芬塔 (VTR) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by and welcome to the NHP second quarter earnings conference. At this time all lines are in a listen-only mode. Later there will be a question and answer session with instructions given at that time. Should you require assistance from a specialist during the call, please press zero, followed by the star sign. And as a reminder, today?s conference call is being recorded. During the call, certain matters discussed within this conference call may constitute forward-looking statements, within the meaning of the Federal Securities laws. Although the company believes the statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Actual results and timing of certain events could differ materially from those projected in or [kited] by the forward-looking statements, due to risks and uncertainties described from time to time in the SEC reports filed by the company. With that being said, I?d like to now turn the conference over to our host, President and Chief Executive Officer, Bruce Andrews. Please go ahead.

Let me thank everybody for dialing into our second quarter earnings conference call. Most of you, I?m sure, are REIT [fans] as I am, and are finding the current market situation very bewildering. One would think that REITs with real assets, cash flows and dividends could somehow avoid the extremely panicky reaction of so many investors. I am pleased to point out a few aspects about NHP that many investors may not be aware of, as the investment community ponders over corporate responsibility.

First, since joining NHP in 1989, or 13 years ago, I have not sold a single share of stock that I have purchased on my own or received as part of our compensation package. In addition, I might point out that our current Chairman, Chuck Miller, who has been on the Board of Directors since the inception of this REIT, in 1985, has also never sold a share. Also, the company has never extended loans to any Board member or any executive. Furthermore, interestingly enough, the company has been expensing its stock options in accordance with FASB statement number 123 since 1999. Although at $28,000 a quarter, it is immaterial.

Our second quarter earnings of 45 cents a share are a slight improvement over the first quarter of the year. Results for that quarter and FFO for the six months of 89 cents per share is down from the prior period a year ago. As we have previously reported, this is due to reduced earnings caused by the sale of certain properties, repayment of certain mortgage loans receivables, and fully reserving deferred rents on some of the most recently completed assisted living facilities in our portfolio. Earnings for the second quarter, obviously, benefited from the $96 million acquisition of performing assisted living facilities leased to Alterra Corporation that was consummated by our joint venture early in the second quarter. The recently announced acquisition of $142.5 million of senior housing and long-term care assets provides us comfort that consensus earnings estimates for the next quarter and the remainder of the year should be achievable.

Recent acquisitions are the direct result of activities caused by the past dislocations in the senior housing and long-term care field. The $64 million transaction with a private operator of 36 nursing homes in Texas resulted from a defaulted bank loan in connection with the previously financed acquisition of these properties. A very substantial discount was obtained in acquiring these properties during a period of time when a bank could find very few operators willing or able to take on such a large commitment. Also, the $56 million in American Retirement Corporation is part and parcel of that company?s successful efforts in restructuring many debt obligations and improving its financial position.

We are pleased, as to current times, we have completed 257 million of new investments in our joint venture and on our balance sheet, in line with our goal of 300 million for the year. The company continues to see many attractive acquisition opportunities and is in the process of evaluating these opportunities by completing our due diligence and negotiations. Our focus continues to be only senior housing and long-term care facilities.

In reviewing the company?s current operators, we are generally pleased with the progress being made. As previously mentioned, by reserving deferred rental receivables on recently constructed assisted living facilities, and other properties previously returned from former bankrupt operators, we anticipate receiving and reporting increasing revenues as the operation of these properties continue to improve. Properties formerly operated by Balanced Care Corporation and now operated by a private company, continue to progress slower than we would like to see, although occupancies are improving and recently established dementia units should provide increasing rental revenues for us in the third and fourth quarters.

Also, private operators of recently constructed assisted living facilities continue to show improvements, particularly with two of the units having been transferred to other private operators that are also showing financial improvement. With the exception of one recently constructed assisted living facility, we do not anticipate any other reduced rentals going into the third quarter. The company believes the disappointing earnings are behind us. We continue to be excited about the future prospects of the senior housing and long-term care market and its continuing recovery from the difficulties in the last number of years.

