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Healthcare Realty Trust Inc. (NYSE:HR)

Q1 2008 Earnings Call

May 6, 2008 10:00 am ET

Executives

David Emery - CEO

Scott Holmes - CFO

Doug Whitman - COO

Bethany Mancini and Gabrielle Andres - Corporate Communications

Analysts

Herb Tinger - Morgan Keegan

Kristin Brown - Deutsche Bank

Jerry Doctrow - Stifel Nicolaus

Jim Sullivan - Green Street Advisors

Operator

Welcome to the Healthcare Realty first quarter results conference call. (Operator Instructions)

I would now like to turn the call over to our host, the CEO, Mr. David Emery. Mr. Emery, you may begin.

David Emery

Thank you. Good morning, everyone. Joining us on the call today is Scott Holmes, Chief Financial Officer; Doug Whitman, Chief Operating Officer; and Bethany Mancini and Gabrielle Andres in Communication. Ms. Andres will now read the disclaimer.

Gabrielle Andres

Thank you. Except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve risks and uncertainties. These risks and uncertainties are more specifically discussed in the Form 10-K filed with the SEC for the year-ended December 31, 2007 and the Form 10-Q filed with the SEC for the quarter-ended March 31, 2008. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material.

The matters discussed in this call may also contain certain non-GAAP financial measures, such as funds from operations, FFO, or FFO per share, funds available for distribution, FAD, or FAD per share. A reconciliation of these measures to the most comparable GAAP financial measures maybe found in the company's earning press release for the first quarter ended March 31, 2008. The company's earnings press release, supplemental information, Form 10-Q and 10-K, are available on the company's website. David?

David Emery

Thank you. First a few brief comments. The first quarter 2008 progressed similarly to the last several quarters, with our focused to enhance the company's portfolio and long-term growth prospects. There is the development and selective acquisitions. I'm pleased with our progress in identifying development opportunities and the success that our development group has shown in executing the process.

Also, we continue to pursue acquisitions that are at a yield greater than our long-term weighted average cost to capital. There definitely has been an absence in the leverage buyer and developer. It seems to us that the cap rates are beginning to adjust the levels that should facilitate accretive investments. Most promising are probably in middle America markets with solid healthcare fundamentals.

Cap rates are still a mosaic of liquidity, geography, size, growth and fungibility. We've seen cap rates as low as 6% in California to as high as 8.5% in Wisconsin. Even with acquisition opportunities, we continue to view the development pipeline as our primary growth driver, albeit several quarters out.

Finally, we still believe that the simple attributes and dynamics of the portfolio continue to grab the company's market valuations. These quality assets in the fastest growing sector of healthcare, with minimal impact related to reimbursement changes, and a diverse tenant base, each averaging about 3500 square feet, support a solid long-term low-risk investment model.

Now I'm going to turn it over to Ms. Mancini to give us an update on our view of the trends in the healthcare. Bethany?

Bethany Mancini

Thank you, David. The medical office outpatient sector continues to be attractive to investors for its private pay characteristics and limited risks from changes in government healthcare policy.

As healthcare services improved with technology, the population ages in both public and private payers continue to emphasize lower cost settings. We expect our outpatient facilities and new developments to remain integral to hospital systems' growth strategies.

Medial reimbursement has been positive for most providers in 2008. Medicare update increased 4.3% on average per acute care hospital and 0.5% per physician. The CMS' regulatory actions of late, targeting incentive to treat patients and profitable facility settings, have largely avoided changing payment at the physician office level. And Congress continues to provide for increases to physicians largely because of politicians' sensitivity to patients who received their primary care from physicians.

A temporary provision in December's Medicare bill replaced a formulated 10.6% cut to the physician fee schedule with an increase that will last through June 2008. Additional Medicare legislation has been promised in Congress by June that would likely extend an increase in physician rate for 18 months.

Inpatient rehab hospitals also received regulatory release in the December Medicare bill, lowering the admissions criteria to 60% that must have at least one of 13 diagnoses. This should allow for stabilization in inpatient rehab patient volumes, although the bill also kept payments level from the second quarter 2008 through 2009.

The President's 2009 budget proposal released in February, called for $200 billion in cuts to Medicare and Medicaid spending growth over five years including a freeze to most provider inflationary updates. These changes were recommended in part to address this year's Medical Trustees report, which stated that Medicare's trust fund for inpatient services will reach insolvency in 2019 unchanged from last year's projections.

