LTC Properties Inc (LTC) 2011 Q1 法說會逐字稿

Good afternoon. Welcome to the LTC Properties Inc. first quarter 2011 analyst call. All participants will be in a listen only mode. (Operator Instructions) This presentation contains forward-looking statements within the meaning of Section 207A of the securities act of 1933 as amended, and section 20 of the securities the state pursuant to the Private Securities Litigation Reform Act of 1995. Any statements that are not purely historical may be forward-looking. You can identify some of the Forward-looking statements by the use of Forward-looking words such as believes, expects, may, will, should, seeks, approximately, intends, plans, estimates, or anticipates or the negative of those words or similar words. Forward looking statements involve inherent risks and uncertainties regarding risks, event conditions and financial trends that may affect our future, trends of operations, business strategy, results of operations, and financial position.

A number of important factors could cause actual results to differ materially from those included within the Forward-looking statements or contemplated by such Forward-looking statements including but not limited to the status of the economy, the status of capital markets including interest rates, and our access to capital. The income and returns available for investments in healthcare related to real estate, the beauty of our borrowers and lessees to meet their obligations to us, our reliance a few major operators, competitions based by our borrowers and lessees within the healthcare industry, regulation of the healthcare industry by the federal state and local governments, compliance with and changes to regulations and payment policies within the healthcare industry, that we may incur, and changes in financing terms.

Our ability to continue qualified 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 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 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. Please note, this event is being recorded. I would now like to turn the conference over to Wendy Simpson. Please go ahead.

Thank you. Good afternoon and thank you for joining us today. With me are Pam Kessler, our Executive Vice President and CFO' who will be giving some specifics about our first quarter earnings; Clint Malin, our Senior Vice President and Chief Investment Officer, who will comment on our pipeline for potential investments both for acquisitions and capital deployment of existing assets. Andy Stokes, our Senior Vice President of Marketing and Strategic Planning, is on the road continuing our marketing efforts.

I am so pleased to be able to report that our first quarter was very productive in all areas, contributing to the growth of LTC in 2011. We closed on acquisitions totaling $62.7 million in the first quarter, which represents about 67% of our investments for all of 2010. This is a fantastic start for our year, and we are committed to exceeding our 2010 level of investments. In our supplemental disclosure, we have included photos that of assets we acquired this quarter, and I'm sure you'll agree with me that they are quality real estate assets. Clint will include in his presentation what we are looking for in addition to yield when we decide to make an investment. I believe I have stated on previous calls and in meetings with some of you that we would like to see more common shares in the float, and provide more liquidity to our shareholders. And, also, we would like to retire our preferred Fs, as the dividend on the Fs was 8%, and was looked at as debt, which is a high cost of debt for LTC at this point in its history.

So on the capital side, we completed a very successful issuance of 3,990,000 common shares, and raised gross proceeds of approximately $108.7 million. This is the first public issuance of common stock since prior to 2000. Last year, we issued shares in a private placement and we issued some shares under our ATM program. But, this is our first common stock offering in at least 10 years that was a marketed transaction. Before this transaction, we were oversubscribed, and could have placed quite a significant number of additional shares, but we decided that we would rather just secure the equity needed to redeem the preferred Fs, and use available borrowing capacity to fund acquisitions and create additional value to the common shareholders.

With the green shoe, we did issue slightly more shares than we needed to complete the F, but not enough to significantly impact FFO for the year. We have privately thanked our banks and underwriters and are in the process of enjoying several closing dinners or lunches, but I want to take this opportunity to thank them publicly. We have been discussing equity for quite a while, and I'm sure they never thought I would ever make the final recommendation to our board, because I feel our common shares are not adequately priced in the market. But this particular time was absolutely right for this much equity for this use, and we also thank all of our new holders and historical holders for helping us complete this transaction. Simultaneous with the equity rates, we increased our liquidity by an additional $100 million when we put in place a new four-year, $210 million unsecured bank line. This new agreement provides us with the possibility of increasing the line to a total of $250 million. The rates are the same as under the retired line, and we can borrow at a 150 basis points over LIBOR based on our current leverage ratio.

