LTC Properties Inc (LTC) 2014 Q4 法說會逐字稿

Good day and welcome to the LTC Properties Incorporated Q4 2014 analyst and investor call and webcast. All participants will be in a listen only mode.

(Operator Instructions)

Before Management begins it's presentation, please know that today's comments, including the question-and-answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to may differ materially. These risks and uncertainties are detailed in the LTC Properties filings with the Securities and Exchange Commission from time to time, including the Company's most recent 10-K, dated December 31, 2014.

Please also note, this event is being recorded. I would now like to turn the conference over to Ms. Wendy Simpson, Chairman, CEO and President. Please go ahead.

Thank you, Denise. Good morning everyone and thank you for joining us today. This morning, Pam Kessler, our CFO, will start our presentation with comments on our financial results for 2014, fourth quarter and the year end. After Pam's comments, Clint Malin, our Chief Investment Officer, will talk about transactions that closed in, and subsequent to the fourth quarter, as well as our current outlook for 2015 investments. At this time, I will turn it over to Pam. Pam?

Thank you, Wendy. Normalized FFO increased 4% for the fourth quarter of 2014 to $22.8 million, or $0.64 per share on a fully diluted basis, from $21.9 million, or $0.62 per fully diluted share, a year ago.

Revenues for the quarter increased nearly 8%, or $2.2 million year over year, primarily reflecting investments made in the second half of 2013, along with completed development and capital improvement projects in 2014. Fourth quarter interest expense was $3.7 million, an increase of $831,000 over the comparable 2013 quarter, due primarily to the sale of senior unsecured notes to fund acquisitions and development. The reduction in the provision for doubtful accounts this year reflects loan payoffs in 2014, resulting in a recovery of prior bad debt provision, and the one-time non-cash provision for loan loss reserve, related to the mortgage loan origination, and straight-line rent right off last year.

General and administrative expenses were $3.3 million, or $628,000 higher this quarter, compared with the year ago, due to increased staffing levels, higher transaction and legal cost and the timing of certain other expenditures. Currently, we are anticipating a G&A run rate of approximately $3.2 million per quarter, for 2015. As previously disclosed, during the fourth quarter of 2014, we recognized a $3.8 million gain related to the sale of 16 assisted-living properties, with 615 units located in Arizona, Idaho, Oregon, and Washington, which were sold to Enlivant for $26.5 million.

Turning to the balance sheet. During the quarter, we invested $11.8 million in properties under development, and capital improvement projects, at a weighted average yield of 8.9%. Capitalized interest for the quarter was $290,000. As previously announced, in November, we purchased a parcel of land in Illinois for $1.4 million, which we added to a master lease, with an affiliate of Anthem. Simultaneous with the purchase, we entered into a commitment to develop a 66 unit Memory Care property for $10.8 million, excluding the land price. Additionally, we purchased of 48 unit private-pay Memory Care community in Castle Rock, Colorado, for $9.8 million. We added this property to an existing, 12 year master lease, with an affiliate of Senior Lifestyle Corporation. Clint will discuss our growing relationship with Senior Lifestyle and our 2015 investment activity, momentarily.

In conjunction with the acquisition, we agreed to pay a $4 million earn out, based on certain performance targets. Accordingly, we recorded a $3.2 million earn out liability, which represents the estimated net present value of the future payment we expect to make.

During the 2014 fourth quarter, we funded $1.8 million under a construction loan, and received $7.5 million in mortgage loan receivable payoffs in principle amortization. As previously disclosed, we amended our unsecured credit agreement, increasing commitments to $400 million, from $240 million, with the ability to increase total commitments to $600 million. The amendment also lowered the pricing grid by 25 basis points, based on certain leverage ratios. Current pricing under the agreement is 125 basis points over LIBOR, with an unused commitment fee of 30 basis points.