Well, there is consensus on Capital Hill that healthcare spending growth needs to be more in line with GDP growth. There is not the mindset to balance the budget that existed back in 1997 when the last significant Medicare reform legislation was passed. The 11 years to insolvency for Medicare is not far off of the 13-year median since 1985, and is unlikely to cause Congress to act on the President's budget, especially in election year.

Further supporting the near-term outlook for stable Medicare payments, the latest CMS national healthcare spending data released in March predicted a steady rate of 6.7% annual growth through 2017, slightly lower than last year's projection.

CMS recently released a proposed payment updates for acute care services for 2009, with an overall increase for acute care hospitals of 4.1%. Other provider updates should be flat to positive, with other reforms to programs like Medicare Advantage and pay-for-performance helping to offset the cost of increasing payments to physicians.

Longer-term, any change in government healthcare policy will likely depend on several factors, including the growth in the economy and political party that has the presidency and majority in Congress.

As mentioned last quarter, potential reforms from both Democrat and Republican presidential candidates are expected to improve hospital revenues and lower bad debt expense. However, widespread reforms are likely several years out at best, with implementation even further out. Either side facing significant opposition, it is more probable that incremental change will occur over time and should allow the healthcare industry to adjust to whatever changes may come, as it has throughout its 40-year history of government reimbursement.

It is important to note that only 34% of healthcare spending is funded by Medicare and Medicaid, making the primary force behind healthcare services, the private sector.

At healthcare services grow significant over the next 20 years, health system who are mindful of their capital resources, and strategically restructured their services and facility to remain competitive will benefit from this growth. We believe Healthcare Realty will be positioned to meet this rising needs for new outpatient service facilities and the provision of capital to the healthcare industry. David?

David Emery

Thank you, Beth. Now over to Mr. Holmes. Scott?

Scott Holmes

Thank you, David. Before addressing operating results for the first quarter, I would like to direct everyone's attention to the first quarter Form 10-Q, which contains financial statements and related footnotes, and management's discussion and analysis of results of operations, liquidity and capital resources and other matters which was filed yesterday concurrently with the earnings press release.

The Form 10-Q is the company's primary disclosure document. At the same time, the company furnished information on Form 8-K to supplement the disclosures in the Form 10-Q, specifically regarding real estate investments, construction and progress and developments, lease maturities, joint venture investments, same facility growth and other pertinent corporate information.

Now a few comments on balance sheet matters. The company continues to maintain a simple capital structure and had no capital markets transactions during the first quarter. In April, the company amended its credit facility to modify certain financial covenants which has the effect of providing the company full borrowing capacity under the facility. The company's leverage ratio is 44.7% at March 31, 2008.

There are no near-term maturities of long-term debt. Presently, management intends to extent its unsecured credit facility to January of 2010, under the existing terms to maintain our financial flexibility, given the current volatility of the public debt markets.

In the last few months, Moody's and Standard & Poor's and Fitch have reaffirmed the company's investment grade ratings with stable outlooks.

Operations produced an FFO per diluted share of $0.39, even with the prior quarter and a FAD per diluted share of $0.44 in the first quarter of 2008, which is up a $0.05 from the prior quarter.

Generally, the changes from the fourth quarter 2007 results to first quarter 2008 results are caused by non-recurring items. Revenues for the first quarter of 2008 include a non-recurring item related to a $700,000 lease termination fee included in master lease income.

In G&A, non-recurring items include the FAS 123R, non-cash charge of $200,000 which is made annually but only in the first quarter of each year, and approximately $200,000 of non-cash stock-based compensation expense was recorded in the first quarter which is also non-recurring.

Further, the first quarter included $300,000 of seasonal expense related to the annual report and proxy which will not recur in future quarters of this year. Therefore, the non-recurring revenue item was essentially offset by the non-recurring expense items in G&A resulting in FFO being even with the prior quarter.

As a reminder, by its very nature, development activity and pursuit costs will cause G&A to bounce around, especially considering the company's heightened emphasis on development efforts and pursuits. The FAD increase of the $0.05 per share over the previous quarter resulted from the non-recurring revenue item being cash whereas about half of the offsetting non-recurring G&A expense items were non-cash.

A thorough discussion of operating results for the quarter can be found in management's discussion and analysis of the results of operations included in our Form 10-Q filed yesterday afternoon.