Subsequent to the end of the quarter, we did drop $70 million, so we still have $140 million available under this line. And, as a reminder, we still have the uncommitted shelf with Prudential, which gives us an opportunity to borrow up to $50 million under debt shelf. So, our total immediate available liquidity is $190 million. Our pro forma debt, not including preferred C, is approximately 12% of capitalization. Our pro forma fixed charge coverage ratio is 8.1 times. We have significant room to add additional debt for accretive transactions before we look to issuing any more equity. I would predict that our next public transaction would be some type of debt issuance, but I would not venture to say when or what the structure might be. We also would do a new preferred issuance at rates much lower than where the markets seem to be today.

I am in the 6% range, and Pam and I have been told that the market is "open" in the low 7%s or 8%s.I think we will wait a while. Clint will be talking about our deal flow, but I want to say that we continue to believe that our marketing strategy to target the local regional operator provides us with attractive acquisition opportunities and spreads our risks among operators and markets. I believe the recent mega deals done by the much larger healthcare REITS have provided us with even more opportunities with the smaller and local regional operators. These operators are more likely to get transactions to partners with their assets as accretive and important.

I have used the analogy of huge investment banks and more boutique investment banks. There is room in the market for both, and both can make profits and good returns for their stakeholders. We are capitalizing on that. At this time, I will ask Pam to discuss our quarterly results, and some coverage information for our operators.

Thank you, Wendy. I will be discussing quarter over quarter results. I will refer you to the recently filed 10-Q for year-over-year analysis. During the first quarter, revenues increased approximately $235,000 due to the following. Rental income increased $988,000, due primarily due to acquisitions. Mortgage interest income decreased $143,000 due to loan payoffs in the normal amortization and mortgage loans. Interest and other income decreased $610,000 due to the receipt of $770,000 in the fourth quarter from the Sunwest bankruptcy settlement, partially offset by the receipt of $154,000 in the first quarter from the Sunwest bankruptcy settlement. Interest expense increased $123,000 due to the higher outstanding balances on the line of credit related to acquisition.

The provision for doubtful accounts of note was $548,000 lower than the quarter, due to a $385,000 doubtful accounts charge taken in the fourth quarter, to fully reserve a previously impaired mortgage loan secured by a lender in Oklahoma. Additionally in the first quarter, we ceased reserving straight line rent on the Sunrise master lease and another lease. Operating and other expenses increased $128,000, due to employer taxes related to bonuses paid in the first quarter, restricted stock vesting for new shares granted and one new employee. Operating and other expense includes $130,000 of transaction costs. Expense from discontinued operations in the first quarter relates to the private school, in Eagan, Minnesota that we are actively marketing for sale.

On October 24, 2011 we announce the redemption of our F stocks as Wendy referenced. In accordance with GAAP, we reported a preferred stock redemption charge representing the original issue discount of $3,566,000; additional we accrued $472,000 of dividends up to the April 25 redemption date. GAAP requires that we accrue the second quarter April stub dividends because the notice of redemption was given in the first quarter. Net income available to common stockholders decreased $4.2 million, primarily due to the preferred stock redemption charge and the accrual of the April stub dividend on the shares redeemed. Fully diluted FFO per share was $0.38 this quarter compared to fully diluted FFO per share of $0.51 last quarter. Normalized, fully diluted FFO, which excludes the preferred stock redemption charge and the April stub dividend was $0.52 per share in the first quarter. In the fourth quarter, normalized fully diluted FFO per share, which excluded the Sunwest settlement and the one-time provision for doubtful accounts was $0.49 per share.

Turning to the balance sheet, in the first quarter we acquired two senior housing properties with 118 skilled nursing beds, 40 assisted living units, and 53 independent living units in South Carolina, and four skilled nursing properties with 544 beds in Texas for a combined purchase price of $62.3 million, which includes an $11 million earn-out provision. We paid a total of $52.4 million in cash for the property, and we recorded a $9.8 million earn-out liability. The $1.2 million difference between the maximum earn-out we would pay of $11 million and the $9.8 million earn-out liability we recorded will be accretive to interest expense on a quarterly basis in accordance with GAAP. We currently estimate $464,000 of interest expense in 2011 related to the accretion of the earn-out liability.