Additionally, we added Credit Agricole and Union Bank to our bank group, and extended the maturity of the credit agreement to October 2018, with a one year extension at our discretion. Currently, we have borrowings of $18 million outstanding, and $382 million available under our line of credit. Additionally, we prepaid $1.4 million of bonds, secured by five assisted-living properties in Washington. Thus, we no longer have any secured debt outstanding on our balance sheet.

In the fourth quarter of 2014, we received $24.6 million in net proceeds from the sale of 600,000 shares of common stock, in a registered direct placement. We granted 7,500 shares of restricted stock, and received approximately $800,000 in proceeds, from the exercise of 33,334 stock options. At the end of the quarter, LTC's investment grade credit metrics remained one of the best in the healthcare REIT universe. With debt to trailing 12 months normalized EBITDA of 2.6 times, a normalized trailing 12 months fixed-charged coverage ratio of 6 times and a debt to enterprise value of 15.4%.

I'll now turn the call over to Clint.

Thank you, Pam. Good morning everyone, and thank you for joining us today. We are very pleased to have expanded our relationship with Senior Lifestyle, our fifth largest operator, as measured by revenue, with the addition of the recently acquired Memory Care commuting in Castle Rock, that Pam mentioned.

The property, which was acquired in an off market transaction from a single property owner/operator, complements both LTC and Senior Lifestyle's existing Colorado footprints. The property, which was built in 2012, demonstrates a successful execution of LTC strategy, to invest in newer and more modern assets. We have enjoyed a tremendous start to 2015 by closing on transactions, and entering into new development commitments, relating to four properties and two parcels of land. These transactions total $74 million.

First, we are very excited to establish a new relationship with Thrive Senior Living, based in Atlanta. Thrive is a growth oriented, senior living provider with a proven development track record, operating primarily in the south-eastern and south-central US. Details of our $29 million commitment to develop two senior's housing committees with Thrive, are included in our earnings release. The properties are subject to a master lease that grants LTC a right to provide similar financing for certain, future development projects. Next, we expanded our relationship with Prestige Healthcare, our second largest operator, as measured by revenue, by executing on two transactions. First, we originated a 30 year, $11 million mortgage loan, secured by a 157 bed, skilled nursing center in Michigan.

Second, we have committed $20 million in additional loan proceeds, under our existing 15 property mortgage loan with an affiliate of Prestige, for the redevelopment of two post-acute care centers located in Richmond and Rochester Hills, Michigan. As consideration for this commitment, Prestige forfeited it's option to prepay up to 50% of the then outstanding, loan balance. As a result of the forfeiture of this prepayment option, we expect to record $1.3 million of effective interest income, related to this loan during 2015. Additional details regarding these two transactions can be found in our earnings release.

Finally, we expanded our relationship with Fundamental, exercising LTC's right under a $10.6 million mortgage and construction loan, to purchase a 106 bed post-acute care center located in Wisconsin, for a total investment of $14 million. This property, along with four others in our portfolio currently leased to Fundamental, has been consolidated into a single master lease, further strengthening the security of our investment with Fundamental. This recent invest activity demonstrates LTC's ability to execute follow on transactions, with our existing partners, while continually focusing on cultivating new relationships.

Turning to our pipeline, we currently have approximately $100 million of active deals, with fully executed letters of intent, comprising six development projects, and one preferred equity investment. We continue to see development financing playing a key role in facilitation of our near-term investment and private-pay senior's housing properties, especially given the unprecedented low cap rate environment for acquisitions.

In addition to the low cap rate environment, we are seeing more transactions where sellers are requiring buyers to utilize a RIDEA structure, on private-pay assets that are fully valued. Given the valuations seen on acquisitions and private-pay assets, we continue to believe that the risk-adjusted returns of [forward] development projects, in today's market, provide a better relative long-term return proposition for our shareholders.

Three of the development projects in our pipeline have been sourced through our exclusive [development] pipeline agreement with Anthem Memory Care, to construct additional private-pay Memory Care communities. Two of the project will be located in the greater Chicago area, it enhances Anthem's strategic presence and growth in this key metropolitan market. The third project will be Anthem's first entrance into southern California. These projects just mentioned will bring to eight, the total number of new development projects with Anthem since 2012.

