Ventas Reports 2019 Third Quarter Results

CHICAGO–(BUSINESS WIRE)–$VTR–Ventas, Inc. (NYSE: VTR) today announced its results for the third quarter ended September 30, 2019.

“Ventas delivered strong enterprise level results in the third quarter, driven by our diverse portfolio including robust performance in our Medical Office, Healthcare and Research & Innovation portfolios, our high quality and accretive investments and effective capital markets execution. We have maintained the midpoint of our normalized FFO per share expectations for 2019, and we continue to invest in our future,” said Debra A. Cafaro, Ventas Chairman and CEO.

Cafaro added, “Given challenging senior housing market conditions, our senior housing operating portfolio did not perform consistent with historical patterns or our expectations in the quarter, a trend we expect to continue for the balance of the year. As a result, while national leading indicators of supply and demand in the senior housing sector continue to improve, giving us confidence in the powerful upside that lies ahead, we have reduced our 2019 property level guidance for our senior housing operating business. This changed expectation leads us to conclude that our return to enterprise growth will occur after 2020.

“We have built a strong, diverse and resilient business well positioned to capitalize on strong demographic demand growth. We are committed to enhancing value for shareholders and are taking actions that will improve performance and deliver growth and value.”

Third Quarter 2019 Company Performance

  • Net income attributable to common stockholders per diluted share for the third quarter 2019 was $0.23 compared to $0.28 in the same period in 2018. The year-over-year change was principally driven by the positive contribution from new investments, more than offset by higher depreciation and amortization in the third quarter 2019 and the receipt of a $12 million cash fee (the “2018 Fee”) in the third quarter of 2018.
  • Reported Funds from Operations per share, as defined by the National Association of Real Estate Investment Trusts (“Nareit FFO”) was $0.84 compared to $0.88 in the same period in 2018. The change from 2018 results was due to the factors described above, excluding the impact of depreciation and amortization.
  • Normalized Funds from Operations (“FFO”) per share for the third quarter 2019 was $0.96 compared to $0.99 in 2018. The change from 2018 was primarily the result of growth in income from new investments, more than offset by the receipt of the 2018 Fee in the third quarter of 2018.

Third Quarter 2019 Portfolio Performance

  • For the third quarter 2019, the Company’s quarterly same-store total property portfolio (1,107 assets, representing 93 percent of the company’s consolidated assets) cash net operating income (“NOI”) rose 0.1 percent compared to the same period in 2018. Year-to-date 2019, the Company’s full year same-store total property portfolio (1,094 assets) cash NOI grew 0.5 percent compared to the same period in 2018. Reported same-store cash NOI performance by segment for the third quarter 2019 and year-to-date 2019 are as follows:

 

 

 

Same-Store Cash NOI

 

 

 

Reported Growth

 

 

 

Q3 2019

 

Year-To-Date 2019

 

 

 

 

 

 

Triple-Net (“NNN”)

 

 

2.1%

 

2.3%

Senior Housing Operating Properties (“SHOP”)

 

 

(5.0%)

 

(3.5%)

Office

 

 

3.7%

 

2.9%

Total Company

 

 

0.1%

 

0.5%

  • Third quarter year-over-year changes in the Company’s same-store property results were driven by:

    • NNN portfolio: Growth was primarily the result of net in-place lease escalations.
    • SHOP portfolio: Same-store SHOP performance was below expectations, driven by the cumulative effect of new openings in a dynamic competitive market, which pressured revenue. While average third quarter 2019 occupancy was 70 basis points lower than the third quarter 2018, the year-over-year occupancy gap widened materially in September, ending the quarter approximately 115 basis points lower than third quarter-end 2018. Meanwhile, price competition drove wider re-leasing spreads year-over-year. Industry-wide, senior housing demand is accelerating and the positive trend of lower new construction starts continued, particularly in assisted living, where fewer than 1,000 units broke ground in the quarter in primary markets.
    • Office portfolio: Growth was led by outstanding performance in the Company’s university-based Research & Innovation (“R&I”) properties and complemented by steady growth in the Company’s medical office building (“MOB”) portfolio, which is benefitting from the implementation and success of operational and sustainability initiatives. Third quarter 2019 office results included a $4.7 million cash lease termination fee, which was not included in same-store results.

