芬塔 (VTR) 2006 Q1 法說會逐字稿

Before we begin, ladies and gentlemen, a brief disclosure. 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] report filed by the company.

The company believes that funds from operations is an important supplemental measure of operating performance because it excludes the effect of depreciation and gains and losses from sales of facilities, both of which are based on historical costs, which may be of limited relevance in evaluating current performance. Additionally, funds from operations is widely used by industry analysts as a measure of operating performance for equity REITs [company]; therefore it discloses funds from operations, although it is a measurement that is not defined by accounting principles generally accepted in the United States.

The company calculates funds from operations in accordance with the National Association of Real Estate Investment Trust Definition. 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.

Funds 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.

And now, welcome, ladies and gentlemen. My name is Gerald, and I will be your conference operator today. At this time, I would like to welcome everyone to the NHP first quarter earnings release conference call. [Operator Instructions] It is with great pleasure that I introduce Mr. Douglas M. Pasquale, President and Chief Executive Officer. Thank you, sir. You may begin your conference.

Thank you, Gerald. Good afternoon, and thank you for your interest in Nationwide Health Properties. Joining me for today’s call are David Snyder, Vice President and Controller; Abdo Khoury, Chief Financial and Portfolio Officer; and Don Bradley, Chief Investment Officer.

The headline for 2006 first quarter can be summarized with one word: Hearthstone. At $431 million, Hearthstone will be NHP’s most significant investment that should benefit our shareholders for years to come. In anticipation of closing this investment in late May, we raised $222.5 million of equity. A [four-deck] restructure was utilized to mitigate dilution.

Hearthstone is almost finished implementing their planned rate increase, and occupancy has actually increased from 88.7% at the transaction announcement date to 89.4% at April 30th.

Turning to our quarterly financial results, revenues are up 23%. FFO is up 11%. And FFO per share is up 9% to $0.48 per share.

We are increasing our guidance range for FFO before impairments to between $1.86 per share and $1.89 per share.

[Brent Capo] recently joined our portfolio management team as Vice President, bringing over 13 years of diversified real estate experience gained during his positions with the [Kohl] Company, the Telus Development Corporation, and Pacific Life Insurance Company. We are pleased to have Brent as part of our portfolio management team.

Brad McKown, formerly Vice President, Portfolio Management, has joined Don’s team as Senior Investment Officer, having responsibility for the south central portion of the U.S.

Upon closing Hearthstone, NHP will have completed over $1.3 billion of quality cash-accretive investments since 2004. Don is our man with that story, and he just happens to be sitting right next to me.

Thanks, Walter. According to this reporter’s tally sheet, with the imminent closing of Hearthstone, we will have completed $506 million in new investments this year, with more in the queue. Details can be found in our earnings release.

Our total so far includes $56 million in the medical office building joint venture with the Broe Companies. While as most of you know, this endeavour’s effectively a relatively small R&D test project to confirm our assumptions and expand our knowledge about what amounts to the largest health care real estate sector, we also expect to make an above-market return on our invested capital at up to 10.5%.

We recently had our first joint venture management meeting, which confirmed the project was proceeding as expected, with a number of potential growth opportunities being explored.

Nearly all of the remaining $450 million of our 2006 activity so far represents investments in private pay senior housing facilities, with a blended cash-accretive initial yield of about 8.1% that is expected to increase annually almost 3%. When you add that to this management team’s other investments since 2004, the total comes to over $1.3 billion of quality, cash-accreted new investments, which is the exact amount of net investments we started with.

Over a period when cap rates have rapidly and substantially compressed with unprecedented investment capital of all types available, especially in the senior housing sector, 68% of these investments were in senior housing, with only 24% in skilled nursing. Perhaps more importantly, these investments overall sported an initial cash yield of 8.8%, with over 2.5% expected annual ups, providing substantial built-in internal FFO growth potential where little existed before.

Said another way, the power of the basic annual rev bumps we now have in place with this group of investments means the 8.8% initial yield builds to 9% next year, 10% five years later in 2011, 11% in 2015, and 12.5% in 2020, the beginning of the baby boomer seniors phenomenon. This amounts to a blended yield of 10.6% over a typical 15-year initial lease term.

The actual achievability of those yields and resulting FFO growth compares quite favorably with the prospects for the senior housing market and its growing NOI margins. That market, by virtually every measure, appears to be in a sweet spot that should last at least another three to four years, with development currently in check, and should benefit from increasing market acceptance and penetration over the current low levels.