In further diversifying our operator base, LTC has sourced another new operator relationship with a company focused on developing and operating private-pay Memory Care communities, primarily in the southeast and certain parts of the midwest. The letter of intent provides for LTC to enter into a purchase agreement, with a forward commitment for take-out financing at a predetermined price, upon issuance of the certificate of occupancy and State Healthcare Licensure. The two projects subject to the letter of intent are currently under construction, and will be master leased to the operating company, upon LTC's acquisition of each property.

The sixth development project in our pipeline is with an existing customer, to finance construction of a new 90 bed post-acute care center in Virginia. This transaction will be structured as a construction loan, granting LTC a right to purchase the property, at a predetermined price for a period of time, following the issuance of a certificate of occupancy and State Healthcare Licensure. If we elect to exercise our purchase option, the property will be added to an existing master lease.

Lastly, we have entered into a letter of intent with existing partners, to fund up to $26 million in a preferred equity investment, to facilitate their acquisition of a senior's housing campus, and a combination assisted-living Memory Care community. Both located in Arizona, which they've managed on behalf of the current owner. As part of this transaction, LTC will be given a purchase option, to acquire this property in the future.

Although these letters of intent have been fully executed and with caution, that these transactions remain subject to due diligence, and therefore may not be converted into closed investments. Should we be successful in executing on these transactions however, our combined investments, and development commitments to date, for 2015, will be approaching $175 million.

Turning to the portfolio, lease coverage for the trailing 12 month period ended in the third quarter 2014, remains consistent and strong. I will caveat these following coverage metrics are derived from un-audited, financial statements, provided to us by our operators, and are reported one quarter in arrears. EBITDARM coverage for our skilled nursing portfolio is 2.23 times, assisted living 1.62 times and range of care 1.73 times. EBITDARM coverage, after an allocated management fee of 5% of revenues, is 1.65 times for skilled nursing, 1.39 times for assisted living and 1.24 times for range of care.

Compared with the previous quarter, occupancy has remained consistent across all property types. Occupancy for the trailing 12 month period ended in the third quarter, is as follows -- Assisted living 85.6, Skilled nursing 79.7, And range of care 85.1. Our quality of mix remained strong, with 55% of our underlying rental revenues coming from private-pay sources.

During the quarter, we had three development projects come online. Anthem Memory Care opened a 48 unit private-pay Memory Care community in Aurora, Colorado. Carespring opened a 143 bed post-acute care center in northern Kentucky, situated in the Cincinnati metropolitan area. And Mustang Creek Estates, a senior living provider operating in the Dallas-Fort Worth metroplex, opened a 80 unit assisted-living and Memory Care community in Frisco, Texas. Additionally this week, Anthem opened our fourth project with them, a 60 unit private-pay Memory Care community, located in Westminster, Colorado.

Development financing has proven to be a successful investment strategy for LTC, bringing new assets into our portfolio, by committing approximately $135 million toward development over the past three years. With development commitments already enter into in 2015, combined with the opportunities in our pipeline, the total allocated capital for development would reach approximately $216 million, since 2012, when we began our financing program. Given the operator partnerships we have established since 2012, we expect continued growth in our development financing program, strategically expanding our revenues derived from private-pay sources and decreasing the average age of our portfolio.

Now, I'll turn the call over to Wendy for her comments.

Thank you, Clint and Pam.

LTC has had a rich history of being very disciplined in making accretive investments, and disciplined in structuring a Company that is conservatively capitalized with low debt-to-enterprise levels, and well structured debt maturity. At the end of 2014, LTC had approximately $350 million of debt capacity, to make strategic investments, before we reached a 30% leveraged to total enterprise value. And, that calculation is leaving enterprise value at a static number, assuming the $350 million in investments does not expand the enterprise value. This affords us significant flexibility to execute our growth strategy of expanding and diversifying our portfolio by operator, property type and geography.