2019 Investment Highlights

The Company has announced $3.8 billion in year-to-date investments (at 100 percent share), including $1.8 billion in Le Groupe Maurice and $900 million in attractive R&I developments. Investment highlights from the quarter include:

  • Completed Portfolio Investment with Le Groupe Maurice (“LGM”): As previously announced, Ventas completed its investment in a Class A portfolio of 29 operating apartment-like senior housing assets in the attractive Quebec market, and five in-progress developments, through an equity partnership with LGM (the “LGM Acquisition”). The LGM portfolio is fully integrated and performing well.
  • Investment in Future Growth in R&I Development: Ventas accelerated its investments in future growth through new developments in the third quarter 2019, driven principally by the R&I development pipeline. Recent updates include:

    • Pitt Immune Transplant & Therapy Center:Commenced construction on a $280 million, 350,000 square foot development that is 70 percent pre-leased to the University of Pittsburgh with strong incremental leasing demand.
    • College of Nursing and Health Professions, Drexel University: Executed a 30-year lease with Drexel University for a new development that will house Drexel’s College of Nursing and Health Professions in the uCity Square Knowledge Community (“uCity”). Drexel’s lease is for 100 percent of the building, which will be approximately 260,000 square feet and produce an expected GAAP yield of nearly 10 percent. Construction of the College of Nursing and Health Professions is expected to commence by mid-2020 and the building is set to open by 2022.
  • Expanding uCity: The Ventas uCity in-place portfolio is currently 98 percent leased with robust demand, including for the recently announced One uCity development. In the third quarter of 2019, Ventas acquired land and other assets in the thriving Philadelphia uCity market, supporting an additional 450,000 square feet of developable space.
  • Expanding Ardent Investment at Attractive Yield: Ventas began funding a $28 million investment in the development of a new on-campus outpatient cancer center, Harrington Cancer Center, leased to Ardent Health System at an approximately eight percent cash yield, which is expected to be completed in 2021.
  • Redevelopment: Ventas committed to invest $36 million in redevelopment capital projects in the third quarter 2019 across four medical office buildings leased to Banner Health in Phoenix, Arizona, as well as $15 million across several SHOP assets focused on LED lighting retrofits with various operators.

2019 Office Excellence

Ventas’s office business delivered exceptional performance and achievements year to date:

  • The R&I portfolio delivered outstanding third quarter 2019 growth, including occupancy levels approaching 97 percent and year-over-year cash same-store NOI growth exceeding 10 percent supported by continued leasing success.
  • The MOB portfolio, composed of 20 million square feet, demonstrated strong positive trends on tenant satisfaction and retention, resulting from the Company’s focused efforts.
  • Ventas’s South Street Landing near Brown University won a Richard H. Driehaus Foundation National Preservation Award for its historic preservation work.

Financial Strength and Liquidity

  • Ventas’s Net Debt to Adjusted Pro Forma EBITDA ratio was 5.9x in the third quarter. As anticipated, leverage increased sequentially principally as a result of the timing of equity raised in the second quarter and the completion of the LGM Acquisition in the third quarter.

    • Third quarter and recent capital market activity includes:

      • The Company extended its maturity profile and managed interest rate risk via the issuance of $650 million of 3.00% Senior Notes due 2030, the proceeds of which were used to retire $600 million of 4.25% Senior Notes due 2022.
      • Ventas managed currency risk by financing a portion of the LGM Acquisition in Canadian dollars through the closing of a C$500M unsecured bank term loan in September. The term loan is attractively priced at CDOR + 90 basis points and matures in January 2025.
    • The Company had robust available liquidity from cash on hand and existing credit facilities totaling $1.8 billion at the end of the third quarter 2019, net of outstanding commercial paper.