Recently, Beverly Enterprises reported a very large charge-to-earnings and a catch up of its liability insurance cost. Increasing cost of liability insurance have been a problem for all the operators in this field, particularly with those with large operations in Florida, as Beverly did have. We are seeing operators having the ability to absorb these increased costs and would expect to see some continuing relief such as the Florida Legislature enacted last year. I might point out that our portfolio with Beverly is currently covering rentals in excess of two times. There also still remains concern regarding the Medicare cliff effect that could impact the nursing home industry, beginning October 1, 2002. If the industry were to receive no relief from this anticipated decline, it would have an adverse affect on the company?s [Relepchart] coverages, but would not, in our opinion be relatively immaterial. The nursing home industry demonstrated its ability to manage these charges at the outset of the perspective payment program. In conclusion, I am pleased to report that we expect our future FFO to more than cover our current dividend. Hopefully, that should put to rest unfounded concerns that we intend or need to reduce our dividends. Let me now turn this over to Mark Desmond, for his remarks regarding our financial situation.

Thank you, Bruce. Today we reported FFO per share of 45 cents for the second quarter of 2002, in line with the consensus estimate. The company?s diluted net income per share was 27 cents for the quarter on 49,181,000 weighted average shares outstanding. Weighted average shares were up in the second quarter as a result of the issuance of 1,870,000 shares at $18.50, at the end of February. During the quarter we made our first investment in our joint venture with JER Partners. The joint venture has approximately 96 million invested in 43 assisted living facilities leased to Alterra Healthcare Corporation. The initial rental yield on the $96 million is 11.5 percent and the investment was completed on April 10th. The investment was financed with equity contributions by NHP and JER and approximately $46 million of non-recourse, secured debt as 7.25 percent. NHP is a 25 percent equity partner in the venture. We have included on the last page of the supplemental information to our earnings release, an income statement and balance sheet of the joint venture.

During the quarter we also acquired on our balance sheet, six assisted living facilities leased to Alterra for approximately $17 million. The initial rental yield on these properties was over 12 percent. This investment also closed on April 10th. As a part of this transaction, our existing Alterra portfolio was consolidated into a master lease with these new facilities. The existing portfolio was consolidated into the new master lease at their existing rental rates. No rent concessions were given as a part of this transaction and its portfolio continues to cover rent in excess of 1.5 times.

On May 30, we acquired a large independent and assisted living facility for approximately $12.5 million and leased it back to [Atria]. The initial rental yield is 11.5 percent. We assumed approximately $14.2 million in secured debt, with an interest rate of 7.6 percent as part of the acquisition. On April 1st, we paid off a $10 million medium term note with an interest rate of 7.25 percent. At the end of the quarter we priced an underwritten $100 million, ten-year medium term note issue at a coupon of 8.25 percent. Issue closed on July 3rd and therefore, is not reflected on the June 30 balance sheet. Although the issue is priced tighter than the quoted spreads are on existing medium term notes, we were disappointed at the spread level. The issue was impacted by the negative news from World Comm, although some issuers decided to delay their offerings, the all-end cost of our issue was still very attractive, relative to the acquisitions the issue allowed us to close.

On July 10, we acquired and leased 37 properties in two transactions totaling approximately $121 million. The blended initial rental yield on these two acquisitions was 11.67 percent. For the balance of 2002, we have one remaining 6.65 percent, $25 million medium-term note due on July 29th, and then there are no debt maturities until the second quarter of 2003. Subsequent to the quarter end, we had one mortgage receivable pre-payment of approximately $6.4 million. At this time, we anticipate one additional mortgage receivable pre-payment and an exercise of a purchase option on one skilled nursing facility, which will result in an approximately $3 million gain. We anticipate both of these to occur in mid August with total proceeds of approximately $11 million.

We are currently in discussions to expand our unsecured revolving bank line of credit to up to $200 million, from the current $100 million and extend out its maturity to three years with an option on an additional year. We hope to complete that transaction early in the fourth quarter.

As for the portfolio, we continue to see improvement in assisted living occupancy and just ten of our properties remain in lease-up, with just two under 50 percent occupancy level. Nursing home coverages in our portfolio are at their highest levels ever and we do not believe that the failure of Congress to extend all of the so-called Medicare cliff add-back payments or increased insurance costs could reduce coverages to the point where our operators would have difficulties making their rent payment. So, with that we will open up the call to questions.

Ladies and gentlemen, if you do wish to ask a question, please press the one on your touch-tone phone. You will hear a tone indicating you?ve been placed in queue. And you may remove yourself from queue anytime by pressing the pound key. If you are using a speakerphone, please pick up your handset before pressing the numbers. Our first question will come from the line of Jordan [Saddler], with Salomon Smith Barney. Please go ahead.

