LTC Properties Inc (LTC) 2011 Q4 法說會逐字稿

Good day and welcome to the LTC Properties, Incorporated, fourth quarter 2011 analyst conference call. All participants will be in a listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

Before proceeding, please note this presentation contains 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, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their 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 events, conditions, and financial trends that may affect our future plan of operation, business strategy, results of operation, 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 healthcare 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 healthcare industry; regulation of the healthcare industry by federal, state, and local governments; compliance with and changes to regulations and payment policies within the healthcare industry; debt that we may incur and changes in financing terms; our ability to continue to qualify as a real estate investment trust; the relative liquidity 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 10-K for the fiscal year ended December 31, 2010, 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. Please also note this event is being recorded. I would now like to turn the conference over to Wendy Simpson, CEO and President. Please go ahead.

Thank you. Hello and thank you for joining us today. I have with me today Pam Kessler, our Executive Vice President and CFO, who will be commenting on our 2011 fourth-quarter earnings and year earnings; Clint Malin, Senior Vice President and Chief Investment Officer and Andy Stokes, Senior Vice President of Marketing and Strategic Planning. After Pam's presentation, Clint will comment on our deal pipeline as we see it so far this year, and Andy will comment on how we are approaching our networking and marketing efforts for 2012. Pam?

Thank you, Wendy. I'm going to discuss fourth-quarter 2011 compared to third quarter 2011. I will refer you to the 10-K filed yesterday for discussion of year-over-year comparisons. Revenues increased approximately $868,000 due to acquisitions. Interest expense increased approximately $200,000 due to the scale of $50 million of senior unsecured notes to Prudential in July, and a higher outstanding balance on our line of credit, which was partially offset by lower interest expense related to the earn-out liability accretion, resulting from the payment of the first earn-out in the third quarter of 2011. Acquisition costs increased $108,000 due to the re-acquisitions in the fourth quarter. Operating in other expenses increased approximately $200,000 due to cost associated with our analyst day, marketing, and two new employees.

Expense from discontinued operations relates to an independent living property in Texas. GAAP requires that we reclassify income and expense related to properties sold or held for sale to the line item discontinued operations. Net income available to common shareholders increased $184,000 primarily due to acquisitions, partially offset by higher interest expense, acquisition cost, and operating and other expenses. Normalized fully diluted FFO per share was $0.55 this quarter compared to $0.54 last quarter. Normalized fully diluted FAD per share was $0.54 this quarter compared to $0.52 last quarter.

Turning to the balance sheet. During the quarter we purchased a 196-bed skilled nursing property in Texas for $15.5 million, and a vacant parcel of land in Amarillo, Texas for $844,000. We have committed to fund the construction of a 120-bed skilled nursing property, an amount not to exceed $8.3 million. This new property will replace a 90-bed skilled nursing property in our existing portfolio. We believe construction will take 12 months to 18 months, and upon completion, the lessee intends to relocate residents from the existing skilled nursing property to the new skilled nursing property and the existing property will be held for sale. At December 31, 2011, the net book value of the existing property was approximately $500,000. Additionally, we've purchased a 156-bed skilled nursing property in Colton, California for $17.5 million.

We invested $723,000 in capital improvements at a weighted average yield of approximately 8.75%. We received $275,000 in principal payoffs on a mortgage loan, and a $707,000 in scheduled principal payments on mortgage loans receivable. During the quarter, we amended our shelf agreement with Prudential, increasing availability by $100 million. At December 31, 2011, we had $56 million drawn on our unsecured line of credit, subsequent to December 31, we borrowed $4 million. Currently, we have $60 million outstanding, and $150 million available on our line of credit. Additionally, we have $100 million available under our shelf agreement with Prudential. During the fourth quarter, we paid $13.6 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, are unaudited and have not been independently verified by us. Additionally, the occupancy and lease coverage information is for the trailing 12 months, third-quarter 2011, compared to the trailing 12 months second quarter 2011. Occupancy in our same property ALF portfolio was 77%. Excluding properties leased to assisted living concepts, occupancy in our ALF portfolio was 88%. EBITDAR lease coverage after a 5% fee was 1.4 times. Before management fee or EBITDARM, coverage was 1.6 times. Occupancy in our same property SNF portfolio was 78%. EBITDAR lease coverage after a 5% fee was 2.2 times, before management fee or EBITDARM, coverage for our SNF portfolio was 2.9 times. Occupancy in our same property other senior housing portfolio was 83%. EBITDAR lease coverage after a 5% fee was 1.7 times. Before management fee or EBITDARM, coverage was 2.2 times.