Demonstrated Leadership Excellence and Commitment to ESG (Environmental, Social, Governance) Principles

  • Ms. Cafaro was again recognized as one of Harvard Business Review’s Top 100 Best Performing CEOs in the World for the sixth consecutive year. She is one of only 14 global CEOs who have been named to HBR’s list consistently since 2014, placing Ventas’s financial accomplishments in the top four percent of all firms measured. In addition, the Company’s non-financial performance metrics significantly improved in 2019 to its highest ever rating for the two ESG measures which make up 30% of the result.
  • Ventas was named to the Dow Jones Sustainability World Index for the first time and retained its place on the Dow Jones Sustainability North America Index (“DJSI”). The first global sustainability benchmark to track the largest and leading sustainability-driven publicly listed companies, only companies that rank within the top 10 percent of their industries are included in the DJSI World Index.
  • Ventas maintained its #1 position among the four listed healthcare real estate participants in the GRESB real estate ESG assessment for the third consecutive year. GRESB is a premier ESG benchmark for real assets, and covers more than 1,000 property companies, REITs, funds and developers.
  • Ventas released its second annual Corporate Sustainability Report (“CSR”) earlier today. Ventas’s 2019 CSR describes the Company’s achievements, and reaffirms its commitment to ESG leadership. The CSR, which was produced consistent with globally recognized best practices, also details Ventas’s enhanced strategic ESG framework and newly-established ESG goals.

Third Quarter Dividend

The Company paid its third quarter 2019 dividend of $0.7925 per share on October 11, 2019 to stockholders of record on October 1, 2019.

Updated 2019 Guidance

Ventas is updating its outlook for 2019 per share net income attributable to common stockholders, Nareit FFO and normalized FFO, as described below. The Company is also updating its previous overall and segment same-store cash NOI growth guidance.

 

 

Updated FY 2019 Guidance

 

 

Previous Per Share

 

Updated Per Share

 

 

Low

 

High

 

Low

 

High

 

 

 

 

 

 

 

 

 

Net Income Attributable to Common Stockholders

 

$1.38

$1.45

 

$1.32

$1.35

Nareit FFO

 

$3.90

$3.97

 

$3.82

$3.87

Normalized FFO

 

$3.80

$3.86

 

$3.81

$3.85

 

 

 

 

 

 

 

 

 

Updated FY 2019 Projected Same-Store Cash NOI

 

 

Previous

 

Updated

 

 

Low

 

High

 

Low

 

High

 

 

 

 

 

 

 

 

 

NNN

 

0.5%

1.5%

 

2%

2.5%

SHOP

 

(3%)

0%

 

(5%)

(4%)

Office

 

1.5%

2.5%

 

2%

2.5%

Total Company

 

0%

 

1%

 

0%

 

0.3%

Assumptions for Ventas’s 2019 updated normalized FFO per share guidance are materially consistent with the Company’s previously disclosed guidance, and include the impacts of announced investments and associated capital markets activities. Total same-store guidance has been updated to reflect revisions to segment-level outlooks, with office and NNN increases more than offset by a reduction in SHOP expectations. The SHOP guidance change reflects third quarter revenue trends, a dynamic and competitive market, and lower occupancy levels entering the fourth quarter. With respect to the Company’s NNN senior housing portfolio, the Company continues to estimate that it will incur approximately a ($10 million) net impact to its NOI from proactively addressing leases with select lower credit operators, which impact is contained in non-same store results.

A reconciliation of the Company’s 2019 guidance to the Company’s projected GAAP measures is included in this press release. The Company’s 2019 guidance is based on a number of other assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that the Company will achieve these results.