Hi guys. I have a couple of questions. Could you clarify -- you spoke of 36 properties, was it, in Texas that were bought from a defaulted bank loan and I was just curious, was that the Complete Care transaction?

Yes it is.

Okay, I thought that was just 32 properties. I got a little confused.

Thirty-two properties were owned, six properties that are leased, but they are also part of the security behind our package.

The loan was in default and they had been foreclosed upon? What was the situation there? I?m not familiar with Complete Care at all.

This was a package of facilities that had been acquired from Beverly Enterprises by Complete Care in 1997. There actually were 49 facilities acquired at that point in time. As a result of everything that had taken place during this period of time, Complete Care had actually closed and gotten rid of 11 of those properties, leaving the remainder of the properties in pretty good shape. But, basically, because of the very large size of that loan at that point in time, payments were discontinued on it. The bank did try to market it to other people, but the current situation being what it is, there was really no one else able to step up and take on all those additional properties. And consequently, we were able to pull-off with them, a very attractive opportunity.

So, it was over-levered, I guess?

Yes. They paid substantially more for the properties back in 1997 than they currently have the basis in now -- that we have the basis in now.

Was the take-out, the 64 million, above and beyond the outstanding loan -- total loan?

No. The total loan was much greater than that.

Oh, it was?

Yes.

Okay. Could you also give us some color on total acquisition volume you guys have looked at, like in the first half, relative to last year?

Relative to last year? Oh gosh. All told, I suspect we probably looked at something approaching close to a billion dollars -- over a billion dollars, with certain things. And in saying that, clearly some of it that crosses your desk goes into the round file very quickly, because of asking prices that are just preposterous or because of operating results in the properties that just make no sense what-so-ever.

And this year?

That is this year already. Last year it was more of a minimal number of potentials and we really weren't essentially out there much at all in last year.

Okay. And are you still seeing a lot of nursing homes for sale or is it just more on the assisted living side that you?re seeing? Obviously, the Complete Care transaction you guys successfully completed. But, are you still seeing -- do you think there will be more nursing home volume after the cliff issue is resolved?

I think that, clearly, could assist in some of the things that are there. We are seeing some nursing homes. We are seeing, I would say, a preponderance of more in the independent and assisted living.

Okay. And just one last. Could you discuss, maybe, some of the coverages within your portfolio and how they?ve changed? Just to give me some numbers. You said they?ve improved. Just, kind of, this year versus last year, first half, versus first half.

Yes, we do put those coverages by property type in the supplemental information to our press release, Jordan. Did you receive that?

Yes, I did receive it. I guess I missed it. [indiscernible]

Yes, we had -- again, as I mentioned, the skilled nursing?s been at an all time high -- it?s 1-6-3, assisted living, fairly consistent at 1-5-9, and the CCRC 1-6-1, the one rehab hospital is about 2.75 coverage.

What were the coverages this time last year? Is that in the supplemental as well?

Yes, it is. For the last two years, Jordan.

Okay. Well, thank you very much.

We do have a question now from the line of Rob Stevenson, with Morgan Stanley. Please go ahead.

Good afternoon, guys. A quick question while we?re on the subject of the coverage ratios, etcetera, in the back of the supplemental. Is that the six-month number or is that just the second quarter number -- the ?02, ?01 and 2000 numbers? The rate coverages and occupancy.

The ?01 would be 12 months of ?01. The ?02 would be first three months annualized.

Okay.

We can?t get June 30 numbers that quickly from the operators. You know, they?re not our financial statements, they?re the operators of the properties.

Right. But, I mean, the numbers in there are accumulative throughout the year through whatever period you have. So, next quarter, when you guys will report, presumably it?s going to be for the first six months or so of the year?

Yes.

Okay, perfect. I just wanted to clarify that. Given the pull-back in the stock price, what are you guys thinking about share repurchases at this point? I know that there?s probably not a lot of capital sort of sitting around that?s not earmarked for stuff. But, what is it just the general thought, especially when the stock gets down even lower than it?s been today and stuff like that at the early part?