Quality mix for the nine months ended September 30, 2011 for our same property portfolio which includes skilled nursing, assisted living, independent living, and properties with a combination thereof, was 61% private pay, 14% Medicare, and 25% Medicaid. Within our same property SNF portfolio the quality mix was 24% private pay, 26% Medicare, and 50% Medicaid.

Thank you, Pam. Let's now talk about our deal flow and our pipeline.

Thank you, Wendy. Last week we executed to counter-signed letters of intent. The first letter of intent is for an $18.6 million acquisition of a skilled nursing facility built in the early 2000s, which is being operated by an existing customer. Property will be added to our master lease. The purchase and the sale agreement is being negotiated and the transaction is expected to close on or about March 31, with an initial cash yield of 9% and a GAAP yield of 10.8%. This opportunity demonstrates our continued focus on follow-on investments with new relationships added to our portfolio over the past couple of years. The second letter of intent is for a $9 million commitment to fund the acquisition of land and construction of a freestanding private pay memory care property. We expect to enter into binding agreements by the end of March. If due diligence proves successful, we anticipate closing the land acquisition around April 30, with construction to commence relatively soon thereafter.

We have been steadily building our pipeline since the slowdown in deal flow following CMS's announcement last year of the decrease in Medicare rates. Including the deals mentioned above, our active pipeline is at approximately $150 million. At the present time, approximately one-third of our pipeline consists of potential development opportunities, primarily for investments in freestanding private pay memory care properties. The remainder of our pipeline is mainly existing operational, ALC, and a couple of nursing homes. The volume of SNF transactions has been relatively low. But we believe the market for SNFs is still in a holding pattern as companies continue to assess the impact of the recent Medicare rate reduction, as well as implementation of potential cost-saving efforts. At this point, we are anticipating the acquisition of SNF assets to be back loaded for this year.

As we presented at our analyst day event in the fall, we are specifically targeting investment opportunities to fund the development of freestanding, private pay memory care properties. We're targeting memory care opportunities because -- one, we believe the demographics are very compelling; two, there are a few existing freestanding private pay memory care properties in the country; three, there is limited availability of construction financing in the marketplace today; four, this is an excellent entry point from a cost perspective as land, labor, and materials costs are still relatively low; then finally, we are investing for LTC future with these new assets will be cash producing assets primarily generated private pay revenue.

Today we see freestanding private pay memory care to be in the early stages of its life cycle, just as assisted living was in the mid-90s when LTC commenced a development program to strategically enter the private pay market. We believe the diversification of having private pay assets with our portfolio has served LTC well over the years, and especially at any point CMS announces Medicare rate reductions. We are in active discussions with multiple companies regarding additional development opportunities for memory care properties. Our goal is to focus on tenant diversification for our development program, targeting investment of five to seven properties per operating company. Most development opportunities we are evaluating today are for properties that will have approximately 50 units to 70 units, with all-in cost estimate ranging from $9 million to $14 million depending on location. Additionally, we're looking to make these investments in locations within Metropolitan suburban markets with sufficient demographic density affluence, and limited available land for new development creating a barrier to entry.

