of the top three markets in the country were fundamentals continue to be very favorable. We reported another all-time high occupancy and strong same-store outlook for the year at a midpoint of 7.4%. The Cove development in South San Francisco continues to progress well. The Phase I buildings are substantially complete and steel is up on the second phase buildings.

We are excited to welcome our first tenant, Denali Therapeutics, moving in this weekend are – we are on schedule for CytomX Therapeutics to take occupancy in early October. Demand continues to be strong and we look forward to providing further updates in the near future.

Now, I'll cover the HCR ManorCare performance update. For the second quarter of 2016, HCR ManorCare reported normalized EBITDAR of $132 million, bringing the year-to-date total to $263 million. HCR ManorCare's normalized fixed charge coverage ratio for the trailing 12 months was 1.03 times, down 3 basis points from Q1 driven by continued industry headwinds, a weaker flu season, and a 3% rent increase effective in April. Note that fixed charge coverage was also burdened by $9 million of EBITDAR losses from the 33 non-strategic assets that have sold to date.

Upon excluding these EBITDAR losses and the rent associated with the assets, the trailing 12-month normalized fixed charge coverage would have been 1.07 times. As a reminder, there are 17 additional assets that are planned to be sold by early 2017. HCR ManorCare ended the quarter with $174 million of cash and cash equivalents.

Now, I'll turn the call back over to Mike.

Michael Dale McKee - Chairman, President and Chief Executive Officer

Thanks, Justin. Let me provide now an update on the spin transaction and also take the opportunity to introduce Mark Ordan, our designated CEO for QCP, to make some remarks. The executive team for QCP has been assembled and Mark will speak to that in a moment.

We have filed the first amendment to our Form 10. We are in the process with our debt financing for QCP. Market conditions are stable and we're gearing up with our financial advisors, Barclays and Morgan Stanley, to begin formal marketing shortly. We continue to believe firmly that forming QCP represents the superior vehicle with flexibility to unlock significant embedded value in the HCR ManorCare portfolio.

Let me turn it over now to Mark Ordan to give us his perspectives.

Mark Ordan - Senior Advisor, HCP, Inc.

Thank you, Mike. As Mike mentioned, we are progressing in every area necessary to launch the spin of our new company, Quality Care Properties, or QCP. We have a highly experienced management team with Greg Neeb as our President and Chief Investment Officer and Mark Richards as our Chief Financial Officer. I work closely with Greg and Mark for the past decade in several companies, most applicably the turnaround of Sunrise Senior Living where we both owned and operated skilled nursing facilities and a major assisted living and memory care platform.

We have a demonstrated track record of actively managing real estate and healthcare operations with a proven ability to work through challenging situations to reach an optimal outcome for our shareholders. We look forward to leading QCP.

We have also made good progress on forming our board of directors. We will soon be announcing our highly qualified board of six independent directors joining me with experience across the healthcare, real estate, investing, finance, and legal sectors. As Mike mentioned, we are moving along toward arranging our debt financing which will be in place for the spin, and we will then be able to speak specifically to the debt cost and structure.

QCP will emerge with an appropriate capital structure to support our business strategy. We will be a major player in a vital, irreplaceable, and growing sector within healthcare. At its inception, QCP will own a portfolio of 338 properties diversified across 30 states, primarily consisting of post-acute skilled nursing and private pay senior housing facilities operated by HCR ManorCare. QCP's in-place rental income will be approximately $485 million, and we estimate our annual G&A run rate to be just over $20 million.

Our near-term goal will be to manage actively our portfolio and relationship with HCR ManorCare in order to develop a comprehensive solution that will unlock the real estate value in the portfolio. We have a wide variety of alternatives that we can pursue, and we will work with HCR ManorCare's management team to improve the portfolio's operating performance and lease coverage.

The QCP dividend of course will be set by our independent board. I believe that given our high tenant concentration and one operator with lease coverage that has declined in recent periods, it will be most important for QCP to build that near-term liquidity. Therefore, it's my expectation that we will most likely begin with a low to modest dividend. We will seek to maximize value for investors through total shareholder return. Of course, we'll have the option to grow into a higher dividend level over time as lease coverage stabilizes.

I'll conclude by saying that I'm very pleased by the excellent collaboration among my team and the HCP board, management team and advisers to launch a first-class company which will unlock value for HCP and future QCP shareholders. In my role as adviser to HCP, I've been able to see firsthand the company's careful determination to build its next chapter. Our time together has been a pleasure and we all look forward to the launch of QCP and to rolling up our sleeves to seek a comprehensive solution with HCR ManorCare. We look forward to meeting with our investors and potential investors in the coming weeks and months.

Mike?

Michael Dale McKee - Chairman, President and Chief Executive Officer

Thanks, Mark. In closing, let me summarize a few important points. Our spin is on track and the financing process is underway. The remaining 75% of our portfolio has continued to perform very well, with all sectors producing strong growth. We're happy with our partnership with Brookdale and the growth that our RIDEA portfolio has achieved. And we will continue to work with them to identify ways to address the concentration in a way that is strategic for both companies.

We maintain an investment grade balance sheet and have plans in place to improve our leverage profile further. And most importantly, we have assembled an incredibly talented team that will be able to drive value for our shareholders. More to come on this topic in the coming months as we bring HCP 3.0 forward.

With that, I will turn it back to the operator to open the line for questions. Thank you.

Question-and-Answer Session

Operator

Ladies and gentlemen, we'll now begin the question-and-answer session. Our first question today comes from Vikram Malhotra from Morgan Stanley. Please go ahead with your question.