As long as the developers and financial institutions don’t get greedy and forget their history lessons, odds are that the momentum should continue to some degree for the next decade as we start the countdown to the baby boomers entering the system in 2020.

Frankly and simply put, we are very proud that we have consistently far exceeded even our own quality bread-and-butter internal and external investment growth expectations. More importantly, we have no intention of resting on our laurels, but instead fully expect our operator-oriented backgrounds and investment approach, coupled with the foundations we have built and momentum we have developed, to unearth numerous additional opportunities. And with that, good night, and good luck.

Thanks very much. We’re pleased now to answer your questions. Gerald, please open the lines.

[Operator Instructions] Your first question comes from Jerry Doctrow with Stifel Nicolaus.

Good morning.

Hi, Jerry.

I guess good afternoon, maybe even in California now.

Even in California. How are you, Jerry?

I’m good, thanks. I just -- and I came on a little late, so if you covered some of this, I apologize. Obviously, you have done a great job in terms of finding investments, and I understand sort of all the discussion on the accretion stuff. I think -- I’d like to just get a little more color I think on how you sort of assess risk, particularly in Hearthstone, because that’s the one that I think has gotten the most attention.

I think the initial coverages are very thin. You’re doing a management buyout, which -- in effect, funding a management buyout. So I understand there could be accretion. There’s certainly earnings growth potential there. But how do you kind of assess that risk? I’d just like to understand sort of the underwriting thinking a little bit more.

Sure. Let me start, and then the guys can jump in as well, because we all have thought a lot about that, and have complementary but unique perspectives on that. And I’d actually, Jerry, rate it fairly low for a number of reasons. And the combination when you put them together causes us and me to have great comfort with the investment, or we wouldn’t have made it.

The first of which is where we are in the industry cycle, because you don’t want to be swimming upstream if you don’t have to be. And as Don mentioned in his remarks, really the industry is as well-positioned as it probably has been at least since my involvement with it, for ten years. And perhaps as well as it’s ever been because of the lessons learned by the industry and the key participants in it.

The industry’s very strong. As you know, there has been very -- de minimis addition to new supply. Demand and supply have come into equilibrium, and we think are moving to rapid favorable disequilibrium, with there being more demand than supply.

Operators are far more sophisticated than they were ten years ago. They’re far more financially disciplined. You don’t have as many developer-oriented people running those companies. Managements are deeper and broader in terms of experience than they’ve ever been.

So that’s starting from the macro level. When you dig down and go into more the micro level and the specific Hearthstone investment, we found really an excellent management team and an excellent concept and product. And frankly, it’s a product that I would be very comfortable as CEO of Hearthstone running, although it took a while to convince me that the double-occupancy model was one that really had the kind of profit potential that this one had.

So we got comfortable with that. Started macro. Worked micro. And then you add to it the time that the team spent together. The opportunities that they have in place. The focus that they have. The history and track record they have in terms of ramping up occupancy, while in tandem with that, improving rates. And I don’t know if you heard, Jerry. They’re pretty much finished with the rate increases that we talked about when we announced the deal. And occupancy has risen. We’re very pleased with that result, and don’t see any reason that that will let up.

So it was a combination of all those factors that caused us to take great comfort with things. The development cycle shows no signs of picking up any time soon. Even if it does, if everybody started to do the investments or new developments today, it would be three or four years before any significant investments would show up in the marketplace. And then you’ve got another three or four years of growth in demand underneath you.

And the penetration rate, which people talk far too little about in our view, has been well under 5% for a number of years. We’re starting to see greater market acceptance of the product. People understand it better. More and more people are having assisted living experiences. And slowly, that penetration rate is starting to creep up.

So the confluence of all those things caused us not to be terribly concerned. Would you like to have more going in coverage? Of course. But sometimes you have to step up to the line and take a good cut at things. And we think that this was the perfect opportunity to do that.

And is the company reasonably well capitalized? You’re going in with the management buy outs.

Very well capitalized. They wanted it to be, and we wanted it to be. There’s a substantial amount of cash and working capital. We’re far better, frankly, than you would have seen in public assisted living companies even five years ago.

[$10 million] net working capital, Jerry, with at least $16 million of that being in cash.

Okay.

And you need far less than that. Abdo and I operated, as you know, a public assisted living company, and then the success [inaudible], and it was not uncommon to have far less [working capital]. I ran a hotel company that had far less working capital than that. So we think that they’re very well positioned. We think that there’s some low-hanging fruit. We want them. And they’re working on some expansions at the 100% occupied or very highly occupied units that will add additional cash to the bottom line very quickly.