Turning quickly to our existing portfolio. We have approximately $40 million-plus pipeline for renovation and expansion projects within the portfolio. The majority of this pipeline relates to SNF assets that we have seen an uptick in interest from our assisted living operators to fund additions to our assisted living facilities. To be successful in reaching agreements in terms with our tenants on these projects, I anticipate the projects will commence toward the latter part of 2012. And now, I will turn the call over to Andy to discuss the marketing and development efforts for 2012.

Thanks, Clint. (inaudible) for 2012 are going to be in some sense a continuation. We had a very interesting board meeting at the end of last year. One of our directors reminded us to not forget what got us to this good place. We're not going to forget that. I want to give a couple examples of how we implement our networking and market expansion. I want to talk about how we look at deploying our marketing resources.

Memory care is, as you heard, are really high priority. The occupancies in this field are high. Very little supply has been added in the last five years and the demographic bulge is going to cause demand for Alzheimer's, specifically, to really accelerate much more so than it has been in the last 10 years or 15 years and that growth has been very good. We think now is a good time to build Alzheimer's facilities and assisted living, especially Alzheimer's.

So, who do we think we can do this with? How do we go out and find them? Sticking to the things that got us there, we needed to find relationships between a tenant and a developer. We don't want to go with people who are maybe good operators, but they never built buildings before. They can be smaller companies, but they are still going to be multi-facility. And we want the same things we all should think about, we want somebody who is committed. We want them to have character. We want them to be successful so far. The locations that we target marketing on -- or the target markets, are governed by really fairly familiar phrases. We've all heard them, population characteristics and economic base, favorable labor environment; for instance, right-to-work states have some interesting advantages, and also barriers to entry.

In the SNF area, we are all familiar with barriers to entry as being CON. There are 36 states that have CON, and 14 that do not. The median occupancy in states that have CON is 87%. The median occupancy for states that do not have a CON is an 83%. It's not a big difference. And we are often -- we often hear people talk about it. I wonder, sometimes how effective it is. We ask ourselves that question. We say -- and I think the answer is, it depends. It is not -- it helps a little, but to say that CON is necessarily favorable as an over simplification. The non-CON range of occupancies goes all the way from a high of 93% down to 68%. That is for non-CON states. For the CON states the range starts at 95%, but it goes down to 67%, which by the way is Oklahoma. Has very little occupancy and does have a CON law.

Moving back to the general of the demand and the market view of Alzheimer's and assisted living. One of the numbers that I came across is there are a little over 6 million people in the United States right now who are over age 85. And that, of course, is going to grow. Demand estimates for Alzheimer's vary a good bit. We've heard numbers like one in seven of people over 85 are going to need Alzheimer's care and whether or not they can afford it is perhaps another issue. We've done some checking with the Centers for Disease Control, we have an ongoing study in this field, and they think that one in seven is probably not a bad guess. Remember again, there's about 6 million people over 85 now. In the next 18 years, the number of people over 85, will increase by 3.5 million. It will be grown by almost 6% -- 50%, excuse me.

We are only now hearing this increase in the bulge. We all talk about the aging of America, but remember that really started in about 1946 through 1955, which was the real boom in the baby-boom. And that population cadre ages and moves through the population profile. So as this thing -- as these people age and need more care, we have a situation where right now most Alzheimer's facilities are pretty much full and you are going to increase the base demand by 50% over a fairly limited period of time. We think that bodes really well for our initiative into this range, into this kind of care. Wendy?

Thank you, Andy. I've got to say that 2011 was a very active and successful year for LTC. On the financial front, we redeemed all of the balance of our 8% preferred Fs, put close to 4 million new common shares into the market. We arranged a new $210 million, 4-year unsecured line of credit, which has an accordion feature of another $40 million. We added a new, major bank to our existing strong bank partners, and we arranged an additional $100 million shelf with Prudential. We closed over $100 million in acquisitions with GAAP yields in excess of 10%, and we committed to spend over $8 million in 2012 for a replacement SNF facility that Clint mentioned earlier.