Landon Park - Morgan Stanley & Co. LLC

Hi, guys. This is Landon Park on for Vikram. Just wondering if we could start out talking about Brookdale a bit more and the triple-net senior housing portfolio. Just how are you approaching that? Several of the buckets seem to move down in terms of coverage if you look at Sunrise. And then more specifically on Brookdale, the negotiations that they say that you're in regarding some of their underperforming assets. And then just longer term, how you're approaching the risk in that portfolio.

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Hi. This is Justin. We mentioned on our last call that we were in discussions with Brookdale regarding 25 triple-net assets and those assets are in fact a drag on the triple-net portfolio. I'll note that while we're in negotiations, I think that when we come out of this, there'll be winners on both sides of the table, so we've been taking our time trying to get transaction that creates a win for HCP and that's comfortable for Brookdale as well.

And if you look at their overall company, we're encouraged by the new team that's in place. There's a lot of focus on refining systems, putting new controls in place. They've reorganized the company in terms of their oversight over the field. You probably noted, if you follow Brookdale, a lot of confidence coming from the management team through their Investor Day and on their earnings call today. So we're encouraged by the overall performance of the company.

Meanwhile, we're mindful of the concentration that HCP will have, pre-spin around 25% concentrated, post-spin, we go to around 34%. Mike mentioned in his prepared remarks that it will be a focus for us. We think that it's ongoing discussions with Brookdale to call the portfolio, can help the concentration and ultimately help the credit quality of the lease moving forward. And then, of course, over time, by growing in other asset classes and what other operators will be able to address the concentration as well.

Landon Park - Morgan Stanley & Co. LLC

Okay. And then just on some of the other buckets within triple-net Senior Housing, such as Sunrise and the other bucket also ticked below 1 times coverage it looked like.

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Yeah, Sunrise had some slowness in entrance fee sales. We think that'll pick up throughout the rest of the year. I feel comfortable with their performance moving forward. The other bucket we're addressing in a number of ways. We have some assets that are being sold back to operators. We have some transitions where we're moving to new operators. And then we've also converted some triple net lease assets into RIDEA relationships. And net, we think that's neutral financially, but ultimately the assets are going to be in better hands.

Landon Park - Morgan Stanley & Co. LLC

Okay. And can you just clarify on the RIDEA II sale, the change in proceeds there and exactly what's happening there?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

I'll start quick and I'll hand it over to Tom. I just wanted to note that the transaction itself from an overall economic standpoint, has not changed. When we made that trade, we agreed to a price that supported a 6.5% cap on a trailing basis. And so the equity payment from our partner has not changed. And I'll hand it to Tom.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah, Landon. So what we're looking at, as Justin indicated, regardless of how we finance it, we still have our same share in the real estate in that joint venture. And it is at a 6.5% trailing cap rate. And, again, so that part doesn't change. What has changed is how we're financing the entity.

So, we have this partnership along with another one where we have partners that would like to receive some proceeds. And we don't prefer to receive proceeds at the HCP level because we're more geared toward wanting to bring our leverage down more rapidly and improve our net debt to EBITDA. So the way to accomplish that is to put in place third-party debt for the partners' share of that financing and then we provide debt at the same rate for our share, which gets eliminated in consolidation as if that debt doesn't even exist from our perspective. So our financial position remains unchanged. So we're doing that with a couple of our partnerships.

We also have a GBP revolver outstanding for $450 million. We intend to prepay that because there's no prepayment penalties on that. And we can reduce our leverage fairly substantially. That's where we come up with those leverage numbers that I spoke to in the script of coming somewhere in the vicinity of 45.5% to 46% leverage post-spin, bringing it down to 43.5%. And from 6.6 times net debt-to-EBITDA down to 6.25 times net debt-to-EBITDA is that series of moves.

One last thing I'd add is in prepayment of that GBP debt, of course we have to pay attention to the hedging that we have on our GBP investments. So we'd enter into a simple cross-currency swap against one of our unsecured notes so that we stay hedged. So that's how we're thinking about the revised financing plan.

Landon Park - Morgan Stanley & Co. LLC

Great. Thank you very much.

Michael Dale McKee - Chairman, President and Chief Executive Officer

You bet.

Operator

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

Jordan Sadler - KeyBanc Capital Markets, Inc.

Thank you, everybody. And good morning. Welcome back, Tom.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yes. Thank you.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Sure. My question is regarding the $2.9 billion figure you identified from dispose and the dividend back from QCP. Is there any way you can break that out for us at this point?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Fair question, but the answer is, no, we really can't. It would be premature. We're working right now on the financing portion for QCP. And over the coming weeks, we'll have a better idea of exactly what those terms will look like and the amounts. And then the corresponding amount to add up to the amount of proceeds that we've spoken to will come through non-core sales out of our portfolio. So either way, we're in fine shape to have the proceeds that we need. But the make-up of the two components is yet to be determined based on how the markets look.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Okay. But that $2.9 million includes basically the total amount of proceeds that will be received from QCP by HCP?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

That's correct. What happens is QCP obtains the funding in the form of those – of that debt, and it makes a distribution of those proceeds back to HCP. So, we receive those proceeds, plus then we have noncore sales to make up the difference.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Great. Okay. I'm just obviously trying to back into the implied valuation.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah. I understand.

Jordan Sadler - KeyBanc Capital Markets, Inc.

So, my other question regarding the coverage on HCR, Justin, you gave it ex the 33. Can you give it to us ex the 17 as well?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Let me just step back and talk about the coverage but also the performance outlook for HCR. You might remember that we gave a sensitivity range at the beginning of the year that started at $505 million and went to $555 million, and that's the EBITDAR at the company level. At this time, as we look ahead, there's some pluses in the second half of the year. There's a 2% plus Medicare increase for skilled nursing and hospice. Seasonally, Q4 is generally strong, although that's not always the case. So, as we've looked at that and incorporated feedback from the company, we point to the lower end of that range at this point in time, and a corresponding fixed charge cover would be 1.07 or 1.10.

