芬塔 (VTR) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Nationwide Health Properties earnings conference call. I will be your coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Danion Fielding, Vice President of Finance. Please proceed.

Thank you, Jennifer. Good afternoon and thank you for joining our conference call and webcast presentation to discuss Nationwide Health Properties' third quarter 2009 earnings. Certain statements made on this webcast are forward-looking in nature.

These statements are based on reasonable expectations and information currently available, however actual results 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. This webcast will be available on our website for some time.

It is also important to note that it includes time sensitive information that may only be accurate as of November 9, 2009. The Company believes the funds from operations and funds available for distribution are an important supplemental measure of operating performance. The Company's definition of FFO and FAD, the reasons for their importance, certain of their limitations, and reconciliation to net income are included in our earnings release dated November 9, 2009.

As a reminder, NHP's complete third quarter 2009 earnings release package was filed on November 9, 2009 in separate form 8-Ks and is available in the Investor Relations section of our website at www.nhp-reit.com. I would now like to turn the call over to Mr. Doug Pasquale, Chairman and Chief Executive Officer of Nationwide Health Properties.

Thank you, Danion. Good afternoon and thank you for your interest in Nationwide Health Properties.

For today's webcast presentation, I am joined by NHP's Senior Management Team. After reviewing our operating results and financial position, I'll summarize our anticipated transaction with Pacific Medical Buildings, review our same property portfolio performance, and conclude with our 2009 guidance update.

Our financial results compare favorably to last year's third quarter with revenue up 3%, FFO up 8%, FFO per share of $0.56, and FAD per share of $0.55. We issued $163 million of equity in the third quarter, at an average price of $30.12 per share. Through November 6, we have issued $242 million of equity, at $29.76 per share.

NHP's healthy fixed charge coverage of 3.4 times, low debt to EBITDA ratio of 4.3 times, conservative underappreciated book leverage of 37%, and 1.3 times dividend coverage place NHP's financial position among the very best in the REIT sector.

It is on the strength of our financial position that we have intensified our investment focus. First on our priority list was PMB, and we have reached an agreement in principle for the acquisition of all or a majority interest in seven medical office buildings, hopefully by year end. The $275 million to $300 million expected purchase price would provide an initial NOI yield just over 7.5%, and is contingent on a number of items such as in-place net operating income of each of the properties at the time of the acquisition.

The expected purchase price represents about an $80 million discount relative to the original value assigned to the assets when we first announced the transaction in February 2008. Majority of the acquisition price is expected to be funded by the assumption of secured mortgage debt, with the weighted average interest rate below 6%. Incorporating the discounted value of the to-be-assumed debt's below market interest rate yields a portfolio cap rate equivalent of about 7.75%.

The balance of the acquisition price would be funded with cash on hand and the issuance of Down-REIT operating partnership units valued at closing, but within a range of $29 to $33 per share. As part of this transaction, we have also agreed in principle to modifications to our ten-year development agreement which leverages NHP's financial position at a time when construction financing is difficult to find on any, let alone acceptable, terms and should provide a near-term competitive advantage in an otherwise difficult development market.

NHP should benefit significantly from the revised development pipeline agreement, which would provide NHP several enhancements to our original agreement including preferred returns to NHP, better pricing achieved from a reduced promote paid to TMB, and determination of fair market value cap rates at the completion of the project rather than at the predevelopment stage.

PMB benefits by achieving certainty of closure at market values for their assets and the assurance that the exciting development opportunities they have been working on will not be delayed due to the unavailability of construction financing. This transaction has evolved over the several months that have passed since the economic crisis interfered with our original agreement. The fact that we have worked so closely together through this difficult time and arrived at this point reinforces and underscores the ongoing strength of the NHP/PMB relationship.

Turning now to the performance of our portfolio, our same property housing tenants have maintained slight increases in monthly rental rates with operating margins and rent coverage showing slight year-over-year improvement. In addition, we have seen a continued slowing in the declines in occupancy.

For the third quarter, our year-over-year senior housing occupancy declined 70 basis points, an improvement from the 180 basis point year-over-year decline experienced in the first quarter. The combination of these factors yielded stable EBITDARM coverage at 1.3 times. We predicted it would take a while for senior housing operations to improve, and indeed it has. Nonetheless, we are encouraged by the recent senior housing operating results.

For the quarter, our same properties skilled nursing portfolio also maintained its relatively stable operating performance with 2.1 times EBITDARM coverage. Our same property MOB portfolio continues to perform well, with occupancy remaining stable at about 91% and year-over-year NOI growth of about 5%.

With about $190 million of equity raised since the end of the second quarter, we are decreasing the upper end of our FFO and FAD guidance range by $0.02. A reconciliation of net income to FFO and FAD is provided in our press release, as well as on page eight of our comprehensive analyst supplemental package. Our guidance range incorporates no results from acquisitions, except those completed or previously announced, nor does it incorporate the impact of any future capital transactions or impairments.

We are now pleased to answer your questions.

(Operator Instructions). And your first question comes from the line of Mark Biffert from Oppenheimer. Please proceed.