Our year-end debt-to-market cap was 14%. Including the preferred shares of outstanding debt. It was 17.4%. We currently have debt-to-borrowing capacity of $250 million without exercising the accordion feature of our bank line. We have approximately $64.6 million available under our ATM. And as evidence that we are disciplined in using this equity funding vehicle, when we hit a closing high of $32.72 on February 6 of this year, we did not tap this liquidity because we still believe we can better finance the Company at this time with favorably priced debt. Our fixed charge coverage ratio, including preferred dividends at the end of 2011 was 6.3 times and our interest covering ratio was 11.7 times. While we're not pursuing a rating from any major rating agencies because of our size, we are careful to keep our balance sheet comfortably within investment grade ratios, so that as we achieve the size that would support an investment grade rating, we will have the balance sheet to support such a rating. We have $60 million outstanding under our line of credit and when we close the $18.6 million transaction Clint mentioned, we will have about $78 million drawn.

At the beginning of this year we modestly raised our dividend to $0.145 a month, which is only about a 3.6% increase. This puts us at a FAD payout ratio of less than 80%. Because of some uncertainties continuing around Medicare and Medicaid rates, our Board determined that it would be prudent to slightly increase the dividend at the beginning of the year and perhaps address it later in the year. Andy and Clint have described our strategy and opportunities currently have before us. We are diligently, but cautiously, pursuing the opportunities to commit today for assets that will be significant additions to LTC's portfolio. Because we have not done many de novo projects -- basically, since we helped create assistant living concepts in the 1990s, we're building our resource group of professionals as we are building our client base, and these activities take a little longer than just purchasing a built and operating facility.

Pam is constantly reviewing financing alternatives. We talk to lenders and investment bankers about any new product in the market. Sometimes we find them entertaining and some are actually options for LTC as we see our financing going in the future. I expect sometime this year, we will change our debt structure a little bit. I am not sure what we will do. It is likely we will term out some of our debt as we keep drawing down on our line for our acquisitions. But, I can assure you we will carefully layer and stagger our maturities as we've done in the past.

I want to thank you for supporting us in 2011. We have been rewarded for our efforts with a very nice increase in our share price during the fourth quarter and so far this year compared to last year. I also wanted to disclose that I will likely be selling some of my shares during this upcoming brief open trading window. I am doing this solely for tax planning purposes and would like to do it early in the year so that the six month runs that I can't buy. I am not looking forward to losing the dividend, but I believe it is personally prudent to lock in some capital gains this year for both federal and state taxes. I will maintain a significant investment in LTC common stock, and will maintain over five times the guidelines we got established for officers and board members. So you don't have to look at the proxy, my guideline is three times my base salary. And I will maintain about 17 times my base salary. So I am well within our guidelines. I will file a form 144 so you will have the details of how many shares I am going to sell. Clint has advised me that he is going to exercising some options and sell a few shares, so you might see that happening in the market also.

As to guidance, Pam has provided me with a detailed schedule of our various analysts' projections for LTC in 2012. There is some common and some individual assumptions regarding total investments, possible equity raises, terming out some debt, et cetera. There is nothing in any of the set of assumptions that would cause us to argue with resulting FFO or FAD projections. However, based on the earning assets and the debt levels we had at the end of 2011, and no additional investments or changes in debt levels, common shares outstanding or interest increases our line of credit, we would have fully diluted normalized FFO and FAD of between $2.23 and $2.25. The only item we normalize in our internal projections is the amortization of the earn-out we committed to in 2011, and that's about $480,000-some, this year. The $2.23 to $2.25 range does not include the positive $18.6 million investment which Clint talked about, which should add approximately, for this year, for the nine months that we will have it as an earning asset, approximately $0.03 of FAD. That's net of financing costs. Nor does it include any other acquisition assumptions.

This has been a really fun year so far. We're meeting so many new companies and people, we're enjoying continuing our strong relationships with our current operators. 2012 looks to be another strong year for growth of LTC. I want to thank my fantastic team of executives for all they've done and all that they are going to do to grow LTC for this and future years. Thank you and we'll take questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

At this time we'll pause momentarily to assemble our roster. James Milam, Sandler O'Neill.