So we think -- and with the rate increases, because it’s a high operating leverage business, you’re going to see substantial flow-through from the top line to the bottom line. That’s all going to run up coverage. And this should all happen at a fairly quick pace, we think.

And just a couple more, if I could. I’m probably one of the few people that’s actually seen some of their products. Certainly, I know Tim Hekker and those guys enough. I agree they’re good operators. The couple of things that struck me as I saw the portfolio was one, it’s fairly scattered, so you don’t have sort of that density markets, which lends operating efficiency. And it also tends to be in relatively low barrier to entry markets. Texas. Some of the Southeast.

And some of the criticism just out there in the marketplace is that you’re buying above replacement cost. You guys sort of have this weird calculation, from my perspective -- if you don’t mind me characterizing it that way, of where you were kind of combining units and occupancies in some ways, so there was some question about in fact what a per unit [inaudible].

Could you talk about replacement cost and maybe just the risk? I guess you touched on the risk of overbuilding, but because of their market, I was a little more concerned about that.

You could replicate those buildings from a construction standpoint, a standalone construction only, at a cost that may be a bit lower than we paid for that. You cannot replicate getting those buildings full and having the operating sophistication at anywhere near the cost, in our view.

And so could somebody slap up a building? Because you mentioned the low barriers to entry in the markets. There’s a lot of land in Dallas and Houston and different places that they’re located in. But is that in and of itself going to create a problem if that were to occur?

First of all, it’s not going to occur anytime in the foreseeable future, because nobody’s started that, and it takes a lead time to do that. Second of all, if you understand how the business really works and what the lead generation sources are and what not, it’s very hard to gain market share without competing on price.

And frankly, this, while there is some price sensitivity to it, it’s not a price-driven business. People are going to go to the doctors who their referral agencies say to go to. And having an established market presence in a specific market where people -- and people are dealing with their loved ones here. They’re not dealing with a commodity like toothpaste. They’re dealing with something that’s very important to them. And who their physicians and nurses and ministers and rabbis and all this, that, and the other thing are going to say, “This is a good place to go because we know it,” has a lot of impact to people. So there’s barriers to entry other than you’re in Manhattan, it’s very hard to develop.

And Jerry, there are other barriers to entry which may not be quite as obvious. And the biggest one is probably the unique nature of the product. They are definitely selling the double-occupancy model. And to my knowledge, they’re the only one. And to all of our knowledge here, they’re the only one that sells this kind of double occupancy model as opposed to something that’s one unit with a couple of beds stuck in it. This is separate bedrooms.

You’re right. Trying to characterize that and make it comparable to the rest of the market was difficult, because frankly, there’s nothing else comparable to it. By the same token, if we just want to count the number of doorknobs and come up with a cost per unit, then our occupancy is probably closer to 160%, which is kind of silly.

But what I would say is you can go ahead and build your new building down the road that has the traditional model. And right now, Hearthstone is the price leader in most of their markets, and there’s plenty of buildings already with that traditional model in place. And it’s not affecting their ability to be the price leader. You’re going to have more buildings maybe that’s going to compete with these others, with the standalone one-bedroom model, but until somebody comes up with a competing two-bedroom product, in a way, they have their own built-in barrier to entry.

It’s very easy to replicate it physically. It’s very difficult to do from an operating philosophy. And Jerry, it was difficult to come up with a methodology of how to describe it. But I think the best way to look at it to really kind of sort things out is not terribly similar to what the hotel industry does, where you’re looking at kind of a rev [par] or revenue per unit, because as Don described, you’re collecting very full fees from two residents in one unit. And that’s why you’re getting -- what is it, $4,000, $5,000 a unit?

Yes.

And so if you looked at it as a single unit, you’re getting $2,800, $3,000, $2,600, depending on what it is. And so how do you make those numbers comparable? And it’s a difficult thing to do, and makes you guys and us work a little harder at it. But with our operating background, we could get our arms around it very comfortably and say we really understand what’s going on here, and we like it.

Okay. And did -- when I read the press release, you’re also planning on sort of having them -- funding some development for them as well. Is that part of the program?

That is correct.

That development, though, is expansions.

Expansions.

If you could have a 100% occupied unit with a waiting list, we can’t wait to get those expansions going.

Okay. All right.

You said one other thing that we didn’t comment on. Let me just get to that. Kind of the regional clustering.

Yes.