Pam discussed our current bank line, that was undrawn at year-end, and currently has only $18 million outstanding. We are in discussions with some insurance companies, to possibly establish new shelf products with them. Whereby, we can draw down on amounts as needed to fund investments over a long maturity, longer than our bank line maturity. This significant liquidity will also support our 2015 growth plans.

As Clint mentioned, so far in 2015, we have closed transactions or entered into development commitments totaling $74 million. On our call last time, I said that our first quarter 2015 would be active, and it has been to date. Currently, we continue to favor fail leaseback opportunities. However, as Clint mentioned, we are seeing an increase in larger transactions that require a RIDEA structure.

While I can appreciate the strategy of the operators wanting to get historical top dollar for the real estate and the operations, I wonder why the operators who are closer to the actual operating business, think this is a good time to sell the upside. Whatever the reason for the increase, LTC is unlikely to make an investment that would include a RIDEA structure at this time. And as Clint discussed, we believe that the discipline building of new healthcare related assets, with certain operators, is now proven a solid way to grow LTC. So far in 2015, we have welcomed one operator to our development platform, and are advanced in discussions and negotiations with one other operator.

When we began discussing our development initiative in 2012, we were rightfully cautious. We continued to be disciplined in our approach, and are very satisfied with the success of the program, in terms of construction costs, construction timelines and operational lease up. We can take credit for having the money available and selecting the right partners. But the actual transformation from plan, through successful building and operation, is totally due to the fantastic operating companies with which we have been able to partner.

Additionally in 2015, we executed LOI's to make a preferred [equity] investment. This would be our first such investment, and we may do other financing structures, to participate in certain transactions and generate additional capital for our Company, in the future. We are bullish on LTC's opportunities in 2015 and look forward to reporting our successes, as they happen, in our quarterly calls.

Incorporating into 2015, transactions closed in the fourth quarter of 2014 and transactions that have closed in the first quarter of 2015, guidance for FFO is between $2.57 and $2.59. 2014 FFO was $2.55. And, we have successfully eliminated the impact of the repositioning and sales of assets done in the fourth quarter of 2014. Guidance does not include additional transactions in 2015, and we look forward to increasing guidance, as we make accretive transactions in 2015.

Thank you for dialing in and I'll now open the call for questions. Denise?

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

(Operator Instructions)

And, our first question is from Paul Morgan from MLV. Please go ahead.

Hi, good morning. Just real quick, sorry I missed the punch line at very end, there. Can you give the guidance again, for the full-year? And then, mention whether it incorporates -- so it incorporates your year to date commitments, but nothing else? Is that right?

That is correct.

Okay what was the number again?

$2.57 to $2.59.

Okay. So, we should just think of that as kind of a run rate based on Q4, along with the G&A guidance you provided, plus the investments that you've announced in January and February?

Right. It wouldn't include anything that we have under an LOI, such as the preferred investment, that would not have been included in that.

And so then, it also wouldn't incorporated any particular type of, I guess, equity financing. Because, it's not including any projects beyond what you've announced, is that right?

That's correct.

Okay. On the preferred equity side, what has been the catalyst? You mentioned that you are looking to do more of these. It's been deal specific issues? Or, kind of a specific intention on your part, to use these as a mechanism to acquire newer assets? Is there anything specific that you've found?

This is Clint. This preferred equity investment that were looking at right now, it really was born out of one of our relationships with our existing partners. And, it was an opportunity to help them grow their platform.

So, it's a smaller investment for us. But, it's a unique opportunity to help out some existing partners, and get us familiar with the structure that we can look at, possibly using in unique cases, here and there. So, I don't think -- it's not going to be a strategy that we are going to start doing a tremendous amount investment in, but, I think there is room for us to look at that, as an investment strategy.

