LTC Properties Inc (LTC) 2010 Q3 法說會逐字稿

Good afternoon and welcome to the LTC Properties Inc. third quarter 2010 analyst conference call. All participants will be in listen only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

This presentation contains forward-looking statements within the meaning of section 20 7A of the Securities Act of 1933 as amended and section 20 1E of the Securities Exchange Act of 1934 as amended , adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward looking. You may identify some of the forward-looking statements by the use of forward-looking words such as "believes", "expects", "may", "will", "should", "seeks", "approximately", "in tends", "plans", "estimates", or "anticipates" or the negative of those words or similar words. Forward-looking statements include inherent risks and uncertainties regarding events, conditions and financial trends that may effect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements including, but not limited to the status of the economy, the status of capital markets including prevailing interest rates and our access to capital, the income and returns available from investments in health care related real estate, the ability of our borrowers and lessees to meet their obligations to us, our reliance on a few major operators, competition faced by our borrowers and lessees within the health care industry, regulation of the health care industry by federal state and local governments, compliance with and changes to regulations and payment policies within the health care industry, debt that we may incur and changes in financial terms, our ability to continue to qualify as a real estate investment trust, the relative illiquidity of our real estate investments, potential limitations on our remedies when mortgage loans default and risks and liabilities in connection with properties of owned through limited liability companies and partnerships. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under "Risk Factors" contained in our annual report on form 10K for the fiscal year ended December 31, 2009 and in our publicly available filings with the Securities and Exchange Commission. We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking statements whether as a result of new information, future events or otherwise.

I would now like to turn the conference over to Wendy Simpson, CEO and President. Ms. Simpson please go ahead.

Thank you, good morning and afternoon . Thank you for joining us for our third quarter 2010 earnings call. With me are Pam Kessler our Senior Vice President and CFO, who will give some specifics about our quarterly earnings. And Clint Malin, our Vice President and Chief Investment Officer who will comment on potential investments through the remainder of the year based on the flow of transactions we are currently sending. And Andy Stokes, our Vice President of Marketing and Strategic Planning, who will give you some additional color through are continuing marketing efforts. Also with me is our Founder and Chairman, Andre Dimitriadis, who just happened to be in the office today and is sitting in on this conference call recently back from [Kiev] out and would not recommend unless you have expiring miles and had visited every other place on planet Earth and then get a seat on the shuttle to go to [Kiev]. But if you have any questions about that I'm sure he will answer.

Yesterday after the market closed, we issued our earnings announcement. Pam will provide you with some details on the results. Since we had charges that were related to our redemption of our preferred E's and 40% of our preferred F's, as well as the issuance of common shares to fund these redemptions. Theses transactions were disclosed and discussed during our second quarter call. We're still very interested in redeeming the remainder of the preferred F's and will continue to look forward to offered to opportunities -- the appropriate opportunity should they arise. At this time, I'll ask Pam to discuss our quarterly and year end results -- or year-to-date results.

Thank you, Wendy. My discussion will be a quarter-over-quarter analysis. I will refer you to the 10K that was filed yesterday for a year-over-year analysis. Revenues during the quarter increased approximately $448,000 due to the following; Rental income increased $462,000 due to acquisition. Mortgage interest income increased 32,000 due to an increase in existing mortgage loan to finance the expansion of the skilled nursing facility in Missouri partially offset by the amortization of mortgage loans. Interest expense increased $432,000 due to the sale of 50 million senior unsecured loans to Prudential partially offset by a decrease in borrowings outstanding under the unsecured line of credit. Income from discontinued operations related to skilled nursing facility in Virginia. The operator has notified us of their election to exercise their purchase option contained in the lease agreement and GAAP requires that we reclassify the income and expense related to this property to the line item "discontinued operation".

Additionally, we are actively marketing for sale one private school property in the Eagan Minnesota. This investment was formerly in the form of a mortgage loan on a private school property and during the third quarter this property was converted to an owned property via deed in lieu of foreclosure. It has been classified on our balance sheet as held for sale as required by GAAP and in the line item "discontinued operations" there is expense related to our marketing efforts on that property. Income allocated to preferred stockholders includes a one-time charge of $2.4 million related to the preferred stock redeem shown during the quarter. This amount represents the original issue discount related to the shares redeemed. Preferred stock dividends decreased $279,000 due to the timing of the redemption.