Good morning, guys.

Hi, James.

My first question is just on the $40 million of CapEx in renovation that Clint outlined, does that include the $8 million for the replacement project? And then Clint, if I understood you right, were you suggesting that some of these are SNF buildings that are adding AL wings? Or did I misunderstand what you were saying, a lot of those projects include?

First off, the $8 million replacement project is not part of that $40 million. $40 million is on top of that. And, it was more -- we've seen a lot of the investments we've made on capital projects have been on skilled nursing facilities. But, we've seen assisted living operators approach us about adding on to assistant living. So it's not adding a AL to SNF, it's just some of our AL properties operators have approached us about expanding the existing assisted living facilities or adding other projects such as maybe memory care.

Okay, thanks. When you look at these projects, are these -- I guess what do you expect in terms of actually getting these capital investments made and starting to earn some revenue for you guys?

We've been in discussions with parties. I think the skilled side pulled back a little bit with the reduction in Medicare rates and going through the cost mitigation side. So now that they've been working through that, I think as we get into the first and second quarter, I think we'll see people now focusing on that and being able to implement this. I think as indicated, it will be towards the latter part of 2012, when we see these projects start to commence the construction process or renovation process. And then you will probably see the increased rent occurring in 2013 most likely. Depending on the size of the project. But we have a number of projects that are fairly sizable that are in the $2 million to $4 million range. And some a little bit higher than that.

Okay, great. Thanks, that's helpful. And then on the memory care, construction project you have a letter of intent, will that be kind of a similar structure as the replacement property that you're building now, and can you just give us the yields on that?

Sure. It would be a similar process where we would be capitalizing interest during the construction process. The yield we would be looking at -- on memory care, we're looking around the 9% range give or take, it depends upon the credit enhancements that we get out of these transaction depends on the operating company is. So there is different factors that go into that, but give or take the 9% range. On the one we are looking at, on this will be 9.25%.

Okay, thanks. Kind of continuing on that, what are you guys seeing broadly speaking? It sounds like you're looking at assisted living than you have over the last year or two. Just broadly can you talk about Cap Rates and if you're seeing compression, or if you were able to underwrite some of these investments more accruetively given your cost of capital, et cetera? How you guys are looking at pricing and accretion and ability to make investments now?

Actually, Andy, do you want to take that?

Yes. I would -- the inherent risk in SNF is always a little higher we think than assisted living. It Is more government dependant. It has a higher operating leverage so the earnings are more volatile. So we always underwrite those to a little higher coverage ratio. I think now there are more skilled-nursing facilities on the market. And prices have not adjusted downward quite yet. We've always been quite conservative, so if you look back at our acquisitions, we've got a lot of them done with new buildings or almost new buildings at or below $120,000. And those were in major metropolitan markets. So, on that side, I would say our underwriting is probably around 9%, plus or minus. And, for an existing ALF, which we are still very interested in, it's probably going to be around 8%, plus or minus, and those properties are very popular. They go fast. So we're continuing to be nimble.

Okay, so you're not saying a tremendous -- it's not like there's an increased amount of assisted properties that you guys are seeing that may fit your criteria just Cap Rates haven't really come into a level you're comfortable with, generally speaking, right?

No. It's kind of -- we are still slag -- sluggish.

Okay. And the last one. I'm probably being a little selfish here but, can you guys just remind us what you are expecting for EBITDARM coverages for the skilled nursing facilities after the Medicare cuts? And if after what you've seen in the first five months so far you still feel good about that projection?

We were talking about 1.9 times. And, we are still pretty comfortable with that. And, James, I want to go back to one other item -- one of the other comments you talked about the, $40 million pipeline we have with existing opportunities. Or within our portfolio.

Yes.

