芬塔 (VTR) 2005 Q1 法說會逐字稿

Good afternoon. My name is Jean, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the NHP first quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer period. If you would like to ask a question during this time simply press star, then the number one on your telephone keypad. If you would like to withdraw your question press star, then the number two on your telephone keypad.

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 contemplated by the forward-looking statements due to risks and uncertainties described from time to time in the SEC reports filed by the Company.

The Company believes that funds from operations is an important supplemental measure of operating performance because it is predicated on operating funds flow analysis and is widely used by industry analysts as a measure of operating performance for equity REIT. The Company, therefore, disposes funds from operations although it is a measurement that is not defined by accounting principles generally accepted in the United States. The Company defines funds from operations as income before extraordinary items adjusted for certain non-cash items, primarily real estate depreciation, less gains, losses on sales of facilities. The measure may not be comparable to similarly titled measures used by other REITs.

Consequently, funds from operations may not provide a meaningful measure of the Company’s performance as compared to that of other REITs from operations does not represent cash generated from operating activities as defined by accounting principles generally accepted in the United States, funds from operations does not include changes in operating assets and liabilities, and therefore should not be considered as an alternative to net income as the primary indicator of operating performance or to cash flow as a measure of liquidity.

At this time, I would like to turn the call over to Doug Pasquale, President and CEO. Thank you, sir. You may begin your conference.

Thank you, Jean. Good afternoon, and thank you for your interest in NHP.

Joining me for today’s call is Abdo Khoury, Chief Portfolio Officer and Acting Chief Financial Officer, Don Bradley, Chief Investment Officer, and [David Snyder], our Controller.

Since we last spoke in late February NHP has had several headline and other noteworthy events. Let’s review each of these.

First, Mark Desmond, after approaching 20 years of service at NHP, resigned his position as Chief Financial Officer. Mark is doing well, and we wish him the very best in all of his endeavors.

In tandem with Mark’s resignation, Abdo was appointed NHPs’s Acting Chief Financial Officer, in addition to his responsibilities as Chief Portfolio Officer. As you may already know, Abdo and I worked together for over five years at [Atria Senior Living and ARV Assisted Living]. Abdo has an extraordinary range of talent and experience, and we work exceptionally well together.

Over the next quarter or two I will explore organization structure alternatives, including more fully and formally integrating our portfolio and financial management activities. Rest assured, we remain fully committed to our recently enhanced and continually improving portfolio management function, and Abdo’s expanded responsibilities will only facilitate that progress.

Now, let me introduce [David Snyder], a man who up to this point has been behind the scenes to most of you. That anonymity has officially and appropriately ended. David has a wealth of experience, is a REIT accounting wizard, and it is only fair that we share him with you. In addition to his seven years with NHP, David worked as Director of Financial Reporting for Regency Health Services, which was bought by Sun Healthcare, and several years for the once very prestigious accounting firm, whose name I won’t mention but whose initials are one A short of AAA. I’m very confident you will enjoy expanding your relationship with Abdo and working with David.

Second, since the beginning of the year we have closed on 186m of accretive investments. The largest piece of the YTD investment pie is the 121m acquisition of JER’s 75 percent interest in our JV which closed yesterday. This investment is important to us not only because of the attractive investment attributes, of which Don will speak to in detail, but also because it eliminated the risk of NHP being effectively forced to sell its uniquely profitable original 25 percent interest in the JV. This risk became accentuated with escalating market prices.

Third, our financial results for 2005’s first quarter compared to 2004’s first quarter showed a 26 percent increase in revenues and a 22 percent increase in funds from operation before impairment charges.

Fourth, the impairment reflects actions taken by one tenant late in the first quarter and market conditions peculiar to this particular asset. While we took actions to conservatively impair this asset for accounting purposes we nevertheless are exploring various alternatives to mitigate actual economic loss. The rent loss attributable to this asset’s impairment is about $600,000.

Generally, we are pleased with the performance of our assets and tenants, and view this small handful of performance laggards to be quite manageable.

Now, Abdo and David will give their inaugural financial report, followed by Abdo’s portfolio update.

David.

Thank you, Doug.

I imagine you all want to know about the change and how we calculate FFO and the impairments. So, I’ll start with a brief explanation of the FFO change, then cover the impairments, and finally highlight some key aspects of our financial results.

One of the things we looked at when Abdo took over as Acting CFO was how we calculate FFO. We’ve always clearly disclosed the formula we use to calculate FFO which was net income, less preferred stock dividends, plus depreciation and amortization, less gains or losses on the sale of real estate. That definition made FFO very easy to calculate right off the face of our income statement, versus the SEC approved [NEREIT] definition which adds back only real estate related depreciation and amortization. Meaning we shouldn’t add back other expenses included in the caption depreciation and amortization on our income statement that don’t relate to real estate.

Since this difference has been diminimous in our case we kept with the simpler approach which we felt would be easier for investors to understand. However, we have been in the minority in this respect, and have decided the better course to avoid unnecessary confusion and questions and to provide a more direct comparison with our competitors is to harmonize our definition with NEREITs. This change will result in a reduction of about 1 cent per year in our FFO because we will no longer add back the amortization of stock options or directors restricted stock grants, depreciation on our owned equipment, and certain other small non-cash items. The impact of the first quarter of 2005 was $174,000, and the full year impact to 2004 was about $626,000.

Now, let’s return to our reported impairments of $7,169,000 for the quarter. $7,019,000 of that total was related to one skilled nursing facility in Beverly, Massachusetts that the operator notified us in late February they would like to shut-down, and which following the extensive market analysis, we recently agreed to allow them to do. The facility which had a net book value of approximately $7.1m at the time of impairment sits on the campus of a hospital that is now primarily referring patients to a competing facility it now partially owns. Beyond that obviously adverse impact on census, the market the facility is in is significantly overbooked based on a market study we received in March. Our impairment charge conservatively reduced the building space to what we estimated to be a fair value, reserved the receivable loan we had made to the operator several years ago, and wrote off other related assets. The other $150,000 of impairment was to write a land parcel and assets held for sale down to its fair value based on an offer we received.

Moving on to a more pleasant subject, diluted FFO was 33 cents per share for the quarter, compared to 36 cents in the first quarter of 2004. However, that variance was due to the impairments I just discussed. Diluted FFO before impairments was $31.6m, a 36 percent increase from the prior year, and diluted FFO per share was 44 cents compared to 36 cents in the prior year. Keeping in mind that both quarters included separation of retirement charges.

This improvement was caused by investments of over $380m in 2004 and over $65m in the first quarter of 2005. Our funds available for distribution exceeded our FFO by about $300,000 during the quarter because our cash rent was in excess of the GAAP rent we recognized. Our revenues for the quarter were up over $10m or 26 percent from the same period last year due to the investments I just mentioned. Interest expense increased around $2m due to increased usage of and higher interest rates on our credit facility, the assumption of $66.7m of secured debt in 2004, and the assumption of $10.3m of secured debt in 2005.