Net income available to common stockholders decreased $2.2 million due to the preferred stock redemption charge an interest expense partially off set by an increase in revenues. Fully diluted FFO per share was $0.39 this quarter compared to the fully diluted FFO per share of $0.49 last quarter. Excluding the preferred stock redemption charges normalized fully diluted FFO per share was $0.48 this quarter compared to $0.49 last quarter.

Turning to the balance sheet. This quarter we invested $1.3 million in capital improvements at a weighted average yield of approximately 9.4 and $105,000 in capital improvements at yields are ready reflected in the lease rate. We converted the loan on the school property to owned and held for sell as I previously mentioned. We received $1 million in scheduled principal payments on mortgage loans receivable. We invested $1.6 million in a mortgage loan secured by skilled nursing property in Missouri to finance the expansion of the property at Scottsdale (inaudible) as discussed on last quarter's call and detailed in the Q. We repaid $42 million unsecured revolving line of credit and currently have $110 million available for borrowing.

We sold 50 million on senior unsecured term notes to affiliates in managed accounts at Prudential as discussed on last quarter's call and disclosed in the 10-Q. Accrued expenses and other liabilities increased approximately $672,000 due to property tax impounds. During the third quarter we redeemed all of our outstanding preferred E stock and 40% of our preferred F stock. We incurred a $2.4 million preferred stock redemption charge, which represents original issue discount related to the shares redeemed. During the third quarter, holders of 32,895 shares of our preferred E stock elected to convert to 65,790 shares of common stock. During the third quarter, we sold in a registered direct placement 1,970,000 shares of common stock at $24.70 or an average price after fees of $24.51. Net proceeds from the sale were $48.3 million.

During the third quarter, we issued 391,400 shares of common stock through our ATM program at $25.28 or a weighted average price including commissions and offering cost of $29.60 per share. The net proceeds from the sales under the ATM of $9.7 million and the proceeds from the registered direct placement were used to redeem preferred stock. During the third quarter, we paid $13.4 million in preferred and common dividends.

Turning to operator statistics. In discussing operator statistics, I will give the general caveat that these numbers come from our operators. They are unaudited and have not been independently verified by us. Additionally, because we are reporting earlier that we have in the past the occupancy and coverage information is second quarter compared to first quarter because we have not yet received financial statements from our operators. Occupancy in our out portfolio increased 32 basis points. Lease coverage after a 5% fee was 1.3 times. Before management fee or EBITDA, coverage was 1.6 times. Occupancy in our property that provides independent living or combination of independent living, assisted living and skilled was essentially flat. Lease coverage after a 5% fee was 1.6 times. Before fee or EBITDA coverage it was 2.1 times. In our [SNIF] portfolio, occupancy remained stable at 80% and lease coverage for our SNIF after 5% management assumption was two times. Before management fee or EBITDA coverage of our SNIF portfolio was 2.8 times.

I would also like to touch on liquidity. In terms of liquidity, we have the following available; $110 million under our unsecured line of credit at 150 basis points over LIBOR. Currently all of this is undrawn but after the previously announced transaction closes on Friday we will have approximately $83 million available on the line. We have $50 million available under the Prudential shelf agreement. We can borrow in increments of $10 million and at a maturity at our choice up to 10 years with a seven year average life. Based on current spread than treasury rates, we could probably do a five-year bullet between 4% and 4.25% and a 10 year final maturity which is a seven year average life during 5.25% and by 5.50%. We have a $65.1 million available under our ATM program and $276 million available under our shelf registration statement.

Thank you Pam.

You're welcome.

To date, we have completed or announced approximately $65.8 million in purchased assets. This represents three SNIF properties, one mixed-use property and four assisted living properties. The blended cash yield is 9.7% and the GAAP yield 11%. We also approved a $4 million addition to a property that will yield 11%. Right now estimated completion of this project is January with revenue beginning in February. Right now, we are working on yields that have the potential of closing this year and then some that might close next year. Clint and Andy will give you more specifics on our investing activity.