Okay. And then, on the development side, maybe you can provide a little color on the recent openings? How lease-up is going, versus your expectation? And, kind of your view on the supply situation, your markets, and how that's influencing the geography of when you're looking for new deals over the course of the year?

No. Lease-up actually has been employing very well at our properties. In fact, the property that just opened this week in Westminster, they are opening -- it's a 60 unit community. And they already have 17 deposits, and expect that within the next week or two, to have 17 residents move into that community.

So, in general, we have been very, very pleased the lease-up. And in our underwriting, we have been looking at a 18 month to 24 month ramp-up, but it's generally been stronger than that. So, we've been very happy so far, with where we are at with lease-up.

So, there's no markets that, where you've been developing recently. Denver or other markets where, the new supply is enough of a concern to make you kind of look elsewhere for future deals?

Well, in the Denver market, we now have four communities in the Denver market. I think that we're done. Denver, we're not looking at it growing a lot more, in development, in that locale. So, we've strategically come in, financed that market and now, were looking at other geographies with Anthem, as an example.

Okay. Great. And then just lastly. You didn't spend too much time talking about investment opportunities on the SNF side. How are you thinking about pricing and the investment pipeline there, and your appetite for acquisitions?

Yes, we're still very bullish in looking at skilled opportunities. And, we have some in our pipeline that were looking at. Pricing is probably somewhere in the 8.5% to 9% range, for skilled assets of a certain quality.

I think larger transactions, as we mentioned on the call last time, could command a cap rate, probably south of 8.5%. And, we have seen some larger SNF transactions that are on the market. So, it's something that were still actively looking at, and think that the risk-adjusted return on skilled is very positive.

And we are looking forward to possibly building another transitional, skilled property, with our operator Carespring. We opened the one in Cold Spring Kentucky, and it's way ahead of its projections of occupancy.

And, they have the CON to build another one in Boonespring. And they are working on getting all of that entitled and everything, and so, we'd be investing a significant amount of money in building another skilled nursing property, which we are very, very happy to be doing with them.

Also, we've seen a number of portfolios too, on the skilled side, that are older, antiquated product. In a 1960, 1970 vintage properties. And, that type of skilled nursing asset is probably not what we're looking at bringing into the portfolio. So, there's a range of skilled product, that is on the market.

Great. Thanks.

And our next question comes from Michael Carroll from RBC Capital Markets.

Thanks. I know you guys touched on this during the call a little bit, but can you kind of give us an overview of what you're seeing in the sale lease-back market today? And, how many of those deals are actually in the investment pipeline you're tracking currently?

Sure. I think you have to look at it between sale lease-back on the private-pay assets, as well as on skilled nursing. As we talked about on private-pay assets, in our prepared remarks, the valuations in those make it very challenging to put those into a triple-net lease structure. So I would say, outside of unique opportunities with some of our existing customers on sale lease-backs, where there's a -- where our partners want to see coverage left in the deal, that works. So, we'll probably see more of that on the skilled nursing side, as far as the triple-net leases.

And how much of that is in your pipeline right now?

Sale lease-backs.

As far as sale lease-backs? I'm looking at, on the sale lease-back side, I would say probably 30% to 40%.

Okay.

Of $13 million.

Okay. And then, I know Wendy -- I think, last time we talked, you were pretty encouraged about some SNF portfolios that are out there. Can you give us an update on that? And the likelihood of LTC being able to get one of those deals?

Yes. There were a couple of deals that went to REIT, that heretofore, had claimed they don't like SNF assets. So, the other bigger players have come into the market, and are buying the portfolio type of assets.

So, those portfolios -- are you still tracking any portfolios that you may be interested in? Or are those off the market now?

They're off the market now.

Okay. And then, can you kind of give us the timing of the redevelopment projects for the, I guess, Prestige? When will those projects kickoff?

Brent Chappell, our Senior VP of Investment and Portfolio Management, is here. Brent, do you want to talk about timing on those projects?