G&A expense excluding separation retirement charges in both years is up about $.9m. The increase was due in large part to the use of restricted stock instead of stock options in our incentive compensation plan, which as we mentioned in our yearend call, we expect to result in about a 2 cent per share increase in expense for the year. The restricted stock is valued at the share price on the date of grant and is being amortized into G&A expense, while options has significantly lower valuations and were historically amortized into depreciation and amortization. But no need to worry, the Board has significantly reduced the size of the awards when they switched to restricted stock to compensate for the difference in value.

The remaining increase was due to increased audit fees, primarily due to Sarbanes-Oxley, increased consulting fees, most of which resulted from the facility inspections being overseen by our portfolio management group, that Abdo will elaborate on later, and increases in other general expenses. We expect the G&A for the first quarter excluding the separation charge should be a pretty good benchmark for the remainder of the year.

I’d like to take just a moment to say that I’ve worked with Mark for the last seven years and have really enjoyed and benefited from the experience. I will miss his tremendous knowledge of the industry, accounting, and finance, and his humor. He was a lot of fun to work with, although he tended to be a bit more reserved on these calls as a CFO probably should be. I wish him the best.

And I’m also looking forward to the opportunity to work much more closely with Abdo and have the chance to benefit from his knowledge, wisdom, and years of experience. And if I want to continue to work with him I probably shouldn’t mention just how many years of experience he has.

With that, I’ll turn it over to you, Abdo.

Thank you, David.

Before I address the changes in our balance sheet and capital transactions, I want to publicly express my best wishes to Mark Desmond, and would like to mention how lucky I am to have the support of David Snyder, who is a very talented individual and an expert in accounting matters.

Turning to the balance sheet, after acquisition of JER’s 75 percent interest in the JV yesterday the balance on our $400m credit facility is $335m. We plan to do some sort of capsule transaction in the near future to bring this balance back down. However, since we only have around $15m debt maturing during the next six quarters and expect to have some proceeds from first options exercised over the remainder of the year we are quite comfortable with that balance for the time being.

In March we paid $18m of medium term notes with a weighted average rate of 8.7 percent. We don’t have any further medium term note maturities until the fourth quarter of 2006, when 63.5m with a weighted average rate of 7.4 percent become due. The debt maturing this year is all secured with about 1.5m of weighted average rate of 7.6 percent due in July, and another 13.1m at 7.6 due in December.

I wanted to highlight the stock issuance that have been occurring under our dividend reinvestment plan, since some of you may not be aware of the volume we have had recently. During the first quarter we issued approximately 203,000 shares for net proceeds of approximately 4.2m. This compares to 170,000 shares and $3.8m in the first quarter of 2004. The majority of these shares were issued as through reinvestment of dividends by our shareholders, there is only about 11,000 in the first quarter coming from other acquisitions through the plan.

Assuming the shareholders don’t choose the reinvestment election this makes for a run rate of over $16m per year. With that, I would like to move to our guidance for the year. Our original guidance range for 2005 excluded impairments because there is no way to predict these non-cash charges and because they have no impact on recurring FFO, as opposed to rent reductions which do.

Since we had impairments this quarter we will be providing FFO guidance both before and after impairments. In addition, we have modified our guidance this quarter to reflect two items David mentioned a moment ago. The first is the change we made to confirm to the NEREIT definition of FFO which caused the reduction of our affected FFO for the year of penny per share. The second was the separation charge related to Mark Desmond which also caused a penny per share reduction. Our updated guidance range for 2005 FFO is $1.60 per share to $1.66 per share, and our range for 2005 FFO before impairment is $1.70 to $1.76.

I would also like to note that since we are closing the Beverly, Massachusetts facility that’s had the impairment we will have a rent reduction from around $600,000 per year. Our original guidance for 2005 contemplated portfolio leakage in the areas of [option] exercises, lease renewals, and rent reductions for restructuring. Our estimate for leakage was adequate to cover this reduction so we will not be modifying our 2005 guidance for it.

Now, I would like to update you on our progress in the area of portfolio management, where we continue to execute on our business plan. On our last call we told you about the start of our physical inspection and risk assessment program, covering about a third of our portfolio in 2005. To date we have completed physical inspections and risk assessments on 19 percent of our owned facilities.

Currently we are developing a web based application that will automate a number of our routine portfolio management functions and calculations, including our color coded matrix which classifies our assets based on the number of [risks] and return performance criteria. In addition, the framework for our financial model that will project the impact of certain market trends and government reimbursement decisions on the performance of our tenants and assets is also being integrated into our web based application.

In addition to building a state-of-the-art infrastructure we continue to address a variety of issues, including compliance with our leases and mitigating FFO leakage. For example, in one case in exchange for our approving a change in control, the tenant agreed to prepay the rent on the struggling facility for the remainder of the lease term. In another situation one of our top tenants notified us of their intent to exercise their [exit] option. The net affect to NHP would have been cash neutral under the option term, but the accounting treatment would have resulted in FFO leakage of about $1m per year for a 1.5 cents per share for seven years.

Instead, after discussions with the tenant, we not only were able to identify an additional business opportunity but also were able to provide the cash they needed for operational improvement by reducing the ample security deposit we hold in a portfolio that covers over two times our rent after management fee and capital expenditures. We required, however, a [call back] to up to two additional months [inaudible] the portfolio coverage fell below specified levels for a period of time. These are just a few examples of the type of portfolio management activities that occurred this quarter.

You will note in this quarter’s 10-Q we have added a specific matter to our general litigation disclosure. In February we received the last of 15 complaints for wrongful death that are being consolidated and have been filed against the Company in connection with a fire on February 26th, 2003 at the skilled nursing facility owned by us that was formerly triple net leased to and operated by Lexington Healthcare Group, which is in bankruptcy.

The complaint alleged periods of negligent operations and premises liability in connection with the fire that was allegedly set by a resident who had previously been diagnosed with depression. While we believe that the facts and [the law] are in our favor, that we have substantial defenses to the claim, and that we have adequate insurance to cover the inherent risk of litigation, we have nonetheless elected to disclose this matter as an abundance of caution and in recognition of the fact that it could cause headline risk until it is resolved.

The composition of our portfolio at March 31st, 2005 is detailed in the supplemental analysts schedule, but I wold like to point out a couple of items related to our portfolio. During the first quarter we defined our definition of CCRC as we classified our portfolio accordingly, resulting in a net addition of five facilities. Our December 31st, 2004 portfolio of 13 CCRCs was reclassified into seven CCRCs, four [SNFS], and seven [Alf].