There's a couple of projects that we're looking at possibly adding memory care, and those may be a little bit larger. I had said down the $2 million to $4 million range, but we're looking at a couple that could be in the $6 million to $7 million range per location, which would be the addition of another service onto the same site as the assisted living property. So, I just wanted to let you know we are looking at more significant investments on our existing portfolio.

Okay, great. Thanks. Let me share the line here.

Mark Lutenski, BMO Capital Markets.

Good morning.

Morning.

I just want to follow up on the memory care initiative. How large do you expect that to get over time? As part of your portfolio?

I would expect -- well, it is hard to say. Our goal is to make it big enough that it requires it's own line item on the balance sheet. So, we have a governing mechanism within our line of credit that we could have only X percentage of our total assets under construction. And I think that limit is like $120 million right now. I mean, that will change. But I expect at any time this year, we might have anywhere between four and eight projects in construction. So if we did that and did it comfortably this year, relative to our access to resources to do this type of thing, I would expect that we would look to be adding maybe $25 million to $30 million a year in memory care. Maybe the next year we go a little faster, we do a little more, if it looks like a successful project. But I think that's about the pace we would be looking at.

And so would that be starting in 2012?

Yes, starting in 2012.

And so is that contemplated in guidance?

No, it's not.

Okay. And then, a housekeeping question for you. On the mortgage loan receivable portfolio you guys have, there's a couple of maturities in 2012 and 2013, was wondering what the conversations you have had with those borrowers and what indication they have given you for what they would like to do?

Hi, Mark it's Pam. For the 2012 maturities, it's $2.7 million and we anticipate that that will get paid off. And that is approximately $388,000 of revenue annually. That would be going away. In 2013 there is one portfolio, assisted living properties that are secured by the mortgage loan and the principle that is due on maturity is about $15 million. We are going to be in discussions with them this year about possibly refinancing that. So, I don't have anything to announce right now. And I think we are in preliminary talks, but that is portfolio that we targeted for perhaps refinancing, rather than having them pay off that maturity.

Okay, great. Thanks.

Daniel Bernstein, Stifel Nicholas.

Thank you for taking my questions. And congratulations on the great 2011, year valuations.

Thank you.

Back to the construction side on the Denovo projects, are you building a Denovo team, or are you adding personnel, how should we think about your G&A for 2012?

We're not adding anymore personnel. We are accessing professionals on the outside. Firms that might have new construction management. It's taken us a while, but we've identified a law firm that has some experience in this type of thing also, healthcare building and that sort of thing. We believe we have a law firm that is multi-state friendly so can help us through those sorts of things. We've always had an engineer that we have worked with on our properties and our renovation of those properties. So right now, I think we are going to be using outside resources. If it gets to be a program where we can see a significant future development opportunity, we might look to add a couple of people. But I think right now we are going to try to access outside organizations.

Okay. And, how are you actually building this pipeline? Are you approaching different operators that you want to build a new relationship with? And say this is a project we can do for you? Or some of these operators actually approaching you, and we have a project. We have some land. We need some funding. We can't get it at this time from the banks.

Yes.

How does that work?

Let me have both Clint and Andy talk about how we've found some of the people that we are currently working with just anecdotally. We have actually approached almost every operator that we work with and said, we're interested in doing this. The SNF people understand academically -- but I don't want to tar everybody with the same brush -- but basically what we are looking for is the high-end memory care standalone facility. When you talk to a predominately SNF operator, they always are thinking of how to add the SNF services in addition to what we're talking to them about. So I think we are going to have a little bit more challenge, thinking of a project that way as opposed to a pure memory care, high reimbursement type of environment. We've talked to some of our ALF operators, and they take care of this disease within their four walls. And some of them are thinking about building outside of those four walls, too. So we have approached them. The new people, Andy and Clint, tell us how we found some of these new people.