We invested $1.6 million in capital improvements on our projects -- on our existing properties, at a weighted average yield of 10%. We received $1 million in principal payments on one mortgage loan and $961,000 in scheduled principal payments on mortgage loans receivable. We have repaid $37.7 million on our unsecured line of credit. Subsequent to March 31, we entered into a new $210 million unsecured credit agreement with a $40 million accordion feature. Pricing under the new agreement is the same as our old agreement, and based on current leverage ratios is 160 basis points over LIBOR. We drew $70 million under the new credit agreement and used cash on hand to fund the redemption of our preferred F stock. Currently, we have $140 million available under our unsecured line of credit and $50 million available on our shelf agreement with Prudential.

During the first quarter we sold approximately 4 million shares of common stock in a public underwritten offering at $27.25, for weighted average price including commissions and offering cost of approximately $26 per share. Net proceeds from the sales were approximately $104 million. During the first quarter, we announced the redemption of our remaining preferred F stock. And, during the first quarter, we paid $13.7 million in preferred and common dividends. In discussing operator statistics, I will give the general caveat that these numbers comes from our operators and are un-audited by us and have not been independently verified by us. Additionally, the occupancy and coverage information for the fourth quarter compared to the third quarter, because we have not yet received financial statements from all of our operators.

Occupancy and lease coverage in our ALF portfolio increased slightly 78%. Excluding properties leased to Assisted Living Concepts, occupancy in our ALF portfolio was 88%. Lease coverage, after a 5% fee, was 1.3 times, before our management fee, or EBITDARM, our coverage was 1.5 times. Occupancy in our properties that provide independent living or a combination of independent living, assisted living and skilled nursing was essentially flat, quarter over quarter, at 90%. Lease coverage, after a 5% fee, increased slightly to 1.6 times. Before a management fee or EBITDARM, coverage was 2.1 times. In our SNF portfolio, occupancy decreased slightly to 79%. Lease coverage for our SNF, after a 5% management fee assumption, increased slightly to 2.1 times; before management fee, or EBITDA, coverage for our SNF portfolio was 2.8 times. I will turn it back over.

Thank you Pam. Clint will now give you some specifics on our investing activities, both new properties and possible investments in our current existing portfolio.

Thank you, Wendy. On last quarter's call, I indicated that our pipeline was approximately $100 million, of which we now have converted 50% of it in to closed transactions. Deal flow continues to be strong, allowing us to reload our active pipeline to the $100 million level. Deal flow is significantly in excess of this amount, so our pipeline reflects selective vetting of opportunities identified or presented to us. We could say that we have a larger pipeline, but there are a lot of deals in the market that are simply overpriced, do not meet our disciplined underwriting criteria or they are transactions for older properties, which we believe would not enhance our portfolio. For the most part, we have elected not to spend significant time or resources on larger transactions that are being competitively marketed. We are hopeful to quickly put some of the transactions in our pipeline under signed letters of intent in the near future.

As deal flow increases, we continually refine our investment criteria, in order to quickly evaluate investment opportunities and focus on those that are most likely to convert into closed transactions. Our primary investment criteria focuses on the following four elements; meeting our initial yield requirements, asset quality, operator experience and transaction size. Given the triple net lease structure of our assets, partnering with experienced and successful operators is paramount. We see our niche is focusing on existing, well-established regionally based operating countries with a successful track record of performance.

Our marketing efforts, as Wendy indicated, specifically target this type of operating company. As it relates to asset type we continue to have an interest in investing both skilled nursing and assisted living properties, or properties that offer a continuum of care a campus-style setting with services ranging from independent living, to memory care. Regardless of the property type, we are focused on acquiring newer physical plans. We will consider acquiring older properties as long as they have been renovated and modernized, so as to be competitively positioned and viable on a long-term basis. Having high-quality physical plans in our portfolio is a key component to our investment strategy in achieving substantial growth.