Yes. The first of which will probably kickoff here in the next --just a few months. That's in the Richmond location. And then, Rochester Hills, I think just due to the entitlement process and some of the other regulatory processes they'll have to go through, will probably be within the next nine months or so, breaking ground.

Okay. And then finally, can you give us some color on the lease inducements that were paid? Why did you have to provide inducements, and is this common practice?

As we are looking at focusing on development and working with operating companies, we're trying to find ways to put these development projects together, and create pipelines with customers. The lease inducement really is a function of looking at, what otherwise would be viewed as a construction loan, and including lease-up costs and working capital into the construction loan. So, it's really financing some of the working capital needs for the operating partners, post C of O.

So, there's a couple ways of doing it. One is doing the lease inducement, the other is doing deferred rent on the projects. With these customers that we are working with on these specific projects, they're doing a lease inducement. And those transactions made more sense for those projects.

Okay, great. Thank you.

You're just including it, basically, in basis. Although, that lease inducement gets recorded -- it's accounted for differently than, if you were including it actually in the property cost, on our balance sheet.

Okay, great. Thanks.

And our next question is from John Roberts from Hilliard Lyons. Please go ahead.

Morning, Wendy.

Good morning, John.

I'm sorry about this. I actually -- we had some expression outside the window, here. So my speakerphone kept cutting in and out. And, when it picked up, it hung up on me. And so I may, and I had to dial back in, so I may have missed some of this. But Pam, you mentioned the G&A being more expensive.

But, the interest expense also seemed to be up a little bit more than I would've anticipated, given that you really didn't have an increase in debt, year over year. Was that just a function of taking money off the line, and putting it fixed rate? Or was this something else there?

No, that's it. It was terming out the line with the $30 million of senior unsecured notes, that we had under our shop agreement with Prudential.

Super. And more big picture, Wendy. It looks like you've really accelerated your acquisitions here in Q1. Is that something that maybe, will continue going forward?

Is that a function of maybe, getting the Enliven issue out of the way, which probably took some of your ability to look at these things? While you're working on that, we might see an increased level of acquisitions going forward, because of that?

Yes.

Okay. And finally, it's interesting you mentioned about, first of all the RIDEA issue, I agree with you 100%. I guess, maybe the guys who were doing this don't remember what you when I went through in 2000, 2001, with our conversations back in those days. So certainly, I think that's, at least from my perspective, a much better strategy than what I'm seeing, with all the other REITs getting into the operating side of things.

But, maybe I can have you comment a little bit about consolidation in the sector right now? And you've got [mostfaithinmywhitechi] and Aviv. What's your thoughts on that, given what we're seeing as somewhat of a consolidating issue, in the industry right now? And your discussions about, maybe some of the big guys looking more at the SNF area, than they had in the past?

Well, the big guys, even though they seem to be able to do $2 billion of transactions at any time, still need fodder to feed the machine. And their $2 billion transactions are fairly expensive, in terms of what they pay and what yield they can get.

So, since the skilled nursing industry has seriously evolved over the last seven years, and there are a lot of good assets out there and newer assets. And, if you can get an 8% yield on something like that, we always knew that they would turn their attention back to the larger transactions. They are still a ton of assets out there, owned by the smaller operators who would not be of interest maybe, to the bigger players.

In terms of transactions that are merging transactions. I think each one of them, the companies had a strategic reason for doing those transactions. Aviv and Omega and NHP and [Thentaas].

Right now, our strategic direction is to grow the company. As we're growing it, adding new assets, adding some accretive investments through the sale lease-back transactions. And just continuing to grow the company.

Great. Thanks, Wendy.

You're welcome, John.

The next question is from Daniel Bernstein from Stifel. Please go ahead.

Hi, good afternoon. I guess it's good morning. Sorry, not quite afternoon yet.

So, going on a little bit more on the skilled nursing transactions, and what you're seeing out there, and what you want to invest in, are you looking to do deals with operators that are more on the higher acuity side, on skilled nursing? Or are you looking for more, operators that have more of a balance mix, between Medicaid and Medicare.