I would say that?s not high on our list at this point in time. We have given it some consideration, but generally, the opportunities that we are seeing, I think we?d rather grow the portfolio. We?re seeing returns that are justified in providing good returns over our cost-to-capital at this point in time.

Okay. And then, just one last question. The sort of numbers that you?re thinking about in terms of FFO for the third quarter into the full year, I mean, what type of acquisition numbers do those include? What are you basing your assumptions on for the remainder of the year?

We?ve got our assumptions premised on just a little bit over the whole 300 million that our original guidance had anticipated. Generally, I think the consensus numbers out there are 47 cents for the third quarter and $1.85 for the year.

So, that?s about another 50, 60 million of acquisitions.

Yes.

Okay, thanks guys.

The next question will come from the line of Jerry Doctrow. He?s with Legg Mason. Please go ahead.

Good afternoon. I had a couple of things. One of the things -- and congratulations on the acquisition level. I mean, it?s very impressive. I was trying to sort-out, you know, kind of what strategy or policy right now between on-balance sheet and the JV. I mean, are we likely to see more out of the JV and how are you sorting out -- and who does what deals?

Well, essentially, the JV would have, on its surface, another, roughly, 35 million available to go forward. If it fits the desires of both the JV and ourselves, then it would be appropriate for the joint venture, we could maybe even enlarge, a little bit, the joint venture. We don?t see a major enlargement. However, doing the transactions ourselves and putting them on our balance sheet does provide us with a better earnings pick-up and that really is our desire for the most part. I think there will be certain things that would be appropriate for the joint venture. But, I would not see a major enlargement of that joint venture.

Okay. And in terms of a type of deal that works on the JV or works on balance sheet of any sense of what tips one, one way or the other?

Well, you take the transaction the joint venture did do with Alterra, these are very good properties and so forth. The company?s largest customer, however, is Alterra. So, I think it made a lot of sense for the joint venture to go forward, get some more good properties with Alterra and giving us the opportunity as we look down the road, at either enlarging our Alterra portfolio providing at that point in time the company size is such that it would not be normally too large of a concentration for us. I think it just made good sense to put that particular transaction in the joint venture. So, an opportunistic acquisition of properties that clearly can provide that type of returns that JDR is looking for and that do have the potential for future good accredive activities for ourselves in the future.

Okay. You?ve got no obligation to buy them out of the JV? It?s just you have that.

No. There?ll be a buy-sell opportunity available in about three years.

Okay. On the transactions that you did -- I appreciate the detail that you provided on the release. One or two questions I did have just about each of those -- if we could just go through them, is whether there?s a purchase option for the tenant, basically? And whether there?s any sort of -- what?s the nature of that? Is there any share repreciation, that sort of thing? I?ve been asking that of everybody.

There is one facility purchase option with American Retirement Corp. It is available how many years down the road? Five or six years down the road. There is, in the six Alterra properties that we acquired directly into our portfolio, they have purchase options on those essentially within the next year or two.

Okay. And the others, there isn?t any?

No other purchase options, no.

Okay. And the one other thing -- and you know, you just touched on that there have been some rent adjustments and the progress you?re making and all that sort of thing. I was just curious about policy on asset write-downs. And again, maybe you?ve done some of this in the past. I just don?t remember the detail. But, where you?ve got an expectation on that property. Where you?ve adjusted rent, where you anticipating adjustment of rent. Are you essentially writing-down the asset value to reflect that?

Yes. And as a practical matter, with our new auditor, Ernst and Young, actually beginning during the first quarter. Because we had changed auditors very, very early on in our first quarter. A complete and [incurrment] analysis is done, property by property and reviewed every quarter and reviewed every quarter by them. Even though essentially the audit is the end of the year. They are reviewing every property for that basis on a quarterly basis.

Okay. So, we could see adjustments up and down each quarter? I guess only down. You can?t come back up.

You obviously did see some during the first quarter and they do review it every quarter.

Okay. Great, thank you.

Thanks, Jerry.

If there are further questions, you may press the one at this time. The next question will come from the line of Robert Belzer, with Prudential Securities. Please go ahead.

Good afternoon. A few questions today. Did you fund anything in the JV during the quarter?

Yes, the $96 million was funded on April 10th.

I mean in addition to that, Mark.

No.

It was just the 96. Okay. Do you expect to fully fund it in 2002?