It has been our experience that transactions with a value in excess of $50 million tend to garner more attention and create an overly competitive bidding process, so we are focusing our efforts on investment opportunities for off market, relationship-based transactions, generally below the $50 million threshold. If we identify a series opportunity in excess of $50 million on an off-market basis, obviously we have the financial capability of executing on such a transaction. We continue to target our initial investment yields in the 9% to 9.5% range. Other investment criteria are important to us such as the state, regulatory and reimbursement environment, barriers to entry and competition, but the four main criteria discussed above allow us to quickly focus our efforts and effectively utilize our resources to identify investment opportunities that can be converted to closed deals.

Turning to our existing portfolio, we are seeing a continued interest from our tenants and mortgager's in having us fund expansion and renovation projects. We are in the various stages of discussions with certain customers on capital projects pertaining to 12 properties for a total capital deployment opportunity of approximately $30 million. We have seen an uptick in interest in our capital deployment programs since the first quarter. This projects include major renovation, expansion projects as well as a replacement property. We are hopeful that by the end of the second quarter, we will have agreements in place with certain customers on capital projects worth approximately $50 million, so construction can begin sometime in the third quarter. I am hopeful that we can reach agreement with our customers on the remaining $15 million worth of capital projects by the end of the third quarter. Now I will turn the call back to Wendy.

Thanks Clint. We continue to see approximately 50% of our revenues coming from skilled nursing operators. As you're probably aware, on April 28, CMS issued proposed revisions addressing RUGS IV for reimbursement levels, and rates in general. Basically, Medicare -- or CMS is proposing that Medicare rates be cut by A, 11.3%, or B. increased by 1.5%. The industry is voting for B. The operators are rapidly addressing this proposal, and I am sure, working as close to the CMS as will be allowed to provide CMS with additional data before they make their final decision.

There is a 60 day comment period, the results should be known by September 1, for an October 1 implementation date. Several of our operators have reported that RUGS IV as been profitable for them, and the impact has been for a very short period of time, I don't anticipate an eventual negative change in Medicare reimbursements will materially impact our operators' coverage, since we have very comfortable covers statistics. But, we await, with the rest of the industry, the possible impact of this possible cut. We did not underwrite recent acquisitions adding in a positive RUGS IV impact, but we also did not underwrite factoring in a possible significant Medicare reduction, either.

We will not be doing any underwriting of new acquisitions with no contingent impact of Medicare rate reductions, and one of the reasons we structured our acquisition of the skilled nursing properties in Texas was because of the uncertainty of the Texas rates, and that is when we have the earn-out. We believe we will be looking to, possibly, including the concept of an earn-out in anything that we might be doing a deal before we know what the Medicare rates will be for the ongoing reasons. Right now, I believe the Texas Medicaid rates are still undecided, but the operators are hopeful that any possible cut will be in the mid-single digit range. We continue to monitor our operators in states in which we own SNF assets, and are diligent when we make assumptions in our underwriting. That being said, the market is reacting to these uncertainties, and we cannot neutralize that at the moment.

We are very positive of this year ahead of us, and I'm thrilled to what we have done so far. But, that doesn't mean that I have changed how I'm going to give guidance. I will not be including acquisitions unless we have a signed purchase agreement. With all of that said, the last call I give guidance between a low of $2.08 and a high of $2.14, using various assumptions of borrowing costs. Guidance I give today will be normalized for two items; the one-time charge of our preferred F buybacks, and the purchase accounting interest that I consider hypothetical interest. Pam explained that we will have about a $400,000-and some charge this year in interest.

Even though my background is accounting, some of these new rules are so obtuse I can't believe it. This accounting rule presumes that we have spent money, incurred costs and did it with no return at all. That is not what will happen. If we make these payments, we will be getting our lease rate of return. But that is not factored under the accounting rules. So I am adding back that and adding back the preferred Fs in giving guidance. Also, since I last gave guidance, we have a new bank line, it is larger than we first projected which is good, but those banks did want more fees to give us more money, so there's a slightly higher cost in our new projections for actual interest costs amortizing the bank fees. And, we have slightly more common shares outstanding than we protected because of our issuance. With all those caveats I am slightly increasing the low to $2.10 but leaving the high at $2.14.