We [inaudible] our net portfolio against the widely accepted view that there will be a potentially a $10 to $15 net deduction in Medicare reimbursement. Given that scenario, the [inaudible] for our skilled nursing portfolio which increased form 1.9 to 2 times would decrease about 15 to 25 basis points. This, of course, does not take into account any corrective actions by our tenant to mitigate the impact of the rate reduction, such as reducing costs or other initiatives.

To date, options to purchase nine facilities have been exercised. These options once closed will generate proceeds of 17.8m in the third quarter of 2005 and 19.6 in 2006. The purchase options with the [third quarter] closings will cause a $500,000 reduction in 2005 revenues, and $2m on a full year basis.

The estimated impact of the remaining options that might be exercised on our 2005 operations is as follows: we’ll generate between 37m and 62m in net proceeds that will be available for reimbursement; will result in a gain on sale of about $17m to $22m; will cause a $2m to $3m reduction in 2005 revenues based on the date of option exercise, and between $4m and $6m on a full year basis.

Of the six leases up for renewal in 2005 we have finalized the renewal of three leases covering 22 facilities and representing annual rent of 11.9m. The three remaining leases up for renewal in 2005 covers six facilities and represent 2.4m in annual rent.

I know we have covered the impairment charge earlier, but I would like to comment on it from a portfolio management perspective. We have substantially mitigated the accounting impairment charged for this facility if we were willing to spend additional funds to convert the facility to a different use to cover the operating deficit for a certain period of time. However, based on the market study, our in-depth analysis, and the offers we received, we concluded that the risk adjusted return was not enough and choosed to close the facility and put the real estate up for sale. Fortunately, the price of real estate increasing we may be able to mitigate our economic loss.

As much as we don’t like to see an asset be impaired, the decision to close this facility will improve our portfolio by eliminating the REIT facility and strengthening its sister facility in the neighboring community leased to the same operator.

In summary, we anticipate a total rent reduction [inaudible] options, lease renewals and restructurings in 2005 of $2m to $5.4m that represents an impact to FFO of 2 to 5 cents per share, which are reflected in our 2005 guidance.

Before I turn it over to Don I would like to congratulate him and his team on the volume and quality of investments they have achieved so far this year. Don.

Thank you, Abdo. And have drink of water, rest up for the questions.

Our lead investment story is that yesterday we acquired the entire interest in JER Senior Housing in our JV for $121m, equivalent to over a 9.1 percent cap rate on 2005 rent. This adds 46 master lease [Altera] assisted living and Alzheimer facilities to our portfolio, and brings our all in investment in these properties to about $150m, roughly 96,500 per unit, with a blended yield of 9.84 percent. We believe that compares quite favorably with recent market transactions.

The facilities have over 1,500 units in 12 States and on average are eight years old. Current coverage on an EBITDA basis has improved from less than one time when the leases were affirmed in bankruptcy in December 2003, to over 1.2 times today, with a projected trend of over 1.3 times by yearend. The master leases are with a much stronger post-bankruptcy tenant credit, a solid positive working capital and shareholders equity, and backed by a 7.3m security deposit.

The investment increases our Altera revenue concentration to a little over 16 percent, while our top five operator concentration remains below 45 percent. We would expect to see those levels decline in the near term as we continue our investment in portfolio pruning programs.

Before this development, we were already set to announce a good first quarter of investment activity. As we mentioned in our last call, we got 2005 off to a good start by closing on a $40m accretive equity investment in 10 skilled nursing facilities on February 1st. In addition, during the quarter we added accretive investment in $25m, as further described in our earnings release and the supplemental analysts information. This brings NHP’s announced YTD complete investments to $186m.

Our investment pipeline remains attractive, although we are seeing fewer and fewer reasonable independent or assisted living investment opportunities. There’s simply too much money chasing most of those deals and driving yields down to levels not seen before. Whether this will continue remains to be seen.

That said, we’ve been fortunate to get off to good start in 2005, and believe we have sufficient viable opportunities still available to make this another good investment year for us. However, as we have repeatedly said in our last few calls, and I believe the record has demonstrated while we will continue to compete aggressively we do not intend to become irrationally exuberant. Rather, we intend to continue to only make investments that over the long term provide appropriate risk adjusted yields and are otherwise consistent with our underwriting criteria.

Doug.

Thank you, Don.

We’re now happy to entertain your questions. Operator, please open the lines.

[OPERATOR INSTRUCTIONS]

And your first question comes from Jordan Sandler with Smith Barney.

Good afternoon, everybody.

Hi, Jordan.

I’m here with Jon Litt. The first question on the impairment, you mentioned that it had been written down to fair value. Was that zero?

No, that was not. We did take a significant writedown on it, but we’ve estimated somewhere in the neighborhood of $2m will be recoverable from that. And, you know, with any luck we can do a little bit better than that when we do sell it. But we wanted to be conservative.

And so it was written down to $2m, and that’s basically the land value?

Some land and building.

And how many beds were in this facility, and who was the operator?

There were about 172 beds. And the operator is [Radius Management].

It’s not one of your top tenants?

No.

Okay. And how long ago did you acquire this asset?

This has been in our portfolio for quite a long time.

Okay. I guess my next question, moving on, is moving to the JER repurchase. Were you guys receiving a management fee on that portfolio?

We were.

What was it?

About 365,000 a year.

So, that goes away?

Right.

Okay. And that’s in the 9.1, that’s the total, right? The total, the 9.1?

Yes.

And then the planned financing of the 335m line, is that going to be – I think previously you guys said you might do a debt deal midyear or in the second half of this year, so it sounds like it’s still on track to do something. Is that what you’d be thinking?

Jordan, we’re going to keep all of our options available to us. But that said, let us add a little bit of color to it. As you will recall, we raised about $250m of equity last year. We like where interest rates more than we like where our stock price is right now. And so as we keep our options open we tend to be predisposed to look at debt as the next in line in term of our capital raising.

Should I infer, though, from those comments that you’d probably not take out the whole thing?

Probably not, the $335m, although again we’ll keep all of our options available to us. But it’s not necessary to do that by any stretch of the imagination.

Okay. My last question, I guess, is just in terms of, Abdo, as the Acting CFO does that mean you’re conducting a search for a replacement for Mark?

No, we are not conducting a search at this point, nor is that on the immediate radar screen. Our real objective was to give Abdo and David a chance to settle into things a bit and let us have the opportunity to assess how we can most efficiently conduct our business and what talent resources we would need to bring in if we consolidated those functions or if we decided that it was most appropriate to keep them separate. But for the time being Abdo is in that position. He’s done in his plethora of different responsibilities over his career he’s been CFO before, and he’s doing that now, and will be doing that for the foreseeable future, if not indefinitely.

Okay. But one last one, sorry. For Don maybe on the [SNF], it sounded like you guys are going on the assumption that Medicare reimbursements will be down 10 to $15, and that’ll trim your coverage. Are you assuming the same in underwriting?