Just trying to think about, how are you thinking about -- we're getting some proposals on site neutral, payments between [ervs] and skilled nursing. And, how do you think you want to position your portfolio and investments, for changes in that healthcare system?

Sure, Dan. That's a good question. I would say the higher acuity. But our goal really is to focus on identifying and partnering with providers that have regional focus, have a core team that are really looking at, where is the skilled nursing business going? And trying to position themselves to take advantage of opportunities, as we're seeing an evolving environment, as far as whether it's Managed Medicaid, Medicare Advantage, growing into some type of ACO payment environment, bundling.

So, we are really looking at the company, and where those companies are going, and how they are looking at the business. I think, when you look at companies like that, you find companies that tend to focus more on higher acuity. As far as looking at buildings that would only provide service for transitional care, that's all Medicare or HMO, we'd have to probably look a little farther, about what markets those are in.

So, I think having a component of Medicaid is still a viable aspect, for a long-term successful business, in the skilled nursing space. But, we are looking for newer, modernized assets as well. Not the older 1960, 1970 vintage properties.

Okay. I assume that's a lot of what you're doing on the development side, particularly put some more modernization into those facilities, relative to those older ones you're not.

Absolutely. Or, buying properties that may be a little older, but being able to buy them at the right price, to deploy additional capital. To renovate, modernize, redevelop, looking for unique opportunities that may come about with partners, on opportunities like that.

Okay. And then, can you talk a little bit more about the average age of the portfolio, and how that's changed over the last few years? Where you want it to head. I just want to think about some actual numbers on those comments that you made earlier on the call.

I'm not sure we have our current average age, after taking out the assets that we sold.

Okay.

At the end, but we will figure that out, Dan, and let you know.

Yet, we can always get that. Just curious to where it's gone and --

Sure.

And maybe even, by the difference, where it is by asset class, that's skilled nursing and assisted living, depending on where it is.

Some of the loans that have paid off in the portfolio, those were typically on older assets. And then really, the skilled nursing product we've invested in, in the last three to four years, has the newer vintage, as we've discussed on our earnings call, plus development. So, in general, we are decreasing, overall, the average age of the portfolio.

Okay. And then also, just going back to those brighten my day comments. Those are pretty strongly worded, the negative vibe against doing RIDEA transactions. But also, it sounded like, if I was going to take this correctly, that again, you don't understand why the operator would do that deal.

And so, just trying to put it on the operator hat. Are the sellers of those portfolios, are they large regional? Is it that they're private equity backed? Or is, even the smaller operator wanting to do RIDEAs, trying to get to top price, regardless of whether the give away some of the upside or not?

Well, the ones that we've heard about are -- some of them have equity backing, that want to get out. And others are just big packages that come to market. So, and I fully understand why the operator wants to cash out today, and have no risk of the future.

And it's just, as a philosophy, I don't understand putting your future in the hands of somebody who's now, got all of his money off the table, and has a small upside. But, he has to work really hard to get it.

One thing we're seeing on that RIDEA structure deals, it is typically the operating partner in the deal. They have some participation in the liquidity event, upon sale. But, a lot of times, that participation is not being reinvested.

So the RIDEA structure could work, depending on how much of that liquidity event remains in the deal, that aligns interest with us, and that operating partner. But, we're not seeing a lot of transactions under RIDEA, where those dollars are being left.

In a lot of the RIDEA deals, you see that the operator simply doesn't want keep an equity stake.

Right.

In the TRS.

Yes, and they're full. So the upside is rate increases, cost control, possibly some -- when RIDEA came into existence four or five years ago, the early transactions had some upside. It's like buying assets that were 70%, 80% occupied. So as occupancy went up, it was a good bet, a good investment. But the ones that we are seeing are full, or effectively full. And the upside doesn't seem to be that achievable.