Because of the transactions that we've done so far this year, our Board approved the 7.7% dividend increase beginning in the month of November. We pay a monthly dividend. That's equates to a $1.68 common dividend a year. The dividend that NHI is receiving on their preferred C's is approximately $1.63 [per share]. So if they would convert to the common they would get a higher dividend and I hope as we continue to raise our common dividend they will understand that they benefited by converting to the common.

I think because of the season and I know this will sound strange coming from me or any of you that know me but a baseball analogy came to mind when I was doing my comments. And this is it. I believe that we have a rounded third base this year and are headed for home standing up. I'll now ask Clint and Andy to comment.

Thank you Wendy. Last week, we announced the Company entered into three purchase agreements to acquire four assisted living properties for a total of 241 units for aggregate purchase price of $26.9 million. Three of the properties are located in Florida and one is located in Mississippi. Three were built in the early 2000s and one was built in the mid-1990s. These transactions as (inaudible) are scheduled to close this Friday. Simultaneously with the closing, the Company will lease the properties under a 10 year tripple net master lease agreement with a privately held regionally-based operating company that previously operated or managed the properties for the sellers. This is another example of our ability to execute on a transaction with an operating company that is new to our portfolio. In fact, all acquisitions that we have closed in the last 12 months are operating companies new to our portfolio. This fact speaks highly of Andy's marketing efforts for the Company.

During our second quarter call, I noted that we were seeing an uptick in deal flow in our investment pipeline, which has continued to occur in the third quarter. At this point, the deal flow on our pipeline is approximately $100 million, excluding the transaction scheduled close this Friday, which consists mainly of skilled nursing properties but also includes some assisted living properties and a few properties offering continuing care. Transaction values of the pipeline range from $10 million to $35 million. Yields in the pipeline are in various stages of evaluation and negotiation and we are hoping to convert at least 50% into closed transactions. In fact, we are striving to convert some of these deals to close transactions by year end, as we previously demonstrated our ability to quickly close on other recent transactions.

Given our recent debt financing with Prudential, we have been able to lower our cost of capital allowing us to be more competitive in the marketplace for acquisitions. As a result, we are now targeting our initial investment yields in the low to mid 9% range. We believe that the combination of increasing deal flow, our conservative leverage balance sheet and the lowering of our investment requirements puts us in an opportunistic position to continue growing the Company.

Now I'll turn the call over to Andy to discuss our ongoing efforts to source new deals and efforts to continue expanding our operating base.

Thanks Clint. LTC's and marketing efforts emphasize local and regionalize concentrating on getting to know high quality operators who want to grow. We organize those effort by state basically because that's where these folks congregate. And that's where they go to look for people like us. As Clinton noted, LTC has had some success in marketing, selling and closing. I don't want to disagree with Clint, but I would point out that I think that our success is more due to good execution and underwriting and closing than any other factor. This team has developed a reputation with a local market and people who make those decisions, while providing customers with prompt attention and prompt action and our customers within the region all know each other. The best way to market is to add value to those customers.

In terms of the marketing efforts, Wendy give us a little baseball -- I would give you a little trip. We are going to talk a little about the trips we take. Later this week, we will be in Galveston, Texas. It's a small it's a conference we're going to go and we're going to talk to people. And we tend to go where other people don't go. We do go to NIC, we do go to the American (inaudible) Association. We do go to the national conference. And we are often one of many. But we go to places like Galveston we're usually the only REIT there and sometimes where the only financing services there. People like to talk to us for that reason. And they can see a face-to-face. So what we do in terms of marketing, we do the hard stuff. Stuff maybe that nobody else wants to do.

Thank you, Andy. And thank you for going to Galveston. [Laughter]. Based on our projections and things that we know so far, I would give guidance for the fourth quarter for fully diluted FFO of between $0.48 and $0.50. I'm not ready to give guidance for 2011 and I would be surprised if many people were but that's basically what I would expect we will be reporting absent any significant acquisitions or any issues that might pop up.