The general marketing approach is to find the names of people we want to meet. We find that we do that for resources that are in the public domain, referrals from friends, state associations, various trade organizations, and the memory care aspect of the trade associations has become very active in the last 12 months. We are taking a bit of a leading role in that. I would like to think. We are -- so for instance, American Healthcare Association as a new -- that's a SNF organization, but they have a new sub-organization that is specifically on assisted living and has a major focus on memory care. So we are sponsoring some things on that and taking a real -- as I said, I would like to take a leadership position. These are fairly new. So by being active in those areas, we get names of good companies and we go after them. I'd say that that's been the most successful. I don't think that's any different than the marketing, most of the people on this call do.

And also, as we are having conversations and talking to people, whether it be conferences, telephone calls, it's getting the word out there. This is something we are very much interested in. And we've had phone calls also from people who talk to that person and said, oh, you are interested in doing this. It's really getting the word out there that we want to do this. And part of the interest that I have seen in talking to the operators that we are in discussions with is they find it as an interesting alternative to a typical debt equity structure because when they do that, they have got to look at a recap event five years down the road. Which means they buy the property at an elevated price for what they've helped contributing into it. Or the equity owner wants to monetize the investment for the highest price possible, and then operator then loses control of that asset. We really align long-term interest in that regard where we give the operator the ability to have a long-term lease for 20 years to 30 years, and likewise we have an investment, a new investment in the portfolio for the long-term. It's a good alignment of interest.

Are the new operators requesting purchase options, on these new properties?

Everybody. Everybody asks for a purchase option. There is a lease renewal, can I have that with a purchase option? No, you can have french fries, but you can't have a purchase option. (Laughter)

So french fries yes, purchase option no. (Laughter)

(Laughter) Okay. And how would you characterize in terms of the split of new operators versus existing operators? I assume if these are existing operators they are going to be placed in master leases, but if they are new operators it's not a master lease, and you require some additional credit enhancements? I mean, would that be the right characterization?

I think so.

Yes. I'd say we're probably 80% new operators and 20% existing operators, right now. And there are basically three types of companies that we're talking to. Or types of deals. One is a relatively new company that has a few employees that are coming together. They are forming their company. They may have one property that is currently under construction, and they don't have a lot of overhead yet. But they've got all of the financial people, and they've got operational people and some development type people. So, if we are going to do a deal like that, we are going to be sure that some -- the site is within an area that we already have strong operators. So should anything happen, we could ask maybe a [Brookdale] to look at the property and take over the property. If we are doing a development with somebody that is already in the field and has some real operational substance, we might take an investment in an area that we don't have a concentration of operators in.

So we are looking at -- these companies that we've been talking to are in various forms of maturity and development, and we are underwriting and structuring each deal to take into consideration those factors. Which also takes us a little longer. Each one of those deals has a little nuance of accounting issues. And so then we have to go back to our accountants and say, we don't want to have a variable entity here. So, how do we do it? This year is going to be, though we started I think in the last half of last year, and we made a lot of progress. In the first quarter of this year, we have made a lot more progress, and I hope that each transaction will go a little quicker. But that's kind of where we are in the companies that we are talking to. So far the companies that we have seen.

One more question. And I don't want to ruin the joy, but I will switch to Medicaid. It's a little early, obviously, in the budget process in the states, but do you see any budget proposals at the state level that are giving you some concern in any of your major states where you have SNFs?

We continue to see budget pressures -- this is Andy -- in all of the public reimbursement areas. I don't think that there is any significant change over the last six months. Probably. But, that's not just Medicaid, it's Medicare and it's going to be constrained. That's why we have all these underwritten, the very conservative ratios, and we have great coverage in SNFs, and we want to grow at more private pay.

There isn't any state of any operator that we talked to that has -- that we are aware of that has any issues on the budget tabled -- significant issues on the budget table. The only state I am aware of is Illinois. We don't have any -- I don't think we have any assets at all, SNF or ALF in Illinois. We are not aware of any significant state changes.

Okay. I'll jump off. Thank you.

Thank you, Dan.

Todd Stender, Wells Fargo securities.