If you take out the impact that was picked up from the asset sales, so the drag from the asset sales, you're about at 1.04. Another way to look at it, though, is that we have more assets sales to go. There's about $65 million more in sales coming, 10 are under contract, total proceeds we estimate to be around $54 million, and then we have another 7 that will pick up the remaining amounts. And we expect the 10 to close by year end and then the remaining amounts to close in the first quarter. But the timing of that sale can help us to get to that 1.1 cover.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Okay. That's helpful. Thank you. And just one clarification, if I may. The target net debt you mentioned EBITDA, Tom, is 6.6 times. Is that a pro forma number, pro forma to spin?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah. That's pro forma to spin. And keep in mind that...

Jordan Sadler - KeyBanc Capital Markets, Inc.

You'll be at 6.6 times pro forma?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

It would be at 6.6 times. We called it mid 6 times because I think in the last call just to reconcile. But it's about 6.6 times. And then after we complete these financing activities over the next few months, that would drive it back down to the 6.25 times, which is, I mean, frankly, is part of our ongoing efforts and plan to start to, patiently, over the next two years to three years' work our way back towards BBB+ metrics. And that's what we're thinking about as we look at the leverage. And the net debt-to-EBITDA is we're currently at a comfortable BBB. And we intend to take actions through a variety of measures to work our way back towards a BBB+ metrics over the next two years to three years which is where we'd like to land.

Jordan Sadler - KeyBanc Capital Markets, Inc.

Thank you for all the color and the time.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

You bet.

Operator

Our next question comes from Juan Sanabria from Bank of America Merrill Lynch. Please go ahead with your question.

Juan C. Sanabria - Bank of America Merrill Lynch

Hi. Thanks for the time. Just a couple of questions. First on the Life Science portfolio. Could you just give us a sense of how much free rent is still yet to burn off? And any sense of the mark-to-market on the portfolio maturing through 2018 and how we should think about that?

Michael Dale McKee - Chairman, President and Chief Executive Officer

Well, high level, I'm sure you noted that the occupancy is 98.7%. There's been solid growth due to the mark-to-market and also new leasing activity. However, as we look ahead, most of our leases are at market at this point. So, we would anticipate high occupancy but that organic growth due to the mark-to-market leasing would slow down a bit.

Juan C. Sanabria - Bank of America Merrill Lynch

And any color on the free rent burning off, or how much is left?

John Lu - Executive Vice President - Corporate Finance & Investments

Hey, Juan. This is John. On Life Science, when we signed a new lease 7 years, 10 years generally, you have the first few months that's free rent. So, you saw us increase our occupancy every quarter. We have sort of a new all-time high occupancy the last four quarters, five quarters every quarter, so that's going to phase out over time. But generally, in the longer term lease, you have the first few months where you have that rent – free rent, and that's what Tom talked about earlier in his prepared remarks, part of the 8% plus we put this quarter pertained to sort of burn-off of those things. But you'll see that normalize over time. As Justin mentioned, occupancy getting to that pretty high levels.

Juan C. Sanabria - Bank of America Merrill Lynch

Okay. And then, just on the hospital side, what's the driver of the deceleration over the back half of the year that's implied by the guidance that was adjusted down? If you can give us some color on that.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

There was a contractual rent reset that occurred. So, we expect to pick up again next year. You'll see that the growth back on a regular pace.

Juan C. Sanabria - Bank of America Merrill Lynch

And what was the rent reset? What was the coverage and where did it go, I guess where was it from and where did it go to and how big was that?

John Lu - Executive Vice President - Corporate Finance & Investments

Hey, Juan. It's one of the – first of all, our hospital portfolio, as you know, it's pretty small and it's one of the hospital tenants were – what we did was we spread out a rent reduction previously under the old contract. It would've been a one – overall one year period. We spread it out over a longer period of time. And economically speaking, it doesn't change the cash flows under the lease. It's just on a timing standpoint.

So, from 2016 to back half of the year, you saw the cash same-store growth. That's what you noted in terms of midpoint of the range. And we just sort of spread it over a longer period of time, and part of that trickled into the latter half of this year.

Juan C. Sanabria - Bank of America Merrill Lynch

Okay. And just one last quick one. CapEx expectations for the RIDEA portfolio. You talked about seeing some of the benefits from some of the redevelopment CapEx, but what should we expect spend maybe per unit from here?

Michael Dale McKee - Chairman, President and Chief Executive Officer

We're spending between $4,000 and $5,000 a unit, about two-thirds of that is going into major refreshes, the repositioning of the assets. The rest is routine. We're not getting into forecasting for next year, but I would anticipate there'll be some carryover from some projects that are underway. But as you know, we're actually quite pleased with the results we're seeing. We've dug into several of the markets where we've had that projects completed. We tracked the cash flow performance and occupancy of those assets relative to market, and we're finding that we're outperforming. So, there's definitely a net benefit in the early going from this capital expenditures.

However, as we've looked at this and with Tom on board now, we're going to make this a priority topic. We're going to revamp and enhance our internal tracking, and it'll help us to articulate it more clearly, externally as well. In fact, maybe Tom can mention a few of the highlights, and how we're going to approach this.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah. I'll just take a minute on it. When we think about revenue-enhancing CapEx, and Justin and I both worked around this for a long time, so we just need to put in place the review processes and systems to capture returns that we already know are inherent in a lot of work that we're doing, but to put more rigor around it. We think about the type of spend that it is, it's exterior common areas, it's kitchen, bath, FF&E, et cetera. Lot of the stuff might have a 12-year life. It usually requires a fairly high cash-on-cash return in the front end, probably has a average life somewhere in the vicinity of 12 years. We're going to fine-tune this through our discussions.