Yes.

You are. And what are you seeing in terms of activity or deal flow on this?

A fair amount on the SNF side.

Okay. And did…

Certainly a lot more than the assisted and independent side.

And are you able to get there, or is there sort of a wide gap between buyers and sellers?

No. I mean it depends on the particular properties being offered, but no, it’s, they’re in our pipeline, but we would expect to close on.

Okay. Thank you.

Jordan, one thing on the premium, I just wanted to point out that in your little blurb you had out this morning, the JV actually acquired two sets of assets, one in April 2002 and another in October 2002. So, the gross asset value was around 115.7m which works out to a premium of about 39 percent on JER share. Just wanted to make that correction.

Okay. Got it.

Thank you.

Your next question comes from Jerry Doctrow with Legg Mason.

Hi, Jerry.

Hi. A couple of things. I just wanted to, and I think I’ve got this straight at this point, but in terms of the JV, 120 is basically to buyout the rest of, obviously, JER’s share. You’ve got the number in your release for the rent for the total, you know, package here. And basically offsetting that is both the management fee which we just touched on, but also your share, your 25 percent of that rent. Is that the right way to think about it, or is this, or does the 14.7m kind of the incremental additional rent?

No, you’re thinking of it correctly, Jerry.

Okay. And it’s just 20 – basically, there’s…

25 percent of that rent was going to, for that 14.7 was going to us, the management group.

Okay, so 75 percent of the 14.7, minus the management fee is the net add?

Exactly.

Okay.

On the revenue side, exactly.

Okay. And there’s no other weird accounting for the buyout or any of that sort of stuff, okay?

No, it’s pretty straightforward.

Okay. I do have just sort of housekeeping items. Do you have the amount of straight line rent in the quarter? And, you know, also just ending share count?

Ending share count is, actually should be in the 10-Q, itself. As for the straight line rent for the quarter we effectively had $300,000 going to [Right Way] for straight line rent for the quarter. We received more cash rent for the quarter by about $300,000. The actual ending share count at March 31st was 66,805,959 shares.

Okay. And is there any straight line…

Jerry, let me correct myself. That was the end of the year. It was 67,096,171 shares.

I’m sorry, 67, can you repeat it?

Sure. 67,096,171 shares.

Okay. And there’s no straight line in the JER deal, is that correct? It’s just the way the phrasing was, I just want to make clear that there wasn’t straight line being included in that amount. The 14.7 is cash rent?

That’s correct.

Okay. And the – I think you actually clarified this, but just to confirm, the 585,000 for Mark’s severance is in G&A now and that’s what we’ve got to back out to get a good run rate?

That is correct.

Okay. And I guess just on the, maybe the broader issues, now that my details are out. I thought it was interesting the way that you were categorizing sort of the investment environment. I mean I think everybody on these calls has been saying that cap rates are sort of aggressive and that sort of thing. But at least some of your peers seem to be much more optimistic about, you know, buying AL, IL accretively, whereas you seem to be saying that’s very unlikely given where cap rates are and stuff. And I was just wondering if you could give me a little bit more color there on what you’re seeing in the market, maybe what you’re seeing on cap rates?

I certainly hope that our competitors prove to be right, because that would certainly be better for us. But I’m just looking at the more recent transactions, and I think the most recent one involved a starting yield of less than 7 percent, and that’s pretty difficult to make an accretive acquisition on for us.

Okay.

If that’s, indeed, where yields are going, that’s going to make it very difficult.

And I think, Jerry, to elaborate on that, too, there’s accretive investments and there’s accretive investments. And something that’s just very marginally accretive and we’re not terribly interested in unless for some strategic reason or other reason we can see our way through that for longer term purposes. So, I think that nobody is misspeaking but some of the investments are incrementally not terribly accretive.

Okay.

At least the way our calculators work.

Okay. And if I could just ask one other thing. I mean, again, I’m also hoping you’re right on this $10 to $15 cut on the Medicare. I mean are you, do you have any sort of specific sense from either industry sources, or the Hill or lobbyists you may engage, whatever, as to how this is sort of playing out? Because there’s been a bunch of speculation, you know, recently with this [Rule for Rugs] being delayed. The Beverly guys seem somewhat more optimistic today about it coming out sort of the way you suggest, but I honestly haven’t gotten much in the way of specific sort of data points there. So, just that’s your best guess, or do you have something specific you’re hanging your hat on?

We’re really just, we’re following what seems to be the latest and greatest thinking on this. You know, it’s a very political process, we all know that. And this is the best data we all have to work with right now from operator feedback, from industry analysts, like yourself, and from others. And you’ve got to come up with some reasonable assumptions to do you planning, and this is the best we can do at this point.

Now, it seems it kind of throws a wildcard in this, a good portion of our nursing portfolio is in Texas, and we hear they’re talking about a substantial rate increase. So, and on the Medicaid side you get a substantial rate increase that could be pretty helpful.

So, what it will eventually mean to us, well, we’ll only know when the numbers get firmed up. But this is the best information we have at this point. And what we’re making decisions based on at this point.

Okay. And presumably if the worst case happened, you know, kind of your 15 to 25 basis points I guess would be about double in terms of impact on coverage, but you’re still generally good?

Yeah, I mean if the worst happens, we’re going to have some operators that are going to be in trouble. Because that would make things pretty tough for some people, but the great book of our portfolio is enjoying some pretty good coverage’s on the skilled side.

Okay. Great. Thanks.

Your next question comes from Steve Swett with Wachovia Securities.

Good afternoon.

Hi, Steve.

How are you? Abdo, I know in the past year or so you guys have been very active in your portfolio management role. And I’m just curious with regard to the asset that you’ve taken the impairment on, was that something that you guys were able to pick-up through that process, or was it something that you hadn’t seen coming that came as a surprise?

No, this was on our watch list, an asset that we were watching. But the, it didn’t have great coverage, but the operator was paying rent, paid rent through entire 2004 with performance on the level of the asset, and paid the rent also in January. And so we were watching it, and finally something triggered it where the census kept going down and down, to a point where the operator couldn’t continue to support the facility on an ongoing basis.

And how many other properties would there be on your watch list, maybe not similar to this, but that might have this kind of magnitude in terms of an impairment?

We have all different type of facilities that we watch for different reasons. Some of them relate to coverage, some of them relate to financial condition of the operator, and I can’t right now give you an exact number. But it’s just a working watch list that these are assets that we look at more closely and try to see if there are ways of being proactive on resolving the issues before they happen. So, there’s a variety of them.

If you think about it in the way we’ve set this up, there’s different levels of watch based on the acuity of the tenant or the asset’s performance. And the ones that are, would be considered in the critical care unit of a hospital are really small in number and size. We have to particularly watch those, those are the ones that are closest to becoming a potential impairment, but they clearly have not reached that threshold now or we would have impaired them. But it’s a very manageable size. And with the passage of time tenants and assets get shifted to different wards in the hospital, as appropriate, and we just do our best to manage them so we don’t have any type of economic loss.