Hi, good morning, thanks.

Morning.

In Kindred's release they indicated that the Medicare cuts have been deeper than they originally estimated. Can you comment on how those -- on how their comments compared to what you're operators are saying? Or maybe this is a Kindred specific issue?

It might be a Kindred specific issue because our operators are not indicating that it's deeper than they thought. Now Kindred could include their LTAC impact, which are operators don't have LTACs. And Kindred might've had a more acute base of residents than our operators had. So our operators are not indicating that it's a deeper cut than they thought. And, from the conversations Clint has had with operators based on their year-end results, they been able to mitigate about 50% of the impact.

Okay, so that's essentially unchanged. I think it was about 50%. So essentially their cost of mitigation efforts are on track?

Correct.

Okay. And along those same lines, any comment on the industry could potentially see the Ventas SNF portfolio go to market. Does that do anything to pricing? And any comments about that?

I don't have any comments on that. I think we've let Ventas know if they are going to sell, come and look at us, or give us a chance to look at the packages or package. But we've heard just through the grapevine that they might be several large packages of skilled properties on the market. So, we are just going to have to see.

In bite-size pieces where LTC might be interested?

Yes.

Okay. And, can I get an update on Assisted Living Concepts? Any thoughts or updates on that company?

I don't have any updates. Has their coverage ticked up this 10-basis points that usually ticks up?

Their occupancy was relatively flat and so was coverage.

Okay. No change.

Okay. Thank you.

You're welcome.

Karin Ford, KeyBanc Capital Markets.

Hi, good morning. You've hit $100 million of acquisitions in 2010 and then again in 2011. And I recognize that it's hard to predict where things are going to go through the course of the year, but just based on your pipeline today, the fact that its activity seems to have picked up back again, plus your new memory care initiatives, do you expect that there's a chance that LTC could do another $100 million of investments in 2012?

Yes, I do expect that we could do that.

Okay. And then, the other question is, just a follow-up to that last question on the SNF portfolios. Would LTC potentially be a buyer in a large portfolio type of transaction? Or do you think you would only look at sort of either one or a couple of portfolios, couple of property deals?

Well, it would be a hard decision, Karin. If the deal were very, very good, we might do a large portfolio deal. But, we're so comfortable with our balance sheet being sort of half and half, and we are making an effort to buy into more of the private pay, that if we did a big SNF portfolio, it would change the sort of nature of our Company. But it would be something if it was the right thing or a good deal to do, I think we would have a long board meeting about it.

Helpful. And just a final question. You mentioned you probably want to term out some of your line exposure this year. What type of timing do expect on that? How much line exposure are you comfortable before you want to do that? And would the likely refinancing of that be the Prudential debt?

We've been talking to several people about doing some term debt. Which seems to be attractively priced right at the moment. The problem with the term debt is that the term basically is five years to seven years, where Prudential we can go out further. So in terms of when we might do it. I think we are, as a management group, are comfortable having between $150 million and $200 million of real liquidity, meaning we could draw it very quickly. So that as we -- as we send out LOIs, we know that if we get very successful, we actually do have the liquid assets. So when our line gets to be over $100 million, I think you'll see us doing something like that. In some sort of terming out.

Yes, that's helpful. And just what's the type of rates you get quoted on term debt?

Similar to our line. And, as low as 140 over LIBOR is one of the discussions we had. Our line is currently 150 over LIBOR so the term rate was even more attractive than our revolver.

And if you swap that out to fixed, would that be roughly in the 3s?

Yes.

Okay. Great. Thanks very much.

Thanks, Karin

(Operator Instructions)

Please hold while we pull for any further questions. Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Wendy Simpson for any closing remarks.

I want to thank everybody on the call again for taking your time and your interest in LTC. We will be talking to you relatively shortly after our first quarter. We will do a separate press release when we have the signed documents for the $18 million acquisition that we talked about today. And hopefully we will have some more press releases in the near future. Thank you so much. Have a great day.

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