I believe the management team here at LTC is more bullish on our opportunities than we have been in several years. I sincerely look forward to increasing this guidance at our next call. We had a great quarter, and I want to thank my fellow officers and everybody who worked so hard to make everything happen in such a compressed period of time. Thank you, and Rocco will open it up for questions.

Yes ma'am. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Jerry Doctrow from Stifel Nicholas. Please go ahead.

Hello there.

Hello, Jerry.

Just a couple things; and, again it sounds like-- I appreciate the enthusiasm, it sounds great, and what you've done in the first quarter. Just on the CMS and Medicaid a little bit, are there-- obviously your coverage's are very strong, so you have pretty good cushioning. But are there-- is there anybody that you know about, basically, either on the mortgage side or on the lease side, where you have a critically thin operator that we could see a hiccup, based on kind of Medicare or some of the Texas rates? Or, do you feel pretty strong across the board?

Yes, we have good coverage pretty much across the board, but if something awful happened like, say, Ohio, and they got hit both with Medicare and Medicaid significant cuts, I think we would have -- we would still have coverage, but our operators would certainly be making less money, making them very unhappy. But, I don't see any of these cuts that would put them -- anybody out of business right at the moment.

Okay. And, I guess, you -- basically, Texas and Ohio are the two states where you have exposure. We had heard, I thought, that Texas was settled at 6.5%, I'm not sure that's true or not. Where does Ohio stand at this point?

Ohio, they are still-- I think the process is still going on in determining what that cut will be. I think right now some proposed right around these 5% to 7% range, but the investment we have in SNFs in Ohio is only 3.5% or $12 million. So, we have really limited exposure on the SNF side in Ohio.

But I didn't-- Did you hear Texas was settled?

No, I had not heard they it settled at 6.5%. So I think that is still open.

Okay. An acquisition environment, meaning you're sounding obviously more bullish and you have done more here, I mean Clint certainly talked about the pipeline and that sort of thing. I don't know if there's any more color, I assume you're preferring to do senior housing deals given some of the uncertainty about the skilled, 9.5% is kind of your average between, or would you go lower for senior housing? Just trying to understand where that threshold is.

Would go lower for senior housing, Jerry. And, as far as skilled, it is a product we understand, obviously we would continue to evaluate it and look at opportunities as they present themselves. We would factor in considerations for any potential rate cuts, as Wendy mentioned, like in earn-out concept. We would make sure we understood what the state reimbursement on Medicaid was, so we still look at it, we would just be very diligent in the underwriting process.

We are however seeing, Jerry, that in the assisted living area, even on the smaller deals, that prices are getting very, very high again. If there is a broker involved, it is getting to a point where if you look at an assets that is 96% occupied, and they want to include 7% rate increases and have no cost increases in their projections. It is hard for us to get $200,000 a unit or something. So, I would say that even though we have some opportunities in our pipeline for assisted living properties, or properties that have combination usage, I am not as bullish on the assisted living right at the moment.

I think that's too far--I mean, you find a stabilized asset is correct? And, the opportunity may be more into turnaround. Some of the transactions I have seen recently, Jerry, on the assisted living side are coming in at 7% cap rate, at high occupancy, and it is hard to make it work that valuation.

Okay, that is helpful. I think that is all for me, thanks.

Thank you Jerry.

Our next question comes from Karin Ford of KeyBanc. Please go ahead.

Hello, good afternoon. Following up on Jerry's question on CMS, have you guys done a sensitivity on your SNF portfolio, and sort of the draconian scenario if the 11% cut took place and your operators weren't able to implement any efficiencies, what that-- how that would affect your coverage level?

We have been trying to -- we haven't historically accumulated how much operators revenues come from Medicare and Medicaid . We are trying to accumulate that information so that we will have the information going forward. So I'm sorry Karen, we haven't been able to make that.

But again Karin, on that, our coverage is in the two times range, and transactions we underwrote on -- recent elections were underwritten on RUGS III not inclusion on RUGS IV. I think that -- there is a buffer in regard to that in potential cuts.

Is your expectations that cap rates for SNFs is going to rise -- are going to rise dramatically as a result of this? As a result of this?

I would think so. It just creates more uncertainty with the Medicare costs, the Medicaid costs. I think there is definitely likelihood for that to happen.