We're obviously going to want to underwrite to an IRR a certain number of basis points above our WACC to make sure that there's honesty in the projects that we approve, that there is a positive return to our investors. And then I have a view on the impact on the same-store portfolio growth so that, again, we've got a feel for what it does to the numbers.

Now, as you know over time, with these types of programs, the rollover effect occurs and then that becomes a smaller number the same-store impact from it, but these are things that Justin and I and others on the team are going to get underneath and be ready to speak to in the future.

Juan C. Sanabria - Bank of America Merrill Lynch

Thank you very much.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

You bet.

Operator

Our next question comes from Nick Yulico [UBS Securities LLC]. Please go ahead with your question.

Nick Yulico - UBS Securities LLC

Thanks. I just want to go back to Mark who comments on looking at alternatives to work with HCR ManorCare. It seems like the most obvious candidate here would be to eventually reduce the rents and exchange QCP gets more equity in the OpCo HCR ManorCare, but this could result in QCP having to shed its REIT status. So, I guess how are you and the board going to weigh that issue about as an alternative looking to get something in return for a rent cut, but it resulting in you guys maybe having to lose your REIT status?

Mark Ordan - Senior Advisor, HCP, Inc.

Well, by design, QCP has this – as we've said several times the tools and flexibility to work with HCR ManorCare's management team, which we look forward to doing to finding, for lack of a better phrase, a comprehensive solution. So, it could go down the path that you outlined. It could go down several paths but we think that this is a great, long-term value in that portfolio and we look forward to working with ManorCare to unlock that. And our expectation is that we're going to be a REIT and then we'll be able to work out our issues and maintain that REIT status. But that remains to be seen. The key point, I think, from an HCP shareholder is that this is a vehicle that's more suited, especially given our 100% focus on working with ManorCare, this is a vehicle that's more suited to working this out than HCP would have been. So, our shareholders should be able to benefit from both.

Nick Yulico - UBS Securities LLC

Okay. And then going back to your comment about the dividend of QCP being low to modest into build-up near-term liquidity, I mean, what exactly does low to modest mean? I mean, are you referring to an absolute dollar amount, a payout ratio, how should we think about that?

Mark Ordan - Senior Advisor, HCP, Inc.

No, I think I'm referring to a philosophy and getting ahead of myself because our board obviously and our company has not yet established. But I would say that I think it's just good corporate finance to expect that we would start out modestly. I'm talking philosophically to get our footing where we then have room to grow from there. So, I meant nothing more than that. And I certainly could not pinpoint a dollar amount or a payout ratio today.

Nick Yulico - UBS Securities LLC

Okay. Okay. And then I guess, just lastly, I know you're not sort of saying what the – in the past, you said the – HCP has said that the debt could be some sort of five times debt-to-EBITDA type of level for the SpinCo. Is that still the case, and maybe you can talk a little bit more about the types of financing you're trying to do, whether it's secured, leveraged loan financing, and then as we think about ultimately what HCP is doing here, which is raising debt at SpinCo to pay off your debt at HCP of a sort of 6.3% rate, I think you said, is the rate – I mean, is that going to be just the debt for that – is that going to be a neutral event? Is it going to be dilutive? Is it going to be accretive? I mean, how should we think about the rate of what you're trying to raise versus payoff?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Multiple part question. Great question. But let me hit the pieces. Your first question was the 5.0 times, we really stirred out more in the mid-3s, as far as net debt-to-EBITDA based on current rents. And that 5.0 times that you're referencing would be somebody in the Street looking at it and modifying or underwriting a rent at a 1.3 times on the skill than 1.1 times on the assisted net debt. That is not where we're at right now. So I would just start by saying it's more in that mid to upper 3s as to where we'd stand on day one and – but yet to be determined.

As far as the different types of financing that could occur, we'd like a 3. I mean, we could enter into term loans, A and B notes, for instance, CMBS, which really doesn't work that well in skilled space, and of course in this corporate bonds. We have explored all three with our bankers. I think the CMBS probably is not the route to go, it could very well be a combination of term loans and corporate bonds. And we actually do have a path that we're looking at right now but it'd be premature for me to provide you our thoughts on it because I like to see where it plays out over the next couple of weeks.

As far as the rate of repayment of the debt, the 6.3% rate is what I said on my script. So, is that accretive or dilutive? Well, let's put it this way. It comes at, what I would think, a fairly modest prepayment penalty to clear out all of our debt or the vast majority of it for 2016, 2017 and 2018 at the HCP level. It's pretty high level rate debt. And then, we have to see what that debt cost is at the QCP level to look at what it looks like across the combined enterprises not that they won't totally trade separately but when you're just looking at the two together at period zero, so we'll see where that plays out.

The other thing that I would mention is you're probably wondering how did the high yield markets look right now, the fact is they look favorable. So, I'll remind you, when you're comparing to other executions that are out there, that QCP is going to be a REIT and it is backed by a full portfolio of real estate assets. There's been excellent activity over the last couple of weeks, and before that, and that financing's been around LBOs, acquisitions, opportunistic refinancings, et cetera, so these transactions have been with very, very strong demand because investors are putting a lot of dollars to work.

If you go back to the beginning of the year and you look at the single B index, and I'm not saying that's where we're at specifically but we will be below investment grade at QCP. It's a 6 point – I think the number I got yesterday was about 6.7% versus 8.6% at the beginning of the year. So, the markets have been quite favorable and the indications that we get in our preliminary discussions are quite favorable as well.

Nick Yulico - UBS Securities LLC

All right, that's helpful. Thank you, Tom and Mark.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

You bet.