And finally I just wanted to say that since I probably won't be talking to most of you before year end, the management of LTC rarely sells shares of LTC and I've never sold any shares. However, in the December, I have a quite a few restricted stocks investing and I may sell some shares to cover income taxes. So if you see me file something saying I am selling shares, please do not be concerned it will not be a significant amount of my personal wealth. I know you worry about that. It's just to cover taxes. And I will keep it down because I really truly do enjoy receiving our dividends.

Thank you for your time. Shall we open it up for questions?

(Operator Instructions). The first question comes from Mark Lutenski from BMO Capital Markets. Please go ahead.

Good morning.

Good morning, Mark.

Now that you've reached your acquisition target for the year, how confident are you of perhaps duplicating that in 2011?

If we do more than our target do I get credit for the fourth quarter?

Well I mean duplicating 2010 in 2011 in terms of --.

Right now, Mark we can only say what we see in our pipeline right now and our pipeline Clint talked about I guess it's a 50-50 shot so it's about $50 million.

And what's or financing options would you consider on future transactions.

Financing on how we raise the money?

Right.

Well we would use the rest of the Prudential and we will look for other debt financing if it's feasible and we may issue some equity.

Are you considering SNIF as well though ? In terms of SNIF are there any geographical considerations in terms of what states you're looking at as it relates to Medicare or Medicaid?

Well this year we've brought both SNIF and [ALF] and I think the deals were working on our both SNIFs and ALFs, so we are still concentrating on those two classifications. And in the states we may do a deal in a state that we haven't done a deal in before and we have some small investments in that state, but as I said if we were going to break into a new state it would be for a significant investment and so we are looking at one state that we don't have much -- we have a couple of loans and it but the operations there's quite a few properties and so our philosophy of having a backup operator in the state is also if we have enough of them and asset mass in the state we would be able to find a new operator rather than a one off in some small city in the state. Right now we're concentrating on the states that we have experience in and not planning on breaking into any other new states unless it's what I said before a significant portfolio.

Have you had any conversations with an NHI subsequently raising the dividend and what's your sense of what their --

No I -- every time I run across Andy and the last time was at MIC, we josh each other about it. He likes the dividends. He likes the assets. And it's just -- I haven't had any discussion. They've got their own analysis of the value of this and converting it. I'd just like to keep putting it out there so they don't miss the point.

Okay. I think Rich has some questions as well.

Good morning to you guys . By the way, Wendy, I do worry every day about your wealth.

Oh, thank you, Rich.

The 10 seven cap rate on the acquisitions that you announced recently can you -- that's obviously off the radar screen on the upside in terms of cap rates for assisted living. What was it about those assets why shouldn't we look at them as that may be a little bit hairy or are they hairy and can you just kind of go through the math there of why you have such a big number out of that?

I think -- this is Clint. I think there is a unique opportunity and the situation that presented itself with the manager who we have known for a while or someone who is currently managing the property. The owners of the property they have some financing -- pay off and given our situation where we didn't need the financing contingency, things happen to work out well sometimes you're the right place at the right time

Okay. And I guess along those same lines and Andy you talked about this a little bit about going to Galveston or wherever and meeting people. And that operators are often new to you and maybe this is Clint that said you're getting a lot of new operators to the portfolio. I guess that's good of course. But is it good for investors. And my question is transparency. How do you get us confident that these new operators are reasonable in the sense that you're not have any problems down the road because as investors and analysts we don't see as much information about these companies as we might for others? Can you just kind of walk us through how we might feel better about that?

Well, this is Andy, Rich. I can tell you that we underwrite the operators pretty carefully. They are, without exception, people that we have come to know quite thoroughly and often -- management group we've known for quite a while. They're not going to be usually public companies. Those deals get shopped and the price goes up when they are shopped and so the buyers -- risk goes up. So we tend to go for quality midsized to early companies, multi properties that know their state and know how to get along there. If you want to talk about each individual property beyond say what's it the footnote, I'm sure we can do that.

Please no.

It's really been our experience that our problems have been with the big companies. And not with the little companies that we have or the smaller companies that we have in our portfolio. So either its a lot of this business that is local and regional there's a lot of really good operators out there and this management's team is seeing a lot of companies and has seen a lot of operators.

Is there reason why you can't disclose for instance the name of the operator on this transaction or you've chosen not to. And is there a way to disclose a little bit more information to get investors a little bit more incremental detail about your exposure?