Which will mean people will be more eager to sell faster.

Yes.

It is worth more today than it will be tomorrow after the cuts.

Got it. And then just turning over to your investment plan, I think on the last call, when you gave the two guidance ranges, you said in the higher range that if you hadn't drawn the Pru debt down, that was likely because acquisitions were coming in a little bit slower than you had expected. Is that the case? Should we be thinking that acquisitions are going to be-- volumes are going to be a little lower for 2Q and then maybe pick up more in the second half of the year?

Yes, I would predict that. Plus, I think our opportunities to deploy capital on our current properties will happen more in the third quarter than the second quarter.

Okay. And what type of yields would you get on those expansions and renovations?

I would say, probably on average, probably between 9.5%, right around 9.5%, 10% range.

That's all I have, thank you.

(Operator Instructions) Our next question comes from John Roberts from Hilliard Lyons. Please go ahead.

Good afternoon, Wendy.

How are you?

Okay, Jerry has most of my question answered already, so let me do a conceptual question. In light of what you are talking about with prices on ALFs getting on the high end of things, you put yourself in externally strong position on a balance sheet basis for purchases of properties. Do you think you're seeing a large enough pipeline to take advantage of that position?

Yes. But not on the ALF properties.

So you are seeing them mostly on SNFs?

Yes. Even with the rate uncertainties, I think we have more opportunity on the SNFs, more accretive opportunity. The ALFs are getting just a little pricey at the moment. We'll see, as the-- I think a lot of the historical financial information-- I think consumers inflation is being recognized or experienced by a lot of places. It hasn't quite flown through everywhere, so I am thinking that the cost set of assisted living are going to be going up. So, I am a little concerned about the cost levels that we are seeing people saying they have in their properties, and are projecting for the next several years.

Is it--Sorry Wendy, go ahead.

Go ahead.

Do think that the upswing or the increase in ALF pricing is more a function of buyer strike, where they are just demanding more money, or is it a function of competition?

I think it's competition. There is obviously indication in transactions we looked at where there are a lot of parties that are interested in buying it. An example; we were looking at a deal recently and we couldn't quite get to the pricing levels the broker wanted, and they said they had enough parties, and we shouldn't even submit a letter of intent. So, it seems like there is a lot of parties that are interested in buying.

And that was in the $50 million range.

Yes, the $50 million range.

So, where are you seeing the competition from? It doesn't seem like the other public REITs are bidding people up. Is a private equity, or is it individual investors? Or what is it?

You know, that is a great question, and it is something we wonder. Because, when we look at it from an underwriting standpoint, we don't see how competitors are getting to the higher levels, so we don't understand that. So, I guess we will have to wait and see if it closes and if not, maybe it will come around for the second time.

But then again we've seen recently at transaction that closed that we looked at and said "We won't do that transaction." And the pricing--it was--

you know the buyer was?

Yes.

Was a public REIT or was it a private equity or was it a private investor?

It was a public REIT.

Okay. Very good, thanks.

Our next question comes from Mark Lutenski from BMO Capital Markets.

Thank you Just a quick housekeeping question first; can you talk about the provision for doubtful accounts for the first quarter, and I think that the prior quarter you said a run rate going forward might be about $200,000 a quarter .I am wondering if that is still the run rate to consider?

No, that now--if you use what the current quarter reflects as a run rate, I would expect that to be similar in future quarters, because when I gave the $200,000 expense we were still reserving for the Sunrise master lease, and we are no longer doing that. So, what mechanically is happening in the provision and recovery for doubtful accounts, is as our mortgage loan balances decrease, we are having a recovery of lost provisions, because we typically estimate about a 1% loss rate on the balance. And, that is offset by an increase coming from straight line rents, so as the straight-line asset balance increases the reserve is being increased, and the two just happen to be offsetting each other right now.

And then, just to touch back on the CMS issue; some of your peers have made the comment that the operators will be able to adapt to the worst-case scenario on the expense side. And, I am just curious, as you look at your operators, and you think about them, perhaps with their smaller size, do you think there will have that ability also to manage expenses in that worst-case scenario?