And that concludes my prepared comments. David?

David Emery

Thank you. Now, on to Mr. Whitman and development and investment activity. Doug?

Doug Whitman

Thank you, David. Investor interest in the medical office sector remains strong, with most acquisition opportunities still related to developers and institutional owners selling assets to financial buyers. The volume of transactions for the first quartar is skewed by the sales of a single large West Coast portfolio. Without that transaction, the dollar volume for the first quarter was about $850 million, which is about half of the amount of transactions in early 2007. The first quarter sales price per square foot without that large West Coast portfolio fell slightly from last year.

Cap rates have increased modestly above 2007 rates, which is a trend we expect to continue throughout 2008. While there is wide variability in cap rates, we generally expect them to be in the low-7% range for assets we would consider. Hospitals by far the largest owners of medical office properties continue to hold on to their buildings among the 25 biggest sellers during the quarter only one was hospital. We continue to pursue acquisition opportunities and make offers on quality MOBs that would be both accretive and result in future developments.

We feel that the slowing economy and tighter credit market conditions may foster a better acquisition environment for REITs in the months to come, as there will be fewer leverage buyers competing and more sellers concerned about the ability of buyers to close. While we are cautiously optimistic about the acquisition environment, we expect that the majority of our investments will come from development.

With regard to-on campus development, our 140,000 square foot medical office building in Fort Worth, Texas opened at the end of the quarter. This $25 million facility was developed in conjunction with Baylor's constructions of a women's hospital. The anchor tenant is one off the largest OB/GYN groups in Forth Worth. We are finalizing our agreement to develop, own and manage a medical office building on the campus of the hospital in the greater Seattle, Washington area. We expect to complete this nearly $90 million MOB in parking garage in early 2011.

In addition to these on campus developments, where we are working in conjunction with a hospital, we have been actively pursuing unaffiliated development opportunities on land adjacent to hospitals.

In 2007, we secured through acquisition or ground lease, nine such sites. All of them are adjacent to existing hospitals, one is currently under construction or one is planned. Seven of these sites are currently included in the CIP, with project expected to be completed over the next two years.

Two sites, in Illinois and Texas, previously categorized as land held for development have been moved to CIP because we intend to break ground on them in the near future. One item that was formerly included in CIP, a specialty inpatient facility in Texas has now become inactive. We could not finalize terms with the facility's operator and have moved the land associated with that project from CIP to land held for development.

We are renewing and expanding some construction financing for a large Midwestern developer, who is building an outpatient medical campus situated next to a new hospital in Iowa. We are finalizing the terms of a boarder joint venture that will include medical developments in the region.

We now have nine properties in CIP, representing nearly 1 million square feet of outpatient space and an investment of approximately $260 million. These projects will be completed over the next two years. Beyond the projects currently included in CIP, our development pipeline includes another 1.1 million square feet of properties, representing an investment of nearly $214 million.

We expect these projects, which include the previously referenced Seattle project, facilities to be built on land under contracts and Iowa outpatient medical campus to be completed between 2010 and 2011.

Recent economic events have had only a modest impact on development costs. The prices of some building materials, such as rubber used in roofing have increased, but are being offset by lower borrowing costs and better pricing for skilled labor. We continue to be pleased with our development projects in pipeline. But we also recognized that constructing these properties and leasing them can be a lengthy and choppy process. As I previously noted, some of these developments did not follow a neatly package schedule and constructions start dates are often affected by the permitting process, hospital campus issues, etcetera.

Similarly, leasing is not necessarily linear, but a building's long-term return is usually not material affected as stabilization occurs much later than originally forecast.

We remain confident that our strategy of developing buildings on or adjacent to acute care hospitals. In addition to making selective, accretive acquisitions, we will provide stable, long-term cash flows from properties that sustain the companies low business risk profile. David?

David Emery

Thank you, Dough. Operator, I believe we are ready for calls. So if you want to start that process.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Herb Tinger of Morgan Keegan. Your line is open.

Herb Tinger - Morgan Keegan

Thank you. Good morning. Just a few questions. The four properties you disclosed you now option exercises on, can you tell us what the yield on those properties are?

Doug Whitman

Off the top of my head, no. I would say they are going to be fairly high, let's say above 9.5%. We can look those up and get back to you.

Herb Tinger - Morgan Keegan

Okay. I will make sure we'll follow up then.