Incremental detail about our exposure.

The credit quality of your portfolio. I'm not debating your underwriting but I think just for someone who's not as close to the story as others it might be useful to have some kind of incremental disclosure . Just talk about the portfolio's credit quality in a little more detail.

Okay . Well we don't have all that information available and I'm just looking at Clint and wondering if do we have a prohibition to say who the operator is?

No we don't .

I mean we can give operator names but their local and I'm not sure how many people on this call would recognize the name. The group that we did that deal with is called [SELAH]. So there you go. SELAH Management.

No, again I'm not debating your underwriting of assets and all that. And we have seen you guys do good things from an acquisition standpoint . I'm thinking broader about a broader audience and how they can get comfortable and if there's a way to disclose a little more information about your operator base that might be useful. That's really point.

SELAH has a website.

Okay.

Plus these are local businesses and we find at times local operators tend to be more vested and pay more attention to the properties. And we also view that the ability to help them grow them helps them. Helps us grow our Company by them bringing other opportunities to us. So, we view it in the positive.

As do we.

Okay, thanks Rich.

The next question comes from Karin Ford of KeyBanc.

Hi, good morning. Question for you on the change in your underwriting standards. Excuse me you mentioned earlier on the call I think previously you are looking on underwriting yield in the mid-to high nines now you're looking mid-to low nines . Makes sense given the cost of capital today. Can you talk about any other changes that you are making with respect to your underwriting standards going along with that and how much does that change open up the opportunities and allow you to be more aggressive on the acquisition pipeline?

Well, Karin, this is Clint. I don't think it will change your underwriting criteria at all. What it does is bring down the investment hurdle, which makes us more competitive in the marketplace and to be able to come out with somewhere in the 9.25% interest rate is pretty attractive historically on these properties. Even in the 9% range. So I think that what we're seeing and what other people are talking back as far as what they're receiving for lease rates in the marketplace. I think that puts us very competitive with other companies.

Do you think -- has that sort of double the number of people that are now interested in talking to you guys? Is that less than not more than that --

I don't think it's double but there is definitely been an increase in the number of people talking to us.

Once we got below the double-digits, Andy and Andre and Clint outted me down to below the double digits and when Pam was able to secure this really nice Prudential money and then we started talking our initial discussions with owner operators or sellers and you can see below the double digits that was very advantageous in our current marketing efforts. And as we draw down our cost of capital further if we can, we might be able to do deals even a little less to make them accretive deals. And that we have not changed our underwriting relative to the deals being accretive as of yet. But we are still underwriting to make it an accretive deal with the assumption that it may be under the bank line as a very accretive deal initially and then be termed out on some more longer-term debt which would be less accretive once that's done but our analysis when we do it is that it will be accretive continuously.

-- Observation. Our biggest competitor is (inaudible) right now, however financing and Fannie May financing for our kind of properties is difficult, its arduous, it doesn't always work and it is uncertain. We are absolutely seeing more of interested in talking to us as you said for that reason that we are because of the rates. It is also true that term debt that was done in say 2005 is probably coming do you some of it is coming do and people are quite intelligently saying we need to refinance permanently because -- the world has changed. The world I think has changed back to normal and the old normal is going back to match funding of assets which is what we do for a living.

That's helpful. And Wendy been you say you're looking at the accretion versus the long-term cost of debt do you also -- what leverage level do you assume when you're measuring the accretion is that sort of 50-50 leverage and equity?

I'd like to keep us at 40 leverage. That's why I've want more of the preferred back because people add preferred as debt and right now I think if you had our preferred to our debt which is only $50 million I think we're at about 38%. 31% pro forma. So I'd like to keep it on a permanent basis -- we might spike up for a few months or something like that but I'd like to keep it on a long-term basis no more than 40% debt.

Okay. Last question just on the Minnesota charter school. Can you just talk about how the marketing efforts are going and what type of price you might be expecting for it and what the timing might be on the completion of the sale?

Hi Karin, it's Pam. Yes we foreclosed on it in the latter half of this quarter so it's only been marketed for a month and being -- going into the holidays I'm not sure how much activity were going to see on it. I think spring time will be our big push so that we can get it either sold or leased and it can be ready for operations by the next school year. We have it -- the asset on our books its appraised value and we are marketing it for our investment. For our original investment amount.