Okay. Would I take that to mean that -- do you think the fundamentals and the senior's housing have come closer to a peak? Or is it simply, we've come off the bottom and the upside for you is just not great enough. Even if the fundamentals are still good, the upside is, off the bottom is not great enough for you anymore?

It's not great enough for us.

Okay. Appreciate the color. Thank you.

Thank you, Dan.

(Operator Instructions)

Our next question is from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

Good morning. I'm looking for a little bit of clarification on the guidance, maybe you could help me bridge from the fourth quarter. The $0.64 of FFO to the $2.58 midpoint. I'm sure there are some puts and takes that, I feel like I'm missing.

One of which specifically, is the Prestige payment of the $1.3 million. Is that embedded in the guidance, that payment that you are booking in 2015?

And then maybe, any other puts and takes that might weigh on that number. Because I guess, I'm looking at the $83 million of commitments completed to date, and I feel like it might be biased a little bit higher than that. So, what am I missing?

Well, starting out, the $1.3 million isn't a payment. It's the recognition of effective interest, now that the purchase option is gone.

It's a payment option.

So that $1.3 million, is that hitting all at once?

That's in 2015.

So, that's amortized of the year.

It's similar to straight line rent. So, it's going to be amortized over the four quarters. And in addition, because of all the development that's come online, and the new leases, we have an uptick in straight line rents, and that's all in the supplemental, I think it's page 15.

But it's essentially, about $4 million more of straight-line rent. So, you're seeing FFO grow, as you would any time you enter into a new lease. The FFO is larger than the FAD, because of the way the straight-line rent works.

Right. So the -- I guess the $0.64 that you did in the quarter, of FFO, is $2.56 annualized? And the $1.3 million is going to be in FFO as well amortized, but it's going to be in FFO, an extra $0.035. Correct? So that puts you at $2.595, assuming nothing happens post 12/31. And so --

You have the rent reduction from the sale of the Enliven assets. That's probably the drag.

That's the biggest drag, still.

Yes.

Okay. And then, as it relates to the pipeline, any incremental insight you can lend into the -- it sounds like there is $90 million plus, plus or minus, that's under letter of intent, in terms of the likelihood, are expected timing?

I think I described those. This is Clint, I described those as active deals. We have letters of intent. I think these are all very viable transactions that we have been actively engaged with these parties. Our pipeline is larger than that. We have other deal activity.

But, these are the portion of the pipeline that's actively being negotiated, and we're moving towards execution on those. An example, three of the projects are with Anthem, which is a partner of ours. And we have been working on that under our exclusive development pipeline agreement. So those are very real deals. We feel good about where we are at, on the approximate $100 million of the active pipeline.

Again, things could change. It always happens. But we try to give you guys as much inside and color into what we're working on. And there are other deals behind that, that we are working on as well.

But, we feel pretty comfortable about where these are at. And we are working as quickly as possible to get these transactions closed.

So, if anything changes, we will update you on next quarter, by the caveat. When we talk about this in more detail, that things could change. But as of right now, they seem likely.

Okay. That's helpful. And lastly, I guess, Wendy may be coming back to that RIDEA comment, or discussion. Do these valuations compel you in any other way, regarding your own existing portfolios?

So maybe, you're unlikely to buy one of these RIDEA deals, but is there an opportunity? Is pricing getting to a point where there may be incremental opportunity to payer any assets?

We are constantly looking at our portfolio, in terms of sale of assets. And over the years, we've sold some assets, almost every year.

Right now we're not actively looking at selling any of the assets, but we are certainly open to looking at that. We could probably sell all of our Memory Care assets for three times what we've got into them, but that's not our current strategy.

Okay. Thank you.

You're welcome.

And showing no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to management, for any closing remarks.

Thank you, Denise. And thank you all for joining us today. As we said, we're very active in the year. We expect to be active all year long. And, look forward to talking to you after our first quarter, and giving you some more color on what we see for 2015. Again, thank you and have a great day.

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