Doug Whitman

They are all properties that have been leased for quiet some time, and so just year-over-year increases in those properties has escalated the yield.

Herb Tinger - Morgan Keegan

Okay. I also noticed there was a sequential increase in master lease rental income in the quarter? Can you explain what drove that, absent any acquisitions?

Scott Holmes

Yeah, as we commented in comments just a few minutes ago, there was a non-recurring lease termination fee included in master lease income of $700,000. And that's the primary driver of the increase.

Herb Tinger - Morgan Keegan

Okay. Also straight line rent went negative in this quarter. So if you assume no future acquisitions, should we expect the same trend going forward?

Scott Holmes

The short answer would be yes, to expect the same trend going forward. However, to the extent we are entering into new leases for properties that are in stabilization mode at the current time that could change and offset that trend, back to a positive straight line rental income. And that's all dependent on the kind of releases and the kind of step-ups in the leases that we incur going forward.

Herb Tinger - Morgan Keegan

Okay. And lastly, early in your comments you mentioned about a couple of one-time expense or first quarter specific expenses, such as the annual reports etcetera. Does that account for the sequential increase in SG&As from Q4 to this quarter?

Scott Holmes

That is the vast majority of it, yes.

Herb Tinger - Morgan Keegan

Okay. Thank you very much.

Scott Holmes

Thank you.

Operator

Our next question comes from Kristin Brown with Deutsche Bank. Your line is open.

Kristin Brown - Deutsche Bank

Hi, good morning, guys.

David Emery

Good morning.

Kristin Brown - Deutsche Bank

My first question is on the development pipeline in the supplemental. It seems like there are, lot of, changes over the end of the year in terms of just delivery dates and expected investments, like for instance Hawaii increased in terms of square footage, but it's a 2010 delivery. So, could you just go through some of the changes there?

Doug Whitman

Sure. I'd say some of the stuff on CIP moved up that had been held in land held for development and moved up to CIP. One property, the Forth Worth one I referenced was taken out of CIP. The Hawaii one, as we've finalized our design and drawing, and getting our permitting process. We've been able to squeeze a few more square feet into the property. The permitting process is taking a bit longer than we originally anticipated. But we are scheduled I think to break ground within the next eight weeks or so on that project.

So some of other ones, again I referenced a Texas property that had been listed in CIP. It was going to be an inpatient rehab facility. That deal didn't come together and that we put that land back down in land held for development. But it's in a great area in Texas in a very fast growing area. You heard us talk about compelling demographic areas where we would like to be, this is in one of those great, great growing areas near hospital. So, we think that parcel will do very well.

Kristin Brown - Deutsche Bank

And then just my other question there is an uptick in bad debt expense this quarter and I just was wondering what drove that and what's the good run rate going forward?

Scott Holmes

This quarter's bad debt expense is a little higher than normal. We had a general cleaning up of some smaller accounts, nothing particularly unusual, but some of them were relatively large and you should not see a recurring bad debt expense of that magnitude in the future.

Kristin Brown - Deutsche Bank

Okay. Thanks you.

Operator

Our next question comes from Jerry Doctrow, please state your affiliation.

Jerry Doctrow - Stifel Nicolaus

Stifel Nicolaus. Good morning, everybody.

David Emery

Good morning.

Jerry Doctrow - Stifel Nicolaus

I was just wondering to get a little bit more color on the development pipeline. I mean you did change the schedule. You use to give us and some of the stuff, specifically on lease-up rather. You used to give us little more detail on the properties lease-up. I was curious as to why that changed? And what I'm really trying to do just from a modeling standpoint is understand, as you bring the stuff online, maybe if there is a hypothetical project or typical project. I think you talked have about a 24-month lease-up. Should we assume losses there, I think what we talked about is like 12 months, it would be starting to make positive NOIs. But if you can just give us a little more color on that, so we could help with the modeling on that side? That would be great.

Doug Whitman

Sure, Jerry. On the lease-up schedule, for ones that are recently coming on development I think it's fair to say that the first two, three, and four quarters that they will show almost no NOI growth or positive NOI were in lease-up. I think the lease-up for the projects that have recently been brought out in service is going well. The one in Dallas, the one in Garland and Fort Worth range anywhere from 40% to 49% lease.