Yes. We are looking at certain opportunities right now that would fully fund it. Maybe go a tad beyond 130 million that we had initially anticipated for the joint venture.

And can you indicate an interest rate on your JV debt?

Yes, it was 7.25 percent.

Okay. Moving on to the Complete Care acquisition, what are the approximate ages of these facilities?

Those facilities are anywhere between 20 to 30 years old.

And how about, could you give me an approximation of how many beds per room?

There?s only two that have any three bed wards. All the rest are privates and semis. These are facilities that have been, a few of them, historically, had had -- this is prior to Complete Care?s operation -- had had some that were three and four bed wards. They have been converted to semi-private rooms. They?re very decent facilities at this point in time.

Okay. And moving on to your bank line renewal. Do you expect to be able to maintain the current spread? Can you give us an indication on that?

I think it?s going to be pretty close or maybe a little less.

Okay. And finally, one more question on the Beverly insurance increase. Have you analyzed how that may impact your coverage -- with Beverly?

We have. They?re looking at increasing their overall insurance costs about $2.5 million a month is what I think they had in their analysis. That would have -- if that proportionately across all their facilities -- and we don?t have any facilities that are in Florida or with Beverly, any of the States that have been -- the heavier impacted ones. But, if you just look at across their whole thing, it would impact our coverage less than .10 of 1 percent.

Okay, great. That?s all my questions today. Thanks.

We do have a question now. A follow-up from the line of Jordan Saddler with Salomon Smith Barney. Please go ahead.

Thanks. Actually, it?s Rich Anderson here. I guess averages are good on coverage. But, I was wondering if you had a sense of what the bottom end of the range of coverage is for the nursing home portfolio and for the individual operators in light of the Medicare legislation in front of us. You know, what percentage of the nursing home portfolio, in your mind, is sort of in the 1-0 to 1-1 or 1-2 coverage range? And hence, may be subject to some level of default if Medicare comes down by 5 or 10 percent?

I think there was, roughly, only about 15 to 20 percent of those properties that were about 1-5. The rest of them were more in the neighborhood of 1-5 to over in certain cases, to 2-5.

So, there?s nothing approaching 1?

No. All those -- this is the thing that was so exciting about that transaction.

Well, I?m talking more generally about your entire portfolio.

Oh, the entire portfolio. Okay. I was just talking about on the Complete Care side.

No. I mean, that?s interesting too, but I would want to get a --.

In our entire portfolio, we may have a handful that aren?t fully covering for one reason or another. Having more than anything to do with maybe some survey problems that are being worked-out. There could be -- gosh, I?m looking around here at my troops -- 10 percent that would be under 1.5 percent at this point in time in the whole portfolio.

[multiple speakers] and you know, they tend to be tied in with other --we?ve got so many master leases now, Rich, that the ones that are the weaker performers are -- in the portfolio [multiple speakers]. Right.

Okay, I understand how that all works.

Bear in mind also, those that have the lower coverage level usually don?t have that much as far as Medicare business goes. Predominantly, the ones with coverages say in the 1-3, 1-4 arena, essentially, are Medicaid facilities. So that they don?t receive, regardless of what happens with that Medicare cliff. They?re not the ones that would be impacted.

But also, Medicaid, in some cases, is coming down as well.

Well, certainly the Medicaid increases are not going to be as strong as they were. And there are a few States that are looking at some reductions. No question about it.

And are your coverages after management fees?

We look at them both ways. The ones that we talked about here are essentially the over-management fees.

Over-management fee?

Well, do not include management fees.

Okay. And so, how much do you think management fees have an impact on coverage?

About .2 of a time.

Okay. Thank you very much, guys.

There are no further questions in queue at this time. Please continue.

Alright, well look, we want to appreciate and thank everyone for participating in the call and we look forward to talking to you in the future.

Ladies and gentlemen, this conference will be made available for replay beginning today at 4p.m. Pacific Daylight time, continuing through Thursday, August the 1st at midnight. You may access AT&T executive playback service at any time by dialing 1-800-475-6701 or internationally at (320)-365-3844 and enter the access code 643611. Again, those numbers; toll free (800) 475-6701 or internationally at (320) 365-3844 and enter the access code 643611. That does conclude your conference call for today. Thank you very much for your participation and for using AT&T executive teleconference. You may now disconnect.