Okay. And on the JV consolidation with the purchase of your partner’s interest, will you be recording that revenue on a GAAP basis?

Yes, we will.

Okay. And do you have a GAAP yield as opposed to cash number that’s…

It should be about the same. We don’t have straight line rent on this one.

Okay. Is that because the increases are related to CPI, or?

They’re not fixed increases.

Oh, okay. I took it to be that because you had the average laid in there that they were fixed in some way. Okay.

Well, what we try to do is we typically when we talk about our investments we indicate how many times, well, what percentage they go up based on a certain increase in the CPI, and we wanted to sort of give a comparable comparison for you so you can kind of track along. It is not a fixed average increase like that.

Well, I appreciate you saving me from looking it up. Just one last question on the JV purchase, when did you feel comfortable enough that that was going to occur?

When did we feel comfortable enough?

When did you kind of see that coming? And I’m just curious to know whether that was something that you were eyeballing at the start of the year even if it wasn’t in your guidance you kind of felt comfortable it was going to happen?

I can’t say that. It is something that we have been talking on and off about for well over a year. It is something the next year the JV was under its own terms was going to be in a position where we’d have to put the properties up for sale. And we knew that our partner was going to be reaching a point soon where the natural term of their funds was going to come due, and they were going to want to liquidate their position. So, we’ve been very active about trying to reach an agreement on this for some time, but, you know, we really didn’t get there until quite recently.

Okay. Thanks.

You’re welcome.

Your next question comes from Rich Anderson with Maxcorp Financial.

Hello, Rich.

Good afternoon. Just a couple of quick ones first. The rent loss on the impairment is 600,000 a year?

That’s correct.

Okay. And the rent loss from the purchase option, not including what you’ve made-up what would they be, again, on an annualized basis? I missed those numbers.

Just one second, Rich. It’s about on an annual basis?

Yeah.

4m to 6m.

For both in the third quarter and that in 2006, is that correct?

No. This is the one that we have not yet received notice that there will be exercised. The ones that we did receive notice for it’s $2m for – on a full year basis.

Okay. So, meaning, is it in total? I’m still lost. 8m in total then?

4m to 5m in total.

Okay. And what have you already sort of, you know, gotten released?

You mean under renewals on the option?

I’m saying what are you still exposed to right now in terms of rent lost from these purchase options? Did you, have you identified – I thought I heard you say some sort of offset to those numbers, and I don’t add at that point.

Let me, there is some that have already exercised their options, some of them will close sometime in the third quarter of 2005, and the others will close in 2006. These have an impact of about 2m on a full year basis. And then we have all the remaining ones that may have, if they get, if they are exercised which they haven’t yet, would have an additional impact for about 2m to 3m.

Okay. Got it. Understand, so that’s…

For 2005, and then for full year basis 4m and 6m, if you are looking at the full year numbers.

Okay. got it. Understood. What did you say, Abdo, was the amount of the percentage of the portfolio that has been through this sort of review process?

19 percent.

19 percent?

Yeah, where we have had physical inspections as well as some quality assessment, operational assessments.

It’s just to me then, I mean that with another 81 percent to go I mean there’s a pretty good chance that you’re going to find, you know, you’ve got a lot of work to do, and you could find a few more impairments at a minimum through that process, would that be a fair statement?

Really the impairments didn’t come through that process, that process is just to look at physical conditions of the buildings and see if there are any disturbed maintenance, and issues like that. The impairment came just from our normal thing we do on a monthly basis, we have a process, we look at as Doug was just explaining, different levels of watch lists that we watch certain assets depending on certain criteria, basically what coverage ratios do they have, or what financial condition is the tenant in.

And those we watch and we work with the tenant or work with potential replacement, and that’s, you know, but to tell you that we cannot, that we will be able to protect an impairment, it’s very hard to do that. If we knew that something is impaired we would go ahead and record it right away because accounting rules require us to do that. But there are a few assets that, as Doug mentioned, there are probably a handful of them, five, six of them that we watch very closely.

Okay.

Rich, just to give a little more color on that, in the physical inspection you may have a situation where you’ve got on your books an asset with a net book value of say $10m just for illustration purpose. And because of the physical inspection you might decide that the asset value isn’t that, it could be less than that, but the tenant is paying its rent, everything is fine, you don’t see any reason for it.

If we think what we’re caring the asset value at is greater than what we really think the value is we will just rapid depreciate it to catch-up to make sure that’s what’s on our books is consistent with what we think of market value. But it has nothing to do with impairment. The impairment is really driven off of, is the rent supporting the value of that asset.

Okay. All right. With regard to, you said you had leakage allowance in your previous guidance that covered the 600,000 that you lose in the impairment. What was your leakage allowance in total? Could you mention that number? That you had in your ’05 guidance?

Realistically, we had a fairly wide range that made-up for a big piece of the variance in our guidance was due to leakage. So, I can’t really give you a point number there, and the range was fairly wide.

Okay.

Yes, our estimates, and wide estimates because really the speculation on what could happen. We had estimated about 2m to 5.4m, that was the range.

Okay.

To 5 cents per share.

Understood. Last question, you guys are getting up to the 65 percent level, I guess, of assisted living, DCRC, you know, non SNF buildings. And I was just wondering are you feeling more confident about that sector, the private pay sector? Are you concerned at all about supply? And how much is your background, Doug and Abdo, coming from the assisted living sector, playing a role in just the familiarity in that sector in shaping the future of this Company?

A very good question, Rich. It certainly is playing some role in it. You tend to be what you are, and that’s part of our background and what we are. But the Company collectively I think even before our arrival on the scene could see the merits of investing in assisted living as a product to balance out its exposure in participation in the SNF markets and other markets.

And we’ll continue to look at that. As Don has mentioned, the pricing has tightened more on a assisted living and independent living, and most on independent living relative to other asset types that we look at and specifically skilled nursing.

We view ourselves, and I think we’ll continue to do this for the foreseeable future, as we continue to explore other asset classes that we may want to expand at some point in time. We view it as a situation where we have to be an opportunistic investor and a strategic investor. Strategically we see over the long term assisted living being a market that we want to be well represented in for a number of reasons that we can talk about, if you like.

Opportunistically there will be pockets of situations and circumstances that cause one to find attractive risk adjusted returns in different places. Earlier in the year we found that this 40m investment in the skilled nursing, over two times coverage’s, very solid operator, good rents, good bumps, all those things. And so we increased our exposure there.

So, and to our tenants, quite frankly, and our customers, they need to understand that we’re going to be for them under appropriate situations at all times, and that’s how you build your customer base.