If you can get it, it’s not a bad thing to have. Frankly, it’s very easy to overvalue that. The most important person in making an assisted living community successful is the executive director or general manager. People call them different things.

The regional support is important, but frankly, having them clustered isn’t always that beneficial to you. What’s really critical is you’ve got the right unit at the right place with the right local leadership supported by the corporate infrastructure. The other stuff I’ve seen grossly overplayed, and people make bad investments because they try to extract a synergy that’s really not there.

We are also, Jerry, looking for markets where this double occupancy model is better suited. There are some areas where it probably doesn’t work as well, where people just can’t imagine sharing a unit with someone. And there are others where that’s very much in demand. So you’re going to see a little bit of scattering just to have the product go to where the demand is.

Okay. Great. I’ll let somebody ask some questions there. Thanks.

Thanks.

Your next question comes from Rich Anderson with Harris Nesbitt.

Hey. Thanks. Good afternoon.

Hi, Rich.

Hey, do any of these double occupancy rooms have king-sized beds?

King-sized for a senior.

Well, I’m saying, what are the living arrangements? Are they married and --

No. The typical occupant of this is a 80-plus year old woman who’s been recently divorced -- oh, I’m sorry. Widowed. Sorry.

I got your thinking.

Recently widowed, who’s been used to having companionship all of her life, and now suddenly finds herself alone.

Understood.

And the kind of bed that they want -- they can have as big a bed as they want in there. Most of them want just a regular -- I don’t know what you call it. Double? Twin bed? Something like that. Plenty big enough. That’s by themselves.

And that you’ll find, Rich, in any assisted living company across the United States. That’s the typical profile.

I didn’t know if there was like a married couple.

There is that in a suite, where you could have a king bed. The bed’s not a very big part of what they’re selling.

Okay. Let me get to the -- Don, what you were talking about, about all the growth and the ups to the cap rates that you’re predicting several years out. How do you balance rent escalations with coverages? In the case of Hearthstone, where you’re already thin, how do you raise rents and push your coverages below the parity line?

Abdo has explained this so well to our Board, differentiating this from skill, where it’s a tremendously big question. And so I will let him tell you.

Basically, Rich, the assisted living companies and assisted living operators have the ability to increase rates. We were operating assisted living at a time where the market was very difficult, and occupancy was a struggle. And we were able to increase rates around 4% to 5% every year.

Also, when you look at the -- what the rent represents in terms of total -- as part of revenue, and what your operating expenses represent, and your margin, the margins in assisted living are higher than the margins that are, for example, in the [SNFs], with margins that are in the 30% and higher. And your rent being about 20% to 25%, depending on the structure.

That allows you to be able to -- so you’re getting a -- in our case, if it is 3% or 2.5%, you’re getting a 3% increase on 20% to 25% to your cost, like you would get on your labor costs, which represent about a third of your revenue. You would get also a 3% or 4% a year -- you’d get that on your facilities and all your other costs, and your margin is preserved.

So if they raise rents 3% at the property level and you raise your rents 3%, then margins will improve?

Yes. That’s right.

Okay. All right.

Unlike skilled nursing. When you have low margins, and that’s --

13% is an outstanding margin in skilled.

So if you’re raising -- if your rent’s a component of your cost that’s more than 13%, you’ve got a problem.

Right.

But the margins that Abdo’s talking about, 30% plus, frequently you get -- and your rents run 20%, 25%, or so. You can see how you have partial positive flow-through.

Okay. Why would you think that the development activity hasn’t picked up in assisted living? You would think that with all the talk about the baby boomers retiring and all the positive fundamental pictures that people are presenting in this space, why you haven’t seen some of those -- I don’t know what you would call those people that just develop quickly without giving it a whole lot of thought. Why hasn’t that happened? And why isn’t it happening?

I think a couple of reasons. Let’s tackle them. One is look who the ownership of many of the companies that are involved in assisted living is. And they tend to be private equity guys. It’s much faster for them to get to where they want to be by making acquisitions in development. They’re not thinking -- three-year time horizon is a forever time horizon for them.

And if you speculate a bit on what their objectives are, they don’t want to be thinking about development when they can go out and create scale very quickly through acquisition. Development’s not an easy thing to do, and it takes a lot of time. And there are a variety of steps that are sequentially oriented that cause you to go much less quickly. So you’ve got that.

The other thing is development costs --

But that was always the case, right?

That was always the case.