Operator

Our next question comes from Kevin Tyler from Green Street Advisors. Please go ahead with your question.

Kevin Tyler - Green Street Advisors, LLC

Yes, thanks. Tom, just following up on that point when you broke out the leverage answering Nick's question there, I didn't hear you mention anything related to the seller financing meaning HCP extending any financing directly to QCP. I just want to make sure I'm hearing that correctly and understand your thinking on that topic at this point.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah. You heard me correctly. I did not allude to seller financing because as we go out to the market, we're going to see how it all lines out but it's our initial goals of – we'll see if we can get those finance without seller financing. That would be our preference. But at the same time, we have to see what the market holds. We've got a lot of different alternatives that we can consider. So, I don't want to pin us down to anything specific but in the numbers that I gave and the commentary that I provided assume no seller financing.

Kevin Tyler - Green Street Advisors, LLC

Okay. Thanks. And then one other – and maybe it's for you, Mark, on ManorCare. But in light of the Department of Justice settlement or pending settlement that Genesis had announced, I'm wondering what read-through there might be, if any, to the ongoing suit at ManorCare with the DOJ and if there was any update that you could provide on that at this point.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

I guess I'll jump in and take that, and then, Mark, you can add if you want but as we look at the DoJ case, it's still early in the process, just starting discovery. There really is no way of projecting a potential outcome at this point. So, we're already seeing some settlements and they appear to be manageable. So, that's probably all that we can see at this point on that topic.

Kevin Tyler - Green Street Advisors, LLC

Okay. Last one I had, Justin, on the Brookdale portfolio and their results last night, occupancy slid a little bit but management talked about some strength in June. And I'm just wondering in your portfolio, you saw a little bit of decline quarter-over-quarter but did you see similar strength in June? And are you expecting that occupancy will head higher maybe in the back half of the year? Or I'm just curious on the outlook given some competitive pressure on the way?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Now, I think what I'll do is this I'll speak to our expectations in terms of performance in our RIDEA portfolio. And when you take that whole bucket of 70 communities that I spoke to during my prepared remarks, as we look forward, we could see the – although the performance has started out pretty hot in the beginning of the year, we could see the total year coming in around 4% to 5%, which would have been better than our early expectations at the beginning of the year for that same portfolio.

But what you're facing in the second half of the year, you have some new supply in some of our markets. We also have some more labor pressure that we'll face as well. Q3 tends to be a softer quarter seasonally. Brookdale had some remarks on their call that were favorable leading into Q3. But in terms of our RIDEA expectations, we're expecting a solid year at 4% to 5%, but potentially a little bit of a softer back half of the year.

And then in terms of the triple-net portfolio, that performance, to your point, doesn't perfectly track the Brookdale corporate performance, but it's pretty close. So I would really defer to Brookdale's management commentary in terms of the overall company expectations as it relates to our triple-net portfolio.

Kevin Tyler - Green Street Advisors, LLC

Appreciate it.

Operator

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

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

Hi. Good afternoon.

Michael Dale McKee - Chairman, President and Chief Executive Officer

Hello there.

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

Hey, there. You've got a contemplated leverage and you know that you're looking at maybe secured and unsecured corporate debt for the SpinCo. So at what ranges of rates do you think you could get on to each of those pieces?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah, I'd ask the same question if I were in your shoes, but we're in the middle of the process right now, some of us folks at HCP and Mark and our bankers. And although I'd like to tell you where we're at, it would be premature. We're going to have to hold that one back until we get out and we market and have a little closer feel for where we're at.

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

Okay. So it's really too early to say what the appetite from investors would be?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah. I'll put it this way. The appetite from investors at this point has been very favorable. We feel confident. But until we get closer, we probably can't comment a whole lot more than that.

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

Okay then. Let's think about SG&A. You said at spin maybe $21 million to $23 million on, what was it, $485 million of rent. That's just south of 5% of revenue. Is that fully baked to include stock comp and other costs that are typically in G&A?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yes.

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Yes.

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

Okay. And then just thinking about your dividend policy on the spin knowing that it's going to be set by the board. What are some good marketing comps that are helping you to determine what an appropriate dividend is there?

Mark Ordan - Senior Advisor, HCP, Inc.

I think, like any company, we would look at our cash flow, our expected cash flow since QCP's whole reason for being is to work out a full solution with its one tenant. I think that's a decision that the board will make. And as I said earlier, it's a Corporate Finance 101 decision. We want to build cash and, once we get a sense of our stability, set our dividend policy. I don't think there's an exact comp for this. It's a little bit of a one-off.

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

All right. Justin, just thinking about the Senior Housing portfolio. You mentioned maybe some supply and some wage pressure in the back half. Can you point to any specific markets that you're seeing supply in and then how much of your NOI could or would be impacted?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Yeah, about 20% of our NOI in the RIDEA portfolio is exposed to new supply, or 15% of our communities. We've had pretty good results where we have faced new supply to date. Occupancy typically comes under pressure. We've had an exception to that where we had an independent living portfolio that was concentrated in Houston, for instance. It performed quite well.

What tends to happen is you'll have occupancy be impacted in the market and, therefore, in your community within that market, but rate tends to hold. So we're still seeing EBITDA growth or NOI growth in communities that are impacted by new supply to date. However, as we look forward and try to predict the performance, we're going to be conservative and anticipate some impact.

On the wage front, we found it really interesting that our communities that are located in the top 31 MSAs are actually more impacted by wage increases than our secondary markets. In fact, they're substantially more impacted. So, there's pressure there as well.

Chad Vanacore - Stifel, Nicolaus & Co., Inc.

All right. Appreciate all the color. Thanks.

Michael Dale McKee - Chairman, President and Chief Executive Officer

You bet.