Third Quarter 2019 Conference Call

Ventas will hold a conference call to discuss this earnings release today at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The dial-in number for the conference call is (844) 776-7841 (or +1 (661) 378-9542 for international callers), and the participant passcode is “Ventas.” The call will also be webcast live by NASDAQ OMX and can be accessed at the Company’s website at www.ventasreit.com. A replay of the call will be available at the Company’s website, or by calling (855) 859-2056 (or +1 (404) 537-3406 for international callers), passcode 4816549, beginning on October 25, 2019, at approximately 1:00 p.m. Eastern Time and will remain available for 30 days.

Ventas, Inc., an S&P 500 company, is a leading real estate investment trust. Its diverse portfolio of approximately 1,200 assets in the United States, Canada and the United Kingdom consists of senior housing communities, medical office buildings, university-based research and innovation centers, inpatient rehabilitation and long-term acute care facilities, and health systems. Through its Lillibridge subsidiary, Ventas provides management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States. References to “Ventas” or the “Company” mean Ventas, Inc. and its consolidated subsidiaries unless otherwise expressly noted. More information about Ventas and Lillibridge can be found at www.ventasreit.com and www.lillibridge.com.

The Company routinely announces material information to investors and the marketplace using press releases, Securities and Exchange Commission (“SEC”) filings, public conference calls, webcasts and the Company’s website at www.ventasreit.com/investor-relations. The information that the Company posts to its website may be deemed to be material. Accordingly, the Company encourages investors and others interested in the Company to routinely monitor and review the information that the Company posts on its website, in addition to following the Company’s press releases, SEC filings and public conference calls and webcasts. Supplemental information regarding the Company can be found on the Company’s website under the “Investor Relations” section or at www.ventasreit.com/investor-relations/annual-reports—supplemental-information. A comprehensive listing of the Company’s properties is available at www.ventasreit.com/our-portfolio/properties-by-stateprovince.

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company’s or its tenants’, operators’, borrowers’ or managers’ expected future financial condition, results of operations, cash flows, funds from operations, dividends and dividend plans, financing opportunities and plans, capital markets transactions, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, dispositions, merger or acquisition integration, growth opportunities, expected lease income, continued qualification as a real estate investment trust (“REIT”), plans and objectives of management for future operations and statements that include words such as “anticipate,” “if,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will” and other similar expressions are forward-looking statements. These forward-looking statements are inherently uncertain, and actual results may differ from the Company’s expectations. The Company does not undertake a duty to update these forward-looking statements, which speak only as of the date on which they are made.