So, we’re going to balance as best we can all of those things, the opportunistic side of it and the strategic side. But is there a bias towards assisted living? There is at this point in time, and we don’t see that is changing. Although, we would not become an assisted living company only as our record over the last 18 months indicates.

And just to comment on supply in the assisted living sector?

We’re more concerned about the supply of capital attracted to it than we are the supply of physical assets. And I think that that’s going to be the issue for the foreseeable future. As we’ve said before and we believe, there just is a substantial lead-time involved in developing new assets. Sunrise has the ability to do it. There aren’t that many other companies out there that can do it on a meaningful way, added to supply in a meaningful way. So, we’re not concerned about the supply of physical assets for as far out in the next year or two that we can see. And probably beyond that.

Okay. Thank you.

You’re welcome.

Your next question comes from Greg Andrews with Greenstreet Advisors.

Hi, Greg.

Hi, Greg.

Hi. I wanted to follow-up on the JER deal. It looks like the average size of those facilities is pretty small, I think 30, 40 units?

Around there, 38 if I’ve got my number right. I don’t have it in front of me here, but.

And I guess my question is it seems like just a small number that maybe would tend to be kind of inefficient facility to operate. And I’m wondering what your thoughts are on that, and how you sort of derive some comfort that these smaller facilities can be run pretty efficiently, and also maybe withstand some of the competitive pressures that might come down the pike?

Yeah, actually, one of the things doing this to the JV, and as you know we have a number of other Altera facilities outside the joint venture, we’ve gotten to watch the Altera management operate these sorts of facilities for some time now. And this particular group we acquired over the last three to four years, and as far as we can tell they’ve done a very good job with these smaller sized facilities. In fact, some of their problems have been the bigger facilities because they’re seeing more competition in some of the suburban markets, the bigger facilities tend to be in.

One of the interesting things about this, Greg, and you kind of go into it thinking, okay, you don’t want the small, you don’t rural, that just sounds bad because it has a bad flavor to it, it’s got to be inefficient. Well, what ends up happening is you open an assisted living facility in any small town, and I come from one, a town of about 2,500, you open up an assisted living facility you’re it. There’s nobody else coming in. It’s almost a better market block then if you go and you open an assisted living facility in a suburban area because there’s plenty of other people that are potentially going to be coming in for that. There’s plenty of other demand, and you run the risk of having another facility come in and take away your existing clients and others. That’s less of a risk in rural communities where these smaller ones, the 20 sized unit size facilities are located.

And the second thing is what Altera has been able to do is they group these in regions where they’re all very close together, and they have one person that’s allocated to several different buildings as a rural management. So, they’re able to keep these costs down that way. That’s the difference from the assisted living concepts model on these smaller ones that extended care picked up on when they made their acquisition of assisted living concepts. Also, a model that has been very profitable.

Greg, just to add to that. I think Abdo and I both have the same view as operators, we prefer not to operate the smaller units. But it also was a function of our business model. If these were in locations, that go to Don’s point, that were in gateway cities, I would be very troubled by that because just the labor costs alone would cause them to be very difficult to operate profitably. And our margins on whole will not be as high as a larger facility properly situated in another marketplace.

That said, Altera assisted living concepts and a few others that have specialized in this, and they know where to put them, and the kind of market that Don described, they can be very effective in doing that. You have things like centralized accounting, centralized purchasing, a variety of other things that causes the model to work.

What tends to happen is you either are good at one or the other, you don’t find many operators that successfully on a large scale operate both small facilities and large facilities. So, the Altera model works, I think it’s proven to work, and so with that we take great comfort in it, but there are some disadvantages to it just as there are some advantages to it.

And then just one more comment on this, Greg. One thing we alluded to earlier, one of the things we’re going to be looking at a lot is expanding various units, various facilities that are highly occupied. Actually, in this portfolio a lot of the smaller units are close to 100 percent occupied, well over 90, and they have a lot of excess land nearby. This is going to be an additional investment opportunity for us to actually do some expansions. They won’t be going from 20 units to 100 units, but maybe 20 to 40, or something like that, a little bit larger size of that sort. And that’s going to be all dollars that drop straight to Altera’s bottom line and also will be something that will be attractive to us.

Are these communities places that are experiencing population growth, or is there a risk here that…

Our market studies have shown that these are by and large stable communities. Like East Texas has seen a deterioration, they’ve seen a lot of the population go away, and that is a problem in other areas. We don’t have any of these in that sector. These are like middle America, Wisconsin, Minnesota, and the populations have been pretty stable. In fact, you’re starting to see a flight back home of elderly people who moved to the warmer climates and then when they need assisted living care actually going back home to where the family is, and going into the assisted living residence.

We visited, our investment team and other members of the Company, visited all but just two or three of the facilities just to update our market knowledge on them. And they all passed the ghost town potential concern.

Okay. Great. And then I see there’s some nonrecourse debt attached to the properties? What is the rate and maturity date of that?

It matures in 2007, and the rate is a variable rate, it’s a LIBOR base rate, and currently a little north of…

Currently 6.25 percent, as the floor.

And Abdo and David are already dead on that, looking for alternatives.

Okay. And, lastly, on this one, this is still a master lease or a purchase option at the end of the lease?

There’s two master leases, the one, the master lease does not have a purchase option. The other one I think requires 30 percent appreciation over the investment or to be able to exercise the purchase option. That one is on I think seven facilities.

But for the most part no?

For the most part, no. As a practical matter, no.

Okay. And then on your [Emeritus] investment, the addition there, could you tell us how many beds were involved in those two facilities?

Oh, I can supplementary. I don’t have it right in front of me. This was part of the original transaction, and it just took longer to close because the lenders were dragging their feet. And we finally got this closed. We’ve got to look, maybe they’ve got it in front of them. I didn’t bring that with me.

If you would return the call, we’ll probably have it for you, if not we can call you back later.

Okay. And then just, lastly, this idea of sort of…

130.

130. Thank you.

Thank you, Abdo.

This idea of kind of the provision for some leakage during the year, I guess I’m just a little bit confused on that. If you’ve already, you know, kind of used up some of that, let’s say, for the Beverly, Massachusetts facility, and some other things. I mean are you now, you know, is there still some cushion there, or if there’s another, you know, are we at a point where there isn’t any cushion left?

Just on the restructuring by itself, or – we have a bucket that had first options, lease renewals, as well as restructuring. And the bucket, we’re still comfortable with what’s in it right now.

Okay. Thank you.

You’re welcome.

You’re welcome.

Your next question comes from [David Nuss], [Equimax Partners].

Hi. One question I had, was how fast you can grow this thing? And if you could tell me kind of what the speed limit is? You have leverage constraint that you’d like to adhere to, or what’s the speed limit in terms of your growth?

Well, a lot of factors impact that. One of which you’ve addressed. We don’t want to become too leveraged. We don’t think we’re anywhere near approaching that. And but that is a governor that we look at.