Operator

Our next question comes from Smedes Rose from Citi. Please go ahead with your question.

Smedes Rose - Citigroup Global Markets, Inc. (Broker)

Hi. Thanks. I wanted to ask just about the employment contract that was detailed in your Form 10 this morning, for Mark. While we know that attracting executives costs money, it just seems like a lot of the payments and the size are quite high. And I wanted to ask you if you could highlight your thinking around the agreement. And particularly, it seems like there's an opportunity to make several million dollars quite early on in employment. And just be interested to hear some of your thoughts around this.

Mark Ordan - Senior Advisor, HCP, Inc.

Well, this is Mark. I'd say that I think if you look at the contract, it's overwhelmingly weighted toward creating upside in the portfolio. So that was what attracted me to this. This is a long-term value play.

Michael Dale McKee - Chairman, President and Chief Executive Officer

This is Mike McKee. I'd just emphasize the same thing. We are delighted that, one, we have Mark and his team available. As he said and I would reiterate, it's been a delight to work with them and I think that HCR ManorCare will find a real partner to work with. There's no question that a comprehensive plan, some new path needs to be developed and Mark and his team are the right counterparty to do that. And we did, in negotiating compensation, as Mark mentioned, highly weight it towards incentives. So as shareholder value is developed, he has an opportunity to be aligned with that objective.

So we're glad that's in place. We are glad we could put it in the Form 10. And we're looking forward to getting the companies, the rest of its governance and so forth put together over the next six weeks or eight weeks. And they'll be ready to launch as a new public company.

Smedes Rose - Citigroup Global Markets, Inc. (Broker)

Okay. Thanks for that. I wanted to ask you, too, you mentioned some thoughts around the dividend from the ManorCare spin. Could you just talk about your goals of reducing leverage at HCP and how you think about the dividend at HCP, which will likely have to be reset? Is that an opportunity to reduce your payout ratio? Do you have any targets in mind to achieve your targeted leverage levels more quickly?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Well, again, this is Tom. My thinking and talking with the senior management team here is that we bring this leverage back to the BBB+ levels with some degree of patience over time in a variety of ways. So, it's not something that we have to do quickly. And because obviously you can take actions and then move it very quickly, but then that puts pressure on FAD and cash flow growth and dividend growth. So, that's not the intent.

As we think about dividend, of course I'll start by saying that's a board decision. But at the same time, we're at about 0.85 times coverage, somewhere in that vicinity. And as we think forward, there's nothing that would lead me to believe at this point that you should expect a dramatic change from that based on the post-spin HCP entity. But, again, I will say again that that's a final decision of the board and there will be further conversations on that topic.

Smedes Rose - Citigroup Global Markets, Inc. (Broker)

Okay. Thank you.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

You bet.

Operator

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

Michael Carroll - RBC Capital Markets LLC

Yes, thanks. Justin, real quick on HCR ManorCare. I believe earlier you indicated that operating trends are trending towards the lower end of the previous 2016 outlook. What's driving this slower performance that maybe wasn't expected at the start of the year?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Well, actually what I was pointing to was the range that we gave which is $505 million to $555 million. And that if you look at the $263 million that they had year-to-date through the first half of the year and then consider some pluses, which is the Medicare increases and hospice and SNF, typical Q4 seasonal lift. Although we know from recent memory that doesn't always come true for us. And then, the timing of the remaining assets sales that there's some support for performance that could be a little bit better than lower end of the range and could be close to middle part of the range.

Michael Carroll - RBC Capital Markets LLC

Okay. You're actually expecting it to be in the midpoint of that range, just maybe a little bit higher?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

It could be middle or lower.

Michael Carroll - RBC Capital Markets LLC

Okay. Then how much of these results are actually being impacted by legal and regulatory defense costs that was mentioned at the start of the year? Is that within expectations?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

Yes. Those are within expectations.

Michael Carroll - RBC Capital Markets LLC

Okay. And then, last question. Can you kind of give us an update on the company's investment strategy and how that's evolving? I know in the second quarter, it looks like you bought or had some focus on somewhat medical office buildings and the life science asset and a new market for you. I mean, do you expand – plan on expanding that life science portfolio, do you want to go into different markets? If so, what markets are you interested in?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah. Let me point initially to the inventor behavior we've had year-to-date, and then a little bit about the go-forward, but if you look at – to your point, what we've done year-to-date, we've had investments, we have dispositions. But two-thirds of those investments, just short of two-thirds was directed to the life science segment, sort of moving to private pay assets and core markets. We have development, we have redevelopment as well, very high demand in San Diego and at our Bay Area markets.

And then, if you look at the dispositions, about two-thirds of those were skilled nursing facilities. So, you have a relationship where you're moving away from government reimbursement, you're moving into private pay assets. And if you look ahead at HCP, as I mentioned, and as Mike mentioned, on a regular basis, we're going to have a portfolio that represents the 75% that's left post spin that's 95% private pay.

And so, as we look forward, we're going to move into those segments which are senior housing, life science, medical office building. We'll have more on the plan on upcoming calls. Certainly, there's a lot of discussions underway in terms of – as Mike has pointed out, HCP 3.0, what that's going to look like moving forward. But what we're most excited about is that the starting point is a very high-quality portfolio and a game plan to reposition the balance sheet. And then we'll have an investment thesis that will clearly articulate in the future.

Michael Carroll - RBC Capital Markets LLC

Okay, great. Thank you.

Operator

Our next question comes from Rich Anderson from Mizuho Securities. Please go ahead with your question.

Richard Charles Anderson - Mizuho Securities USA, Inc.