So I think they are tracking nicely. You get to sort of those high fixed expenses, given the building is immediately opened and the revenues just haven't quite caught up. So even though they maybe leased, tenants may not be occupying space for a period of two, three months afterward as their space is built out. So, right out of the gate we are going to have a lag or mismatch of timing between income and expenses.

Jerry Doctrow - Stifel Nicolaus

I guess, what I'm just trying to, I think we're modeling right now is 24 months lease-up, zero NOI till 12 months and then it starts ramping up there over the remaining 12 months so it gets positive. Like when something in Colorado comes on, which I think is like the next one. Would you expect it actually to be negative NOI sot of for the first quarter or so, or is this actually zero out of the box and then goes positive?

Doug Whitman

We say it's probably zero out of the box maybe for the first year, by the second year it's 5.5%, 6% and then by years three, going to reach stabilization closer to 9%, again that's not going to apply to all projects, but that's a good sort of rule of thumb.

Jerry Doctrow - Stifel Nicolaus

Okay. I think that's helpful.

David Emery

Jerry, to use the usual financial term there, the leasing is obviously very herky, jerky, that it's not -- you just can't literally spread it out.

Jerry Doctrow - Stifel Nicolaus

Yeah. And David I am not trying to beat up about every little quarter that one slips one way or the other. But for modeling, I just want to make sure that we're sort of putting.

David Emery

I am saying…

Jerry Doctrow - Stifel Nicolaus

And I wonder if we could also just talk a little bit more about acquisition environment, I think you suggested that you're starting to get a little bit more optimistic about acquisitions. Any more color there, should we be assuming, are you sort of assuming some level of acquisitions at this point go forward?

Doug Whitman

I think that anecdotally, we've been participating and getting a sort of farther in the process with some recent acquisition opportunities. I was on the road last week actually meeting with folks on couple of portfolio opportunities and we were recently a finalist in another one earlier in the quarter.

So I think that anecdotally I think we're doing better. I think in our models we've got about $50 million a year in acquisitions built in and I think that's a fair number.

Jerry Doctrow - Stifel Nicolaus

Okay. And cap rates slowed 7, I think you said before. And then just the last thing, which I think I asked but I don't know that I got an answer to. Do you see some detail on sort of the property lease-up, which you dropped out of supplement, what was the reasoning for that?

Doug Whitman

I think it was just confusing some folks. Again we're just trying to tell the story that more of a narrative approach as opposed to a table approach. I think the same information is generally included.

Scott Holmes

They were trying to give enough information Jerry, for people to be able to compute NAV, where you have to adjust for these non-stabilized properties, so you have an NOI number, you have an investment to completion number. But at the property by property level, it tends to get confusing and we're just trying to eliminate as much confusion as we can.

Jerry Doctrow - Stifel Nicolaus

Okay, I like more, but okay. And then just my last thing and then I'll jump off. On something like Hawaii, where you stepped up the investments levels a fair amount, again I'm less concerned about timing or the move. But should we assume investment yields on that is the same, even though the investments sort of stepped up a decent amount?

Scott Holmes

Yes.

Jerry Doctrow - Stifel Nicolaus

Okay. And on investment we're still sort of talking 9% sort out of the box and escalating over time, is that your target on development?

Doug Whitman

Out of the box seems a little quick.

Jerry Doctrow - Stifel Nicolaus

Well, at stabilization. I'm sorry.

Doug Whitman

There you go.

Jerry Doctrow - Stifel Nicolaus

Okay.

Doug Whitman

I figure that.

Jerry Doctrow - Stifel Nicolaus

All right, thanks.

David Emery

Thank you.

Operator

(Operator Instructions). Our next question comes from Jim Sullivan of Green Street Advisors. Your line is open.

Jim Sullivan - Green Street Advisors

Thanks. Good morning. Can you provide some more detail on the termination fee? It seems like a pretty big termination fee.

David Emery

It is a large termination fee. It's a property we have a net investment about $1.9 million in. Annual rents are about $300,000 and the lessee wanted out, so we let them out and we are currently trying to release the property.

Jim Sullivan - Green Street Advisors

Okay. And then on the development schedule, on the under construction properties, which properties are actually under construction and which ones we have to break ground?

Doug Whitman

Under construction, they are all under construction in one degree or another.

Jim Sullivan - Green Street Advisors

I am sorry. I thought you said Hawaii was going to start?

Doug Whitman

The steel and stuff will start to go up in June, but site work and stuff has been ongoing.