Yes, I am sure they will be able to manage expenses to some degree. We have said over the last couple of years that the nursing home industry and our operators have been extremely profitable. They do have some profit that they can eat into. It's not like they're going to be making no money whatsoever; they will be making a little bit less money. I don't think our operators are highly leveraged and have a lot of debt that is coming due, so I'm sure the they will be able to adjust some expenses, and maybe change their mix in some manner. And, maybe for a while they will have to take a little less profit off the table.

I appreciate that, thank you.

Our next question comes from Ira Socket of Socket and Company. Please go ahead.

Hello there. A very nice quarter.

Thank you

Me and Mr. Doctrow just got off a call with National Health Investors, the company that holds 2 million shares of your remaining outstanding preferred.

I would wish they would convert it to 2 million, so if you have any influence on them Mr. Socket, please make that call.

I am a very happy LTC investor, I cashed in about 700,000 shares of your preferred. In any case, have you had any discussions with the NHC people? The NHI I mean. You both have the same profile. It was almost the same call, on how under $50 million is what you're looking at. You both have very low debt, relatively low debt to equity ratios, and next quarter your redemption of the 8% should be accretive, slightly. Over the course of your borrowings. So do you have any thoughts of discussion into any kind of a relationship with NHI going forward?

In terms of a relationship, Justin and I have talked several times about if either of us finds a deal that the other -- or that we think we wouldn't like to take all of it, and possibly want to do a partnership, because we would like to enter different types of investment opportunities, we've looked at something. We haven't been able to get all the details, but an operator who has a couple construction projects that they would like to do, and we talked on a high-level about, would you be interested in doing something with us in the area? Relative to a corporate organization or consolidation or a buy or whatever, we are not in any discussions with anybody, including NHI relative to that. But, we do share information, and we are on a friendly basis, and look forward to continuing that relationship.

Thank you.

You're welcome. Thank you for being a shareholder.

Our next question comes from Rich Anderson of BMO Capital Markets. Please go ahead.

I'm sorry to double BMO you on this call. But, I did have a follow-up question to a comment that you made to Karin's question which was, do people -- sellers might be more inclined to sell now because they thought that their property values were going to decline as a result of CMS issues, so should we be looking at that to say well, you're going to buy assets that are going to decline in value a year later? I just wanted you to--

No, no, no. Think that people will probably decide that they need to look at some way of raising capital. No, no, we wouldn't--that would be the wrong way of looking at it.

It would prompt them to move because of the fear of property values going down, and that you would step in, and that would create buying opportunities. That's how I heard it, and I just wanted to make sure that wasn't the case.

I'm sorry, no. That is not what I meant.

Okay, thank you.

(Operator Instructions)Our last question is a follow-up from Karin Ford from KeyBanc. Please go ahead.

Hello, just another one on capital on the balance sheet. How much additional debt and or investments are you guys comfortable making, before you would want to issues some equity again, maybe under the ATM? How much additional debt, what kind of debt to EBITDA ratio for example are you sort of targeting from here?

Well, I don't know that we would issue any more equity. I think we I think we can have another $300 million of debt before we are in the leverage area that other healthcare rates are. To get that much debt we would have to probably do some public debt placement of some sort. I am not sure that we would access our ATM any time soon, certainly not now when we have a much cheaper availability of capital. But, we have quite a bit, I would say maybe $300 million worth of debt opportunity, before we would look at equity.

Right, okay. And final question on the guidance, I think you said on the last call that the first quarter you expected to be at $0.50, if nothing happened. You ended up at $0.52, so a little bit better. You did the equity deal with Preferred, which should be a little bit accretive in the second half of the year. It seems like you are trending, with all those things toward the higher end, as long as you're not trying down the Pru debt. Is that the right way to think about it?

It is. What I don't factor in -- at the high end, we don't have a lot of acquisition cost that haven't been converted into good deals. So, I am giving ourselves some rooms for costs that aren't capitalized anymore.

Okay, fair enough. Thank you.

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

Thank you, and thank all of you for taking your time to join us today. We will talk to you next quarter. Have a great day. Thank you.

The conference is now concluded, thank you for attending today's presentation, you may now disconnect.