Do you have like a set, like a, I don’t know, equity to assets or something that you try to stay below?

We’d like to remain somewhere in the vicinity of around 60 percent equity, 40 percent debt.

Got it.

And but that will vary 10 percentage points just base don where you are in the cycle. Fortunately, it’s not a particularly even thing. If we talked earlier about exploring capital raising alternatives, and just been some talk that a debt offering may be forthcoming. If that were the case, that would skew it, but again that’s only a temporary phenomenon because you’re always just one capital raising exercise away from rebalancing it, or moving it slightly in the other direction.

The more important governor and I think the one that is the one that’s driving our investment volume is just the ability to source deals that meet our underwriting criteria in terms of risk adjusted rates of return. At this point the capital markets have been fairly accommodating. We’ve got a good sized credit facility even though it’s significantly drawn on now, capital is not the constraining source, I’d say it’s more good investments, wouldn’t you, Don?

Yes.

And are you guiding an asset growth figure, or a number of units you’re going to add in the next year?

We don’t look at it that way. And quite frankly, we don’t want to be tempted to do so. When you set goals in that way it’s easy to talk yourself into compromising against your underwriting standards. Last year we were able to find close to 400m in good investments, and we were happy to do it. If that number is double that this year or half that this year, that’s what we’ll do subject, again, to other governors like the amount of capital that you can obtain properly.

And could you give me occupancy rates for your various facilities?

In the analysts supplemental information, let me just pull that right out, and then you can look at it, there’s more details attached to the press release. Percentage occupancy at the end of the first quarter were 88 percent for our assisted and independent living portfolio, 79 percent for skilled nursing, and 92 percent for the TCRCs.

Got it. Okay. Thanks a lot.

You’re very welcome.

Your next question comes from Gary Taylor with Banc of America.

Hi, good afternoon.

Hello, Gary.

First question, I appreciate the disclosure. I’m sort of stress testing the SNF portfolio. I wondered if you could, if you had the data at hand, you’ve got about 180 or so nursing homes, how many of those will be running at coverage’s that say 1,4 or below, I guess? I’m just sort of trying to pinpoint what if the worst case $30 a day hit seems like, you know, 1, 3, 1, 4 coverage ratio assets would be the ones closest to the line that might have some difficulty.

I don’t think we have that information.

No, we don’t have this information readily available.

We do, it’s just we didn’t bring it to the call with us. It’s a good question. There’s other things that you’d have to look at, though, too. And that’s not just individual facilities but the master leases, the amount of security deposits, the operator, how long they’ve been in the business, how they’ve dealt with the downturns before. Because

Abdo mentioned in his remarks, you know, a really good operator has seen these kinds of things before. This is not unique to that business. And the operators that have been around for some time, which is the ones we focus our business on, they are mentally and through track record have demonstrated an ability to sort through the difficult times.

So, looking at just one thing, we like to as we say navigate out to as many stores as we can find, and while that’s an important one to look at, it’s not the only one.

Sure. And I agree, certainly some operators could manage around it. Maybe just to help a little more. So, I think your total SNF coverage was two times, which obviously implies you’ve got some operators nicely above that, and some below. Is – how wide is that stratification, so to speak? Does it look like a barbell, is it really sort of clustered around the two times coverage? Or is it…

It’s more toward, my memory, it’s more towards the high end than the low end.

Okay.

And this is EBITDA.

Right. And then just…

Yes, it’s EBITDA.

That’s two times EBITDA?

No, [EBITDARM].

EBITDARM, got it.

Yeah, before the management fee.

Right. And then on the Texas SNFs that you bought, I just want to make sure, I think you’ve answered this, but when you say initial yield that’s effectively saying cash yield, correct?

Correct.

Okay. And just a final then would be, you know, it seems like just sort of watching what you’ve been able to do over the last year, kind of reading body language, it does sound like you’re seeing a little more activity in the nursing home space. And I guess it seems like for awhile there the only company really buying nursing homes was a competitor that was doing, you know, substantially lower initial cash yields.

And I’m just wondering if I’m right in sort of redoing some optimism there in the nursing home market? And, two, what do you think, what would speculate, you know, is driving that? It seems like usually the operators kind of pull into a shell ahead of reimbursement changes, but it doesn’t seem like the operators have pulled in as much this time.

We are seeing a fair amount of skilled deals out there in the marketplace. Why people are out there with the rate reimbursement uncertainty, I can’t answer that one for you, I don’t know. I think a lot of them are looking at tradition, and what has happened in the past. And are looking at this more as this too shall pass. In fact, we went to a Health Press puts on a Medicare, Medicaid Seminar on this sort of thing, and they were talking about how this will be a difficult year for Medicare, Medicaid reimbursement, but nowhere near like it was in the late ‘90’s. And that this will be something people will manage their way through. So, if the people that went to that seminar shared that thought, they may not be that concerned about it.

But in terms of your first question as far as being opportunistic about, I mean being optimistic about there being a volume of skilled nursing facilities that are making their way to the market, I think that is the case.

Okay. Very good. Thanks.

You’re welcome.

Your next question comes from [Mike Hueller] with JP Morgan.

Hi.

Hello, Mike.

Hi. I’ll try to keep this brief. The first thing, beating a dead horse here, but I just want to make sure I have this correct. The nine purchase options for 17m and for Q3 and then the 19m in ’06, the total rent on those is 2m or it’s 2m each?

The total rent is 2m on a full year basis.

For the call then it’s close to $40m of assets, correct?

These are for the facilities…

For 17 and 19m?

That are going to in the third quarter.

That’s for the third quarter. Okay. And then what was it for the ’06 numbers?

The ’06 number is combined with the rest, and it’s in the 4m to 6m.

Okay. So, that’s combined. Okay. Perfect. Thank you.

And one other question on just the guidance doesn’t factor in JER or the refinancing. I mean is that because its your expectation that the impact on the range either will or won’t be that significant? Because it sounds like you know the timing of the acquisition, you have an idea that 50m to 90m of asset sales will be used to generate proceeds for debt pay down, and you probably have an idea of a debt deal. So, I’m just wondering what the big moving part is with respect to those two items such that they were left out of guidance?

That’s a good question, and we’re glad you asked it. We had some good internal discussion about how we should approach that specific topic. And what our conclusion was that to give guidance just with respect to JER knowing that a capital event was more likely than not going to occur relatively soon, that we thought to not marry the two up was not in anyone’s best interests. And we wanted to keep all of our options open, as we mentioned earlier, as to what kind of transaction we do, what the sizing of it might be, what the terms of it might be.

And so we thought the best decision was to not give any guidance on it until the whole picture becomes more apparent, at which point in time it will be easy for everyone to do their own guidance adjustments or we can help with that once we announce what type of capital event we pursue and close.