Got it. Just last question is the line item provision for doubtful accounts at $217,000 this quarter, is that a good run rate for you guys to you think going forward on a recurring basis?

Yes it is.

Okay.

It's about 1% of the mortgage line item number. We have (inaudible) --

Okay.

But yes. Use that as the run rate. It went up this quarter little bit because we financed that mortgage loan.

Got it. Okay, thanks very much.

Thank you Karen.

The next question comes from Jerry Doctrow of Stifel Nicolaus.

Hi. Just a handful of odds and ends. Non-cash comp is about $90,000 less this quarter than last quarter. I was just curious as to why and what's the run rate going forward.

That would have been due to investing. And a good run rate to use -- way down into the details, Jerry.

I can go on if you want to come back.

Give me another question.

There's been a number of questions about the investment portfolio. I guess I just want to ask a little more broadly in terms which are thinking about now I ain't Wendy and some of the past calls you've talked about trying to move up in maybe the quality curve higher acuity may be more Medicaid SNIFs newer facilities maybe more assisted living versus skilled that then you've done historically obviously was your cost of capital going down you've got more flexibility to do that here, how are you talking about that aspect? You talking about states in that kind of thing but what kind of deals are you kind of source from a quality standpoint?

Well. A quality standpoint. I think the ALFs that we did our relatively new some of the transactions were working on our relatively new properties. I'm not giving an advantage to ALFs or saying thing pot of money goes to ALFs and that pot of money goes to SNIFs. The quality of operator is the most significant part in addition to the quality of the building that it's position in the market place a quality operator will have a quality building. You're not going to find a bad building with a quality operator. It's a combination of those.

For people to think of LTC as not having quality assets, I will argue that all day long. We've put a significant amount of money into our assets when we buy assets and they need CapEX, we include that in our purchase price and make sure that CapEX gets used. I'm not saying that were going to be buying metropolitan Chicago assets and not buying Missouri assets. So while I would like to buy all new properties at a nine yield it's probably not going to happen. So were looking for the right properties and that we assessed the quality in many different ways.

Okay. And just going back to Rich's comments I think that you've given us coverage data and the coverages are very strong compared to many of your competitors. I'd take other data about age of property about things like to care mix or quality makes things like price per bed that sort of stuff you know would be helpful. I think you and I had a conversation about the quality -- I'd think I personally don't have the bias that they have big public operators to be good operators. But I think more of that context and color on the portfolio would definitely be helpful to making that point.

We that given coverage on phone calls I think the last several quarters.

Right. That's great. But I think just from additional color at the end of the year would be helpful. And then anything you're thinking about in terms of the reimbursement issues on the skilled side or anything new that you're hearing or just your thoughts about it.

Right now we are not hearing anything specific being proposed in any of the states we're in that would cause a significant concern to the SNIF operators. We were on a conference call yesterday about this new state that I had mentioned that we could get some information about the economics of that state. So right now everybody is expecting either their rates to be relatively flat or any decrease to be immaterial to us in terms of our coverage so right now nobody that's operating any of our properties are indicated any stress with any current legislation.

Okay. And then on ALC -- you obviously commented on them before and they had recently did this deal where they had bought out some of their assets from HCP and that was just wondering a, any general comments about ALC and how that relationship is going and whether you think the HCP should be on their buyout has the implications for your Company.

We haven't received their financials yet. I'm not expecting that we are performing and our asset class with her is any better than she's doing overall. We don't -- we haven't had any interaction with them since the last quarter and I don't know if we have any in that quarter. Relative to the HCP deal it really -- our situation is significantly different -- that was very immaterial amount of assets to HCP. Our assets we have quite a few assets. We know that they're good assets. We know that an operator who would take Medicaid would do much better in those properties then she would for -- she has all the upside now operating those properties. We don't have any participating rent or anything like that. So her ability to put more people in those properties accrues to her benefit right now relative to her strategies and is so owning them shouldn't be a significant issue for her. And right now I would not sell our properties at that cost per unit. So I'm sure it was a really good deal for HCP it wouldn't be a good deal for LTC.