Jim Sullivan - Green Street Advisors

Okay. So, they are all under construction?

Doug Whitman

Yeah.

Jim Sullivan - Green Street Advisors

And the pre-leasing on your development schedule, can you help us understand where you add in terms of pre-leasing?

Doug Whitman

As you've heard us say before, we don't do pre-leasing on these developments.

David Emery

I think, Jim, from the standpoint of interest that we have in pre-leasing, all the ones that we have underway usually fits the mode that by the time you get going, you probably got current interest levels that run 25%, 30%, hopefully by the time you get through in 12 to 18 months, you are at 40% or 50%. I think everything we are working on pretty much tracks that.

Jim Sullivan - Green Street Advisors

Yeah.

David Emery

I don't know of anything that would be different from that.

Jim Sullivan - Green Street Advisors

I was just going to say, that's helpful. I can understand how 2000-foot kind of doctor user wouldn't pre-lease space, but what about some of the bigger users of that?

David Emery

Well, we see that. Particularly, we have on several of the projects larger tenants in the 15,000-20,000 square foot of range that are usually related to surgery or imaging, some of those kind of things. So, most of the projects that we have, we are focusing on finding tenants to relocate surgery centers and those kind of things because they help the occupancy of the building so much and help us drive rent.

So it pretty much one of the project we're working on is probably already half to maybe 65% probably under discussion. So, it just kind of jumps around the math. That particular location is one across the street from the hospital, where the hospital is going to take, uncharacteristically say, well, we'll take some of the space. I think they are putting surgery, imaging relating.

So in general the 2,000 square foot doctors, those are the kind of fill-ins. That's where you really like to get the rates increase, but we find that with the location, we really not have any difficulty in the traditional pre-lease land.

Doug Whitman

The surgery and imaging folks for various reasons to be on the first floor and we design almost all of these buildings to have to accommodate that higher floor-to-ceiling heights, ventilation, emergency generators and so on. And so those types of users know that the space in the building is relatively scarce, because there is probably only one, maybe two floors that they would prefer, so they do show heightened interest in going into.

David Emery

We have one project in Texas, Jim, where we have a large imaging center wanted the first floor, but then a surgery center emerged who also wanted the first floor, but imaging can't go on the second floor. So even we are near starting construction here in the next month or so, I think on that particular project. So we are modifying a little bit of the interstitial space, as Doug mentioned, so that we can move that to the second floor and still have the availability of the first floor for surgery.

Jim Sullivan - Green Street Advisors

Okay. I appreciate that. And then finally, in '08 and '09, you had a pretty substantial amount of lease support agreements that were maturing. Can you give us an update on where you stand in terms of extending or replacing those?

David Emery

Well, I think to some degree that's kind of go in norm. I mean we've been focusing on that for a good period of time to make sure that -- there probably always be some pain attached to when a master lease goes off and maybe the hospital hasn't kept the underlying leases as high as they should. You have some maturity in there. So there's usually some period of where you suffer little bit of pain to make the change from master lease and adjust the underlying tenants that are in there.

And particularly, in California, we had one property operating agreement that expired and I think that the backfill renewal on the rents are at a level or slightly higher than what the support agreement was. So they don't always turn out like that and there is always some of them will be isolatedly painful or tired. So that has been lot to do with the underlying maturities, so that you can reset some of those kind of things. But we don't get any sense if there is any cliff issues there.

Doug Whitman

A lot of times it's just a mismatch in timing. The support agreement or master lease may expire and while the underlying subtenant income can, and we've shown in some instances, rise to where it was before, it's just until those subtenant leases expire and you're sort of stuck in an awkward position. So but over time those subleases will adjust to their natural market rate and we'll be fine.

David Emery

And, candidly, the support agreement and the master leases in the long run not having those is a good thing.

Jim Sullivan - Green Street Advisors

Why is that a good thing?

David Emery

Because the underlying tenants, you have the ability to push rents incrementally easier than you do on somebody that has a master lease.

Jim Sullivan - Green Street Advisors

Got it. Okay. Thank you.

Operator

Thank you. I'm showing no further questions at this time.

David Emery

All right. We appreciate everyone being on the call today. And I think all of us will be around the office today if anybody has any more follow-up questions. And with that, we bid everyone good day. Thank you.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect. Have a great day.

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Source: Healthcare Realty Trust Inc. Q1 2008 Earnings Call Transcript
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