So, it wasn’t, there’s nothing motivating us other than we can’t give complete information, so we chose not to give partial information. A concern that it might lead people to conclusions that were inaccurate.

Okay.

Because we haven’t decided how much debt we’re going to do if we do debt.

Okay.

Okay.

Thanks.

You’re welcome.

Your next question comes from Robert Elzer with Prudential Equity Group.

Hi.

Hi, Robert.

I’ve got a couple of questions today. First, on the portfolio review, can you give us an indication on when the project will be completed?

When you say is that the physical condition inspection?

The one that Abdo is doing that is currently 19 percent?

Okay. That, in our plan we want to cover the entire portfolio within three years. We’re doing a third every year.

Okay, one-third every year.

Yeah.

Okay. Just a follow-up on the JER debt, you mentioned that it’s variable rate, and is it correct, is it prepayable?

Yes, it is prepayable.

And the 6.25 percent would be the floor? I take it that you’re nowhere near the floor on that?

We are probably a little over the floor right now, with LIBOR going up.

So, you are in excess of the 6.25 percent. And what would you, what are your options to refinance that debt?

We are currently in discussions. We could have, we have a lot of different options, and we are working on them. We haven’t finalized anything, but we do have options that will improve on what we currently have.

Well, are they unsecured debt? Are you looking for secured financing?

This is a secured financing, we assumed the debt, and we are looking maybe at the possibility of replacing it with secured debt.

Okay.

Or maybe, you know, we’re in the process of doing it, so I’m not sure exactly where we’re going to end up. We’re looking at the various options and exploring them, and evaluating which ones work best for us.

Suffice it to say, Robert, though, given what the current pay rate is on this loan and what alternatives are available as it stands today, we think we can improve on it a bit.

Okay. Great. Would you consider replacing with variable rate debt?

No, not really.

Not really.

Okay, that’s my next question. What is your comfort level with variable rate debt?

We’re not, you know, other than our line of credit I don’t think we would want a lot of our debt to be variable. So, our current line is variable, and that’s what our comfort is. Beyond that we wouldn’t like to have too much of the debt be variable.

Can you indicate, you know, just as a percent of total debt, do you have any kind of target for that number?

In terms of variable?

Correct.

We would like to see it at 0 percent on the secured part of it. We currently have a very small, I think this is probably, this debt is the only one that’s variable currently. Do we have another variable?

We have maybe up to $20m of other secured debt that’s variable, but the leases that we have are structured in such a way that the lease rate fluctuates with the variable rate debt, so there’s no net affect to us in the changes in interest rates. So, we don’t have anything besides the credit facility where we’re actually exposed to the interest rate risk on variable rate debt.

Other than this …

What we’ve assumed.

Yes.

Okay, great. Then my last question is just on that acquisition, you know, you closed your nursing home transactions in the 10 plus range. And although the volume wasn’t high, assisted living was in the 9 range. From what you’re saying you’re seeing cap rates trend down below these levels. Is that a correct assumption?

Yes.

And can you give me kind of an indication on how far below?

Well, two of the deals, two of the assisted living deals were with Emeritus as part of the original deal we announced last March, so that was locked in at 9 percent. And so that wasn’t renegotiated, that was just concluding a deal we agreed to back in March. And then the other assisted living deal is this one, which was roughly at a 9-1 cap, yet you’ve seen other deals in the marketplace that have gotten down to things less than 7 percent or in the 7’s or in the 8’s. And we’re probably seeing more of that in the marketplace than we are, well, I haven’t seen a lot in the 9’s.

So, you’re saying you’re seeing stuff more coming down to the 8’s as opposed to staying in the high 8’s?

Exactly.

And how about for the nursing homes?

Nursing homes, I really haven’t seen that move as much. Again, it depends if you have a big package, it’s a good package of properties, maybe a little bit younger on a good reimbursement state or something like that, you might see those come down a tad. But you can get into the 9’s on those. Like our Missouri deal, we did earlier this year, that was a 9.25, that was a very good portfolio of younger skilled nursing facilities with a very good operator, very good credit behind it. That was something we could be a lot more aggressive on. The onesy, twosies, you’re still seeing in the 10’s, somewhere up in there. But, again, it just depends on what kind of portfolio is coming in.

And, frankly, a question earlier was about the affect of Medicare and Medicaid, in a way the Medicare, Medicaid uncertainty has been acting as somewhat of a governor on cap rates for skilled. People have a hard time on the sell side being able to get too convincing in their argument that you ought to be pushing those down further and further given the uncertainty surrounding reimbursement. So, it’s pretty much I would say unchanged.

Okay. Great. That’s all my questions today. Thanks.

Thank you.

And your final question comes from Robert Mains with Ryan Beck.

Made it in under the gun. Great.

We’re so glad you’re still with us, Robert.

So am I. Because I have just two last JER questions. First of all, I remember Altera had kind of two small models, one was the rural, one was their Alzheimer’s. Are you saying that most of these are the [woven hearts], or whatever they used to call the rural model?

Not most. The woven hearts are, if Dave [Boytano] was here he’d be able to spit this right out. But unfortunately he’s not. So, I need to stand here, hold on just one second. The woven hearts was 14 facilities.

And the rest were the [Claire Bridge]?

The Claire Bridge was 15. There’s the [Windwood] Model, but it was four facilities, that’s up in the 60’s, the 78 size. You had the serving house which was 13. And it can be anywhere from 33 to 50.

Okay. Fair enough.

Woven Hearts are the ones most likely to be candidates for expansion for obvious reasons.

Right. Okay. And then just so, I know you’re not giving out guidance on this, but in terms of modeling the transaction, what goes away from your income statement is on the interest and other income line is the management fee. That’s where that resides?

Management fee is in the income from joint venture line.

Okay. So, that would be, think of a JV as both your 25 percent interest and the management fee, sum together there?

That’s correct.

Okay. All right. So, that goes away in entirety, and there’s no other impact on the income statement?

Correct. Aside from, obviously, assuming their debt.

Right, right. I mean in terms of what goes away for you?

The only thing going away is the line item.

Right. Okay. All right. That’s all I needed.

Hey, Robert. Robert, this is Doug. I don’t think I stayed current with your phone number. Could you either give that to us, or if you don’t want it on the transcript, or Abdo, do you have it? I just want to make sure I’ve got your number. I was having trouble…

I’ll e-mail it to you.

That would be great.

He doesn’t want to give his number.

You never know.

Give you some free advertising, Robert.

I know who I give these things out to.

If you wouldn’t mind doing that, I’d appreciate it.

Sure thing.

Thanks a lot.

At this time, there are no further questions. Mr. Pasquale, are there any closing remarks?

That’s it. Other than to thank everyone for their participation, and good afternoon.

And this concludes today’s NHP’s first quarter earnings release conference call. You may disconnect at this time.