Okay. And you talked some about cap rates and yield obviously they've come down some. Do you see -- in light of the (inaudible) do you see any more pressure on pricing going lower yet?

Well that was a significant -- we're looking at a much smaller yields. So it would be difficult for me to say our target client would be looking to compare themselves to a cap yield that DTR did.

I wouldn't say that I was just wondering if that was just sort of indicative of a general price initiative moving the yields down on the prices up. Sort of a parallel I guess.

-- Cost of borrowing goes down I think that in general may cause cap rates to go down a little bit I don't think you're going to see at where it was for the past few years but I think that you makes the a little bit of compression.

This is Andy. I would say that our customers in general are aware of the direction of long-term rates. They are aware of their local banking situation. They are aware of what I would call private -- and private equities costs --. And so they would like us to come down a little bit of course and we have. We want to grow relationships with them. We want to give them a good deal. I have not sensed any direct pricing pressure from any of the large transactions.

Okay.

Most of them understand the difference.

And I think you indicated earlier this stuff in your pipeline is either 9% and 9.5% range and you're comfortable with that. That's kind of what we talked about.

That's it.

Okay, thanks a lot.

You're welcome.

Jerry, to get back to your question on non-cash compensation, for the third quarter, I would expect it to be the same as the third quarter and going into next year it should be about $230,000 per quarter assuming no additional restricted stock grants.

Okay. Thank you.

You're welcome.

By.

The next question comes from John Roberts of Hilliard Lyons. Please go ahead.

This is John, good morning all. Wendy, you mentioned that Andre was in Kiev?

He was Kiev, he is here now, do want to talk about it?

Was that personal or business?

That was personal.

Just wondering if you are looking for new geographic locations? I would think the cap rates are pretty good in Kiev.

There you go, no.

Following up a little bit on what Jerry was talking about. In the last two cause you haven't really talked about your operator issues so much. Is that just because things have improved so much or is anybody in particular on the operator side you're worried about right now?

No. Everybody seems to be fine. We talked to them and when where out in the general area for whatever reason we try to drop in on one or two if there geographically close by. And then Andy meets many of them out in these association meetings. So right now we don't have any operators except the perpetual ASLC relative to her occupancy . But other than that we don't have any operator issues at all.

We don't, John. This is Clint. And then also the Sunrise Properties that we talked about in the past we've been monitoring that and they've been working at capital in the buildings and making improvements and so that seems to be working its way through.

Super. One other little thing I was scribbling so fast I missed. Did you say you'd one deal that was approved for 11% cap rate?

No. The deals that we completed are a GAAP yield of 11%.

So there's not one is going to be done here very soon?

We've not done one at 11%.

Okay. Great, thanks Wendy.

Thank you John.

(Operator Instructions). The next question comes from Mark Lutenski of BMO Capital Markets.

It's actually Rich here I just want to clarify you did say you have a CapEx program for 11% return.

That is correct. $4 million --

Just trying to help you out.

Thank you, Rich.

A follow-up question from Karin Ford of KeyBanc. Please go ahead.

Yes just a follow-up on that tenant health question. The settlement on the skilled healthcare litigation now that's basically eliminate any risk on the $6.5 million mortgage loan -- unsecured notes that you hold in skilled healthcare today.

I think so. Their trading at 103% so above a face value right now. I haven't seen any financial results from skilled yet. I don't know if they have reported. It doesn't rise to the concern. And there's different views in this room relative to should we sell them now at 103% or not. But I don't believe there is an impaired value there. I think -- we do intend to hold them to maturity. I guess we could refinance them and pay a little bit of a premium to refinance them but right now turn we're pretty comfortable with the value and the fact that will continue to get that interest.

Great. Thanks very much.

You're welcome.

This concludes our question-and-answer session. I'd like to turn the conference back over to Wendy Simpson for any closing remarks.

Thank you. And thank you all for participating and really thanks for the questions. They always give us thanks to look into because they're generated from questions that you may have and doing our models or talking to possible investors or investors currently. So we will take all of these questions into consideration and weave them into our next conference call. And expect new questions next time. So thank you everyone and have a good day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.