Thanks and good morning up there. So, Tom Herzog, you mentioned the mid-3s multiple on current rents. I'm curious, will lenders be willing to make a deal like that when you consider the 0.83 times facility coverage and declining situation there? Or does there have to be what we would estimate a 35% to 40% rent cut first before you can actually come to get a commitment to a financing package? And maybe that question go for Mark or Tom or anybody.

Mark Ordan - Senior Advisor, HCP, Inc.

Well, I'll jump in. It's Mark. We are confident that we'll be able to finance these the way that Tom outlined before. So, I think that people understand the value of the real estate, the strength that's in the portfolio and that despite the fact that recent trends have been negative that this is a clearly financeable company.

Richard Charles Anderson - Mizuho Securities USA, Inc.

So, you expect the financing to happen on current rents initially?

Mark Ordan - Senior Advisor, HCP, Inc.

I'd say that anybody looking at the real estate is going to think about a range of possible rents when they...

Richard Charles Anderson - Mizuho Securities USA, Inc.

Okay.

Mark Ordan - Senior Advisor, HCP, Inc.

...consider the financing. And our expectation, I think, is reasonable that we're going to size it with that range in mind. So, I don't think...

Richard Charles Anderson - Mizuho Securities USA, Inc.

Okay.

Mark Ordan - Senior Advisor, HCP, Inc.

...I don't really see a problem.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

I'd just add one thing, Rich. You mentioned the facility level coverage. The other thing that as investors look at this financing, you got to keep in mind that what is behind the master lease is also the hospice operations which threw off a lot of cash flow and give additional value to the lease arrangement itself. And that's part of what Mark is alluding to when he said there's a range of potential outcomes and within his various opportunities, things that he'll be considering as he goes forward as well. But those are the conversations we have with lenders.

Richard Charles Anderson - Mizuho Securities USA, Inc.

Okay. And so, will a commitment – you mentioned fourth quarter spin actual transaction which I think is a little bit delay. I think I remember it was supposed to happen in September but I'm willing to look past that a few months. But, I mean, will the commitment come first before the actual transaction or the reverse or you don't know right now?

Mark Ordan - Senior Advisor, HCP, Inc.

I would – and you mean the commitment on the debt.

Richard Charles Anderson - Mizuho Securities USA, Inc.

Yes.

Mark Ordan - Senior Advisor, HCP, Inc.

It's possible that it will. We could do it either way at our option. And that's something that we have been in discussions on both internally and as we visit with our banks. So, it could go either direction.

Richard Charles Anderson - Mizuho Securities USA, Inc.

Okay. And then last. My second question, if we can assume that's a one-question question. On the dividend, you kind of probably have some adjustment to make at HCP RemainCo. Tom, we talked a little bit about this Aristocrat status. Do you have any sense of the shareholder base that is kind of tied to that and benchmarks to that and would be natural sellers of your stock, assuming you kind of have to cut the dividend?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Yeah, we did look at that. And there was a study done on that before I came in. What was concluded, it is a fairly small percentage of the investor base, and we do not believe it's going to have a significant impact on our company.

Richard Charles Anderson - Mizuho Securities USA, Inc.

Okay. Fair enough. Thanks.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

You bet. Thanks, Rich.

Operator

Our next question comes from John Kim from BMO Capital Markets.

John P. Kim - BMO Capital Markets (United States)

Thanks. Good morning. Thanks for the increased disclosure. I'm going to have a few question on it. So on page 13 of your press release, looking at your full year same-store guidance, I'm just trying to tie that into what you actually accomplished in the first half of the year, and in particular in the senior housing side. So the 1.2% to 2.2% same property cash NOI growth sort of suggests, when you compare this versus page 19, a pretty steep decline in sequential growth. Am I seeing this the right way and what would sort of determine that?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

John, I'll do just the initial part, this is Justin. In senior housing, you might remember that we had previously negotiated contractual rent reduction with Brookdale. And so you're seeing that impact, the senior housing growth overall throughout this year. And that was related to a multipart transaction that had occurred previously where we form the RIDEA structure with them.

John P. Kim - BMO Capital Markets (United States)

Okay. I thought that was reflected in your FAD in your same-store numbers when you're saying it's in the same-store pool?

John Lu - Executive Vice President - Corporate Finance & Investments

Yeah, John. Those assets, we didn't – obviously didn't take out from our same-store. It does – it is reflecting our FAD metrics. That was a multipart transaction back in 2014 where we gave away an escalator instead of writing a check. We retired a number of – 49 purchase options, some of which were in the money. And also, we converted 49 properties out of the triple-net lease into RIDEA structure. We got lease termination fees.

I don't want to go back too far back in the history, but those were the 2014 transaction that we've previously talked about. Now, if you look at the triple-net senior housing growth on the same-store basis, it is burdened by the rent reduction adjustment I alluded to. That's why you see it sort of in the – with the one handle. Typically, you would expect triple-net escalators to be in that sort of mid-2% handles. And so, it's burdened by it.

John P. Kim - BMO Capital Markets (United States)

Okay. On the topic of purchase options, can you just provide some more color on the Genentech assets which the purchase options totaled $581 million? Maybe perhaps what the cap rate is or how you determine the value of the assets upon sale?

John Lu - Executive Vice President - Corporate Finance & Investments

Those purchase options came as part of the Slough acquisition back in 2007. Those were already in the lease. And the purchase price, the strike price on those options were fixed. So, they were just part of the contract. And you're right, John, it's about the dollar amount that you talked about. The first phase is going to close that Tom talked about in his prepared remarks. $310 million will close in November of this year. And then, the rest of it will come in 2018. I believe it's the third quarter or fourth quarter of 2018.

John P. Kim - BMO Capital Markets (United States)

So, any disclosure on the cap rate or maybe your IRR or return on capital?