The Company’s actual future results and trends may differ materially from expectations depending on a variety of factors discussed in the Company’s filings with the SEC. These factors include without limitation: (a) the ability and willingness of the Company’s tenants, operators, borrowers, managers and other third parties to satisfy their obligations under their respective contractual arrangements with the Company, including, in some cases, their obligations to indemnify, defend and hold harmless the Company from and against various claims, litigation and liabilities; (b) the ability of the Company’s tenants, operators, borrowers and managers to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to third parties, including without limitation obligations under their existing credit facilities and other indebtedness; (c) the Company’s success in implementing its business strategy and the Company’s ability to identify, underwrite, finance, consummate and integrate diversifying acquisitions and investments; (d) macroeconomic conditions such as a disruption of or lack of access to the capital markets, changes in the debt rating on U.S. government securities, default or delay in payment by the United States of its obligations, and changes in the federal or state budgets resulting in the reduction or nonpayment of Medicare or Medicaid reimbursement rates; (e) the nature and extent of future competition, including new construction in the markets in which the Company’s senior housing communities and office buildings are located; (f) the extent and effect of future or pending healthcare reform and regulation, including cost containment measures and changes in reimbursement policies, procedures and rates; (g) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the potential phasing out of the London Inter-bank Offered Rate after 2021; (h) the ability of the Company’s tenants, operators and managers, as applicable, to comply with laws, rules and regulations in the operation of the Company’s properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients; (i) changes in general economic conditions or economic conditions in the markets in which the Company may, from time to time, compete, and the effect of those changes on the Company’s revenues, earnings and funding sources; (j) the Company’s ability to pay down, refinance, restructure or extend its indebtedness as it becomes due; (k) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations; (l) final determination of the Company’s taxable net income for the year ending December 31, 2019; (m) the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration of the leases, the Company’s ability to reposition its properties on the same or better terms in the event of nonrenewal or in the event the Company exercises its right to replace an existing tenant, and obligations, including indemnification obligations, the Company may incur in connection with the replacement of an existing tenant; (n) risks associated with the Company’s senior living operating portfolio, such as factors that can cause volatility in the Company’s operating income and earnings generated by those properties, including without limitation national and regional economic conditions, costs of food, materials, energy, labor and services, employee benefit costs, insurance costs and professional and general liability claims, and the timely delivery of accurate property-level financial results for those properties; (o) changes in exchange rates for any foreign currency in which the Company may, from time to time, conduct business; (p) year-over-year changes in the Consumer Price Index or the UK Retail Price Index and the effect of those changes on the rent escalators contained in the Company’s leases and the Company’s earnings; (q) the Company’s ability and the ability of its tenants, operators, borrowers and managers to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers; (r) the impact of damage to the Company’s properties from catastrophic weather and other natural events and the physical effects of climate change; (s) the impact of increased operating costs and uninsured professional liability claims on the Company’s liquidity, financial condition and results of operations or that of the Company’s tenants, operators, borrowers and managers, and the ability of the Company and the Company’s tenants, operators, borrowers and managers to accurately estimate the magnitude of those claims; (t) risks associated with the Company’s office building portfolio and operations, including the Company’s ability to successfully design, develop and manage office buildings and to retain key personnel; (u) the ability of the hospitals on or near whose campuses the Company’s medical office buildings are located and their affiliated health systems to remain competitive and financially viable and to attract physicians and physician groups; (v) risks associated with the Company’s investments in joint ventures and unconsolidated entities, including its lack of sole decision-making authority and its reliance on its joint venture partners’ financial condition; (w) the Company’s ability to obtain the financial results expected from its development and redevelopment projects; (x) the impact of market or issuer events on the liquidity or value of the Company’s investments in marketable securities; (y) consolidation activity in the senior housing and healthcare industries resulting in a change of control of, or a competitor’s investment in, one or more of the Company’s tenants, operators, borrowers or managers or significant changes in the senior management of the Company’s tenants, operators, borrowers or managers; (z) the impact of litigation or any financial, accounting, legal or regulatory issues that may affect the Company or its tenants, operators, borrowers or managers; and (aa) changes in accounting principles, or their application or interpretation, and the Company’s ability to make estimates and the assumptions underlying the estimates, which could have an effect on the Company’s earnings.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

2019

 

2019

 

2019

 

2018

 

2018

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Real estate investments:

 

 

 

 

 

 

 

 

 

Land and improvements

$

2,280,877

 

 

$

2,128,409

 

 

$

2,116,086

 

 

$

2,114,406

 

 

$

2,115,870

 

Buildings and improvements

24,459,114

 

 

22,837,251

 

 

22,609,780

 

 

22,437,243

 

 

22,188,578

 

Construction in progress

432,713

 

 

386,550

 

 

335,773

 

 

422,334

 

 

395,072

 

Acquired lease intangibles

1,334,915

 

 

1,267,322

 

 

1,279,490

 

 

1,502,955

 

 

1,506,269

 

Operating lease assets

388,480

 

 

374,319

 

 

359,025

 

 

 

 

 

 

28,896,099

 

 

26,993,851

 

 

26,700,154

 

 

26,476,938

 

 

26,205,789

 

Accumulated depreciation and amortization

(6,964,061

)

 

(6,758,067

)

 

(6,570,557

)

 

(6,383,281

)

 

(6,185,155

)

Net real estate property

21,932,038

 

 

20,235,784

 

 

20,129,597

 

 

20,093,657

 

 

20,020,634

 

Secured loans receivable and investments, net

709,714

 