Not the private --

No. When you look at the time frame, when in 1996 through 2000, the people who were involved in assisted living were completely different than the people who are involved currently. The assisted living industry at that time was built by basically developer mentality people that built multi-family apartments. And others thought, “Oh, wow. This is a good business to get into.” And so that was a completely different ownership type than today.

Sorry, Rich. I misspoke. Abdo said that correctly. And if you think what happened, if you roll back to then -- I was thinking something different. Take [Aravi] as a case. And there are many others like this. As Abdo said, these guys were looking for ways to expand their development business, and they got into senior housing and then assisted living.

And now look what happens. You have developers. Wall Street figures out what assisted living is. It plays perfectly into a Wall Street type sound bite, with all the aging of the population and all that. They give them a bunch of money, and they tell them to go develop. And if you’ve been ever around developers and development, and you give them money and you tell them to develop, I guarantee you that’s exactly what they’ll do. And they did.

So that is a new phenomenon with the private equity [coming in]. The private equity guys got involved as far back as about ’97, I think was when they first started to really get involved.

The second big thing is construction costs. And it’s very expensive and very hard to get a fixed price bid. There’s a lot of complications to that. It’s hard to get quality contractors. It’s just a bit of a moving target and a mess out there.

And then the third thing, I think, just real quickly, is expansions are a lot easier to do and a lot safer to do than full-on development. But again, if you look at the private equity guys, it’s too small for them to care about. Why spend your time doing ten-unit expansion when you can go out and do a several hundred million dollar acquisition?

Okay. Last topic is on the Broe joint venture. If you -- you’ve found some early success in terms of the observations that you’ve made with the first transaction. How big do you think the joint venture can get?

Well, we’re both very interested in expanding the JV. Whether it will be on the same terms or not’s another question, Rich. The way this JV was set up, it was for a very specific purpose, and was addressing a deal that Broe had sourced and had brought to us. If we come up with something, my suspicion will be -- you’d look at it differently. Whether it’s in the same JV, or whether it is part of this JV with slightly different terms, we’ll see.

But really, until we get to a point where we think we’re correct -- and we’re pretty confident we’re going to get there. We don’t know when. But when we get to a point that we think we’re correct, we’ll probably be more inclined to be looking for our own platform and less in the JV, whether that’s acquiring this platform or doing something differently.

Okay. Because in speaking with them, I took the chance to speak to somebody at Broe, they are interested in owning more, which is something they haven’t done in the past. Is that [inaudible, crosstalk] --

And we’re interested. In fact, we just referred some stuff with them, and we’re interested in doing more. If you mean owning on their own balance sheet, that may be. I wouldn’t be a bit surprised. But --

Having some skin in the game, as opposed to just being a third party manager of medical office. A --

Well, they have a small amount in here, whether or --

That’s right.

-- not they reach that in a future deal. That’s entirely possible. Whether they do the whole deal themselves. That’s entirely possible.

It seems like they want to do more in terms of some ownership in the real estate.

And they very well may.

Okay. And the last -- do you have a shot at or an interest in the other business that they have? I think it’s Aspen Assisted Living? And would you have any interest in acquiring that portfolio?

We know the assets, and we looked at them. But the pricing --

We’re under a confidentiality agreement with them, Rich. We are aware of the assets, but we won’t be buying them.

Okay. All right. Sounds good. Thanks.

Your next question comes from Michael Mueller with JP Morgan.

Hi. Thanks. Most things have been answered. Just a question for Abdo, though. Can you talk about the balance sheet post-Hearthstone when everything’s said and done, when [Ford] is settled, [inaudible] floating, what the ratios look like, and what your comfort level is with the balance sheet at that point?

Well, yes. It’ll probably be, depending on if there are any other transactions or not, we will probably be doing a debt offering sometime between now and either the closing or after the closing. We haven’t specifically determined when. We’re probably looking at somewhere in the $200 million to $250 million debt offering that will affect some of the debt that we have under the credit facility.

Currently, we have about $180 million used on our credit facility. So after the closing of Hearthstone, we will be at probably close to the $400 million -- I’m sorry, $500 million. So we probably will be doing the $250 million, which would reduce that by half.

Okay. And that sounds like [inaudible]. What is pricing looking like these days? And how far would you go out on the curve?

We’re looking at going somewhere between five to ten. Again, we’re trying to work out some of these details.

Okay.

And pricing, based on our -- we have a $250,000 that creates -- the one that we did last year. The spread on that is in the [1.45%] to [1.50%]. Fluctuates between [1.45%] to [1.50%] basis points over --

Okay. And just the last question on this point. When you put out the new guidance range, does that factor in this refinancing? Or is that before the refinancing?