John Lu - Executive Vice President - Corporate Finance & Investments

On a cap rate basis, if you look at it, again, it's a fixed price purchase price but on a forward 12-month rent, it's about 8% yield on forward 12-month rent and on a $1 per square foot basis again depending on which phase you look at on a blended basis about $730 a foot, give or take, and that's actually similar in the range of where we're building The Cove at depending on the TI package you're looking at.

John P. Kim - BMO Capital Markets (United States)

Can you remind us if there is any other purchase options in the life science or MOB portfolio outside of the Genentech purchase option?

John Lu - Executive Vice President - Corporate Finance & Investments

Nothing meaningful, John.

John P. Kim - BMO Capital Markets (United States)

Okay. And then a final question, maybe for Mike. Any views on changing the corporate name of HCP, something that maybe reflects the new direction of the company?

Michael Dale McKee - Chairman, President and Chief Executive Officer

No, we have not talked about that and don't expect to do it. We're pretty proud of HCP. We've had a challenging couple of years here but this is a great franchise. We're glad to be a part of it. And as I say, we see the next generation here with a lot of optimism coming together. So, no, there's no plan to change the name but certainly we're looking for the next five years to be working of a very strong base, a good balance sheet and a lot of opportunities.

So, there's been a lot of work that's going on to get us where we are. There's still work to go but we appreciate very much the confidence that the market has given us as we gone through the last couple of months and we're pretty confident we can build on that.

John P. Kim - BMO Capital Markets (United States)

Great. Thank you.

Operator

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

Michael W. Mueller - JPMorgan Securities LLC

Yes. Hi. I guess in terms of post-spin, thinking about that, should we expect any notable change in HCP's G&A on a go-forward basis?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

It's not going to be – there is some percentage that transfers with it, but not a huge change.

Michael W. Mueller - JPMorgan Securities LLC

Okay. And then Tom, when you were talking about the dividend before, I think you said you don't expect a dramatic change from where you are now. Were you talking about the actual dividend being paid, or were you talking about the coverage level, FFO payouts. Or can you just clarify that?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

No. I was talking about some type of a payout ratio, because obviously when we have a portion of our assets transferred to QCP, there is going to be a reset within that from an FFO, FAD perspective and corresponding dividend perspective. And with that, the dividend will be reset. But again, I'll remind you that the final decision on the dividend will be a board decision.

Michael W. Mueller - JPMorgan Securities LLC

Got it. Okay. But your comments, it was ratio-based when you were saying that?

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

It was based on payout ratio that there could be some expectation that we might see it around that.

Michael W. Mueller - JPMorgan Securities LLC

Got it. Okay. That was it. Thank you.

Thomas M. Herzog - Chief Financial Officer & Executive Vice President

Thank you.

Operator

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

Omotayo Tejumade Okusanya - Jefferies LLC

Hi. Good afternoon, everyone. Just quick question around guidance. I may have missed this earlier. But again, you had a nice bump in guidance but your same-store NOI, your cash same-store NOI growth assumptions are still the same. So I'm just trying to reconcile where the increase is coming from.

Michael Dale McKee - Chairman, President and Chief Executive Officer

Yeah, fair question. We were wondering if someone's going to ask that, Tayo. Yeah. We had the bump in guidance, let's just take the FFO adjusted was $0.03 on those senior housing development loans that was picked up.

We had about – in the quarter and then we had – or again, for the guidance, and then we had about $2.5 to improve portfolio performance and timing of capital recycle and call that split 50:50, maybe $0.01 to $0.015 each. And then you might wonder well, wait a minute, if you had better portfolio performance, why didn't that affect same property performance and that's because it was generated from assets outside of the same store pool. Specifically, like in life science, The Cove where there will be development earn-in and the like, which, of course, would be an expectation as those assets come online.

Omotayo Tejumade Okusanya - Jefferies LLC

Okay. That's actually very helpful to know. Also, another question. I don't know whether – just from an acquisition perspective, I don't know whether you guys took a look at the Ventas acquisition of the Wexford portfolio. And you guys have been pretty bullish on life sciences for quite a while. And it seemed like it could have been an interesting opportunity. And if you did, kind of why didn't you pull the trigger?

J. Justin Hutchens - Executive Vice President and Chief Investment Officer

This is Justin. Certainly, we're aware of their acquisition and it wouldn't be appropriate in our view to comment on our peers' transaction. Certainly, we're committed to life science and we have a track record of growing and leasing up and pushing the cash flows mark-to-market over time in San Francisco and San Diego. Those have been our primary focus and we've been very committed to those markets. You may have noted one of our dispositions was a one-off we had in Cambridge, which is a core life science market. It just hasn't been a core life science market for HCP. So, we've really focused on expanding our presence in the two core markets where we currently reside. I certainly wouldn't rule out other markets in the future by any means, and expect life science to be a significant part of our business moving forward.

Omotayo Tejumade Okusanya - Jefferies LLC

Okay. Great. Thank you.

Michael Dale McKee - Chairman, President and Chief Executive Officer

Thanks, Tayo.

Operator

Ladies and gentlemen, we've reached the end of today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

Michael Dale McKee - Chairman, President and Chief Executive Officer

So, we really appreciate the call today. There's obviously a lot in motion at HCP. By our next call, we fully expect that QCP will be a freestanding company. HCP will have made tangible progress on our deleveraging and concentration targets. We'll then be in a growth mode, but not in a scale race. It will be balanced and targeted to total shareholder return. Our focus continues to be on team, on balance sheet, on our asset and tenant mix, and on building from a strong foundation.

And as I mentioned a minute ago, we really do appreciate the confidence that the market has shown over the last several months. We know there's been a lot of change, but I hope the explanation earlier in the call gives some context to what that's all about. So, thank you for participating. Good day. We look forward to talking to you further. Thank you.

Operator

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

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