 

693,651

 

 

496,344

 

 

495,869

 

 

527,851

 

Investments in unconsolidated real estate entities

45,905

 

 

47,112

 

 

48,162

 

 

48,378

 

 

48,478

 

Net real estate investments

22,687,657

 

 

20,976,547

 

 

20,674,103

 

 

20,637,904

 

 

20,596,963

 

Cash and cash equivalents

148,063

 

 

81,987

 

 

82,514

 

 

72,277

 

 

86,107

 

Escrow deposits and restricted cash

60,533

 

 

56,309

 

 

57,717

 

 

59,187

 

 

62,440

 

Goodwill

1,049,985

 

 

1,050,470

 

 

1,050,876

 

 

1,050,548

 

 

1,045,877

 

Assets held for sale

4,520

 

 

1,754

 

 

5,978

 

 

5,454

 

 

24,180

 

Other assets

852,795

 

 

821,844

 

 

796,909

 

 

759,185

 

 

782,386

 

Total assets

$

24,803,553

 

 

$

22,988,911

 

 

$

22,668,097

 

 

$

22,584,555

 

 

$

22,597,953

 

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Senior notes payable and other debt

$

12,053,184

 

 

$

10,256,092

 

 

$

10,690,176

 

 

$

10,733,699

 

 

$

10,478,455

 

Accrued interest

85,214

 

 

111,388

 

 

81,766

 

 

99,667

 

 

76,883

 

Operating lease liabilities

249,237

 

 

233,757

 

 

214,046

 

 

 

 

 

Accounts payable and other liabilities

1,194,162

 

 

1,137,980

 

 

1,063,707

 

 

1,086,030

 

 

1,134,898

 

Liabilities related to assets held for sale

1,531

 

 

1,216

 

 

947

 

 

205

 

 

14,790

 

Deferred income taxes

147,524

 

 

149,454

 

 

205,056

 

 

205,219

 

 

236,616

 

Total liabilities

13,730,852

 

 

11,889,887

 

 

12,255,698

 

 

12,124,820

 

 

11,941,642

 

 

 

 

 

 

 

 

 

 

 

Redeemable OP unitholder and noncontrolling interests

236,792

 

 

222,662

 

 

206,386

 

 

188,141

 

 

143,242

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

Ventas stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value; 10,000 shares authorized, unissued

 

 

 

 

 

 

 

 

 

Common stock, $0.25 par value; 372,726; 371,478; 358,387; 356,572; and 356,468 shares issued at September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018, respectively

93,164

 

 

92,852

 

 

89,579

 

 

89,125

 

 

89,100

 

Capital in excess of par value

14,017,030

 

 

13,940,117

 

 

13,160,550

 

 

13,076,528

 

 

13,081,324

 

Accumulated other comprehensive loss

(59,857

)

 

(39,671

)

 

(12,065

)

 

(19,582

)

 

(7,947

)

Retained earnings (deficit)

(3,384,421

)

 

(3,173,287

)

 

(3,088,401

)

 

(2,930,214

)

 

(2,709,293

)

Treasury stock, 3; 0; 0; 0; and 6 shares at September 30, 2019, June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018, respectively

(210

)

 

 

 

 

 

 

 

(345

)

Total Ventas stockholders’ equity

10,665,706

 

 

10,820,011

 

 

10,149,663

 

 

10,215,857

 

 

10,452,839

 

Noncontrolling interests

170,203

 

 

56,351

 

 

56,350

 

 

55,737

 

 

60,230

 

Total equity

10,835,909

 

 

10,876,362

 

 

10,206,013

 

 

10,271,594

 

 

10,513,069

 

Total liabilities and equity

$

24,803,553

 

 

$

22,988,911

 

 

$

22,668,097

 

 

$

22,584,555

 

 

$

22,597,953

 

 

 

 

 

 

 

 

 

 

 

 

Contacts

Juan Sanabria

(877) 4-VENTAS

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