That’s before the refinancing.

Okay. Okay. Thank you.

You’re welcome.

Your next question comes from Scott O’Shea with Deutsche Bank.

Scott O’Shea: My question’s been answered. Thank you.

Thanks, Scott.

Your next question comes from Julia [Pinsk] with Green Street Advisors.

Hi. It’s Greg Andrews with Julia [Pinsk].

Hi.

Hey.

Hey, on the Broe deal, could you just give us the terms on the debt that you placed on those assets?

Direct capital debt?

Yes.

That’s in Q, isn’t it?

I didn’t see --

It didn’t have a rate?

It just wasn’t in place yet.

It wasn’t in place March 31st.

Okay. Well, we can get you this information.

Okay. And then turning to the activity during the quarter, can you just give us a little bit more in the way of the timing of the Wingate piece, and then also of the Broe piece? What had happened during the quarter?

Help me out, guys, because I didn’t bring my other sheet with me.

Wasn’t Broe -- the first part was at the end of February -- [inaudible] January.

January 21st, I believe.

End of January. The majority of the Broe happened around the end of January. And there were three other buildings that closed in February, end of February. February 28th. And then on the Wingate [inaudible], there were --

Eleven or 12 closed at the end of January, again.

And then the last two closed in April. And there was one that closed in March. One [New York] [inaudible].

Right.

Okay. And also in terms of the sales during the quarter, when did those happen?

That is -- February 28th is the [inaudible] options, and the loan was paid off I think also in February.

Okay. Great. Thanks. And then I came in a little late. I don’t know if you addressed this. But in terms of the outlook for purchase options going into -- looking out to as far as ’07, do you have any color you can provide on that front yet?

Not yet. We haven’t put that information yet together publicly. We’re still trying to work on -- some of it could be from what is in ’06 but spills over into ’07, but we haven’t finalized it yet.

Okay. And one last thing. In your schedule, which was very helpful, describing all the purchase options activity, there were some lines for lease restructurings.

Yes.

And I guess in aggregate that’s kind of on an annual basis, $1.7 million, or a couple of cents. Is that just rent that was set at unsustainably high levels that had to be reduced, or how should I think about what that really means?

Yes. This is basically a couple of buildings. One had very high rent on it that the property could not support. Had to be leased at the lower rate. And one that we decided to close and sell the building, which we did.

Great. Thank you very much.

You’re welcome.

You’re welcome.

[Operator Instructions] And gentlemen, you have a follow-up question from Rich Anderson with Harris Nesbitt.

Hi. Thanks. I just wanted to clarify something. Did you say, Abdo, that the terming out of the facility is not factored into the guidance at this point?

No. We haven’t included in guidance any new debt.

You have not?

No.

Okay. So the guidance could actually go backwards, then, assuming you’re paying a higher rate than what you’re paying on your facility?

It is possible.

Okay. All right. That’s all I wanted to know. Thanks.

Your next question comes from Rob Mains with Ryan Beck.

Hi. Good afternoon. I’m afraid I have a fairly mundane question. Abdo, when I look at the coverages, it appears that in the fourth quarter, some of your [SNF] coverages deteriorated. Is there anything particular going on there?

No. This is when you bring in -- there’s nothing particular, other than the fact we brought in some -- we closed on some new facilities. The Wingate [SRC] facility. And as you know, when we underwrite new facilities, we don’t necessarily underwrite them at 2.4%, at 2.4 times, which we -- that was the coverage we had at the end of ’05. We usually underwrite close to 1.7%. So that brought it down a little bit from 2.4% to 2.2%.

Okay. So if I were to look kind of on the same facility basis, it wouldn’t have changed very much?

No. It wouldn’t have changed much.

Okay. Great. Thank you.

You’re welcome.

Your next question comes from Jordan Sadler with Citigroup.

Hi, guys.

Hi, Jordan.

Hi, Jordan.

Just a quick one. Did you guys have a look at the [Seamel] portfolio? I apologize if someone had already asked that.

No.

No interest because of size, or asset type?

We just didn’t have a look.

Okay. That’s it for me. Thanks.

Thanks.

And gentlemen, there are no additional questions.

Thank you very much. We appreciate your interest. If you have any questions, please feel free to call any of us. Gerald, thank you.

Ladies and gentlemen, thank you for your attendance in the NHP first quarter earnings conference call.