Good afternoon. I was wondering if you could talk a little bit about the PMB development agreement in terms of the size of potential lending that you could do, say, in 2010 for new developments?

It's difficult to say at this point in time. PMB has been working, as we mentioned, really since and all through the economic downturn on maintaining relationships and conversations with hospitals and others important to the decision process of moving forward with new medical office building developments. We're hopeful, following on their hope that some developments will get the green light soon, but hospital systems, like others, are still a little reticent in making decisions, so it's a little difficult to predict at this juncture what will actually manifest in 2010.

And what type of return have you -- set a yield that you would earn on that construction financing?

No, it's not necessarily construction financing. What we've really committed to do is, as part of our ongoing conversations with PMB as we adjusted to the new world order, we looked at our relationship from the perspective of they're really terrific at identifying medical office building development opportunities and we're, I think, pretty terrific at identifying good values in real estate opportunities and in capitalizing our business and providing capital and deploying capital as is appropriate. So we looked at redefining the relationship a bit where our roles were more clearly defined along the lines of expertise and track record success.

So we don't know -- what we know factually to be true now and likely to continue in the foreseeable future, is the construction financing is very difficult to obtain and on just about any terms in many cases. However, with NHP's financial position and credit statistics, either by putting an up front equity, which NHP would be willing to do as appropriate, or providing take-out commitments or guarantees, or a combination of those, we believe we will be successful in getting the capitalization necessary to begin development projects as we are ready to pursue those.

It's possible in NHP under the appropriate circumstances would also be willing to provide construction financing. Our commitment to PMB is -- you find good opportunities that meet our investment criteria that we both like, and we'll figure out a way to get the capital needed to get the development completed.

Okay. So your name would be on whatever financing would be done for these development projects and you would get a preferred return on -- for arranging those -- that financing, is that the right way to look at it?

That's a way to look at it.

Okay.

Again, it's hard to say until we're actually in the marketplace on a specific project with a specific construction lender to know exactly what criteria they might expect, but whereas it was fairly easy to get a hundred percent or very close to a hundred percent construction financing a few years ago, that's absolutely not the case today. Lenders have the expectation that there be equity in the project.

We're not certain as to what that may mean for a project, but we're thinking it's probably in the 20% to 30% range, could be more than that, and a lender may also look for guarantees and they would be looking primarily, I think, to NHP because NHP has the credit to stand behind it and perhaps take out permits. We just don't know. What we know is if it's a project we like and we want to go forward with it, NHP is going to figure out a way to come up with the capital necessary to get the project done and for that we're going to get compensated for the ways that you've described.

Okay. And then you guys had mentioned potentially if you close by the end of the year that you might have some acquisition costs in the fourth quarter. Can you just kind of let us know how much you think that might be or ballpark that?

Could be $500,000.

Okay. So it's not a material amount?

Nothing material, no.

Okay. And then mortgage debt investments, I noticed that some of the debt that was to mature this year, was there an extension on that into 2010? I notice it kind of moved into 2010. Or was that related to PMB?

The --

The receivable, I'm sorry, the debt investment that you guys had. I think you had last quarter, it was about $40 million or $50 million higher for the 2009 maturity and then it shifted, it looks like, into 2010. I'm just wondering if that was an extension?

That was an extension loan on one of the MOBs that we'll be acquiring.

Okay. And then when you acquire that, would you -- would that get closed out then or --

Yes.

Okay.

Debt to equity, effectively.

Okay. Great. Thanks.

You're very welcome.

And your next question comes from the line of Michael Mueller from JPMorgan. Please proceed.

Yes. Hi. I guess something, first of all, just tying into the prior questions, but I mean how should we think of -- from an acquisition standpoint, do you have any idea about once we see these -- the first seven properties come into NHP, about the type of volume that you could see coming in on the acquisition side over the next couple of years?

Again, it's hard to predict. We will have bought the majority of -- a substantial majority of the assets that PMB currently owns that were targeted for acquisition by us when we first announced the transaction in February of 2008. So in terms of existing assets that PMB has and might offer for sale, once we close these seven buildings, that will be the bulk of them.

There are a few other assets in the pipeline that we will likely acquire at some point in time down the road, but that's -- in fact, one will probably be in 2010. It's a second phase of a project we did, or acquired, in Burbank from PMB. It's around 90% leased now and so we'll probably acquire that asset sometime in 2010. Beyond that, it's difficult to say.

Okay. So it's really going to be a function going forward, it seems like if I'm phrasing this the right way, for PMB going forward after this seven or eight properties come in, it's really going to be a function of what the development pipeline does and produces a few years down the road?

That's materially correct.

Okay. And just any comments on any other transactions, non-PMB, I mean do you -- does it feel like you're any closer to seeing third-party deals materialize?

I'm going to have Don speak to that, but the answer is generally yes. We made sure that our investment officers stayed very active in the marketplace even during the period when we intended not to make investments because we were more focused, as was the world, on improving liquidity and strengthening our already strong balance sheet.

But we made sure that our senior investment officers around the country continued to stay in contact with people and we also talked about on earlier calls our "Operation Snuggle", where we went and visited with all of our tenants across the country to try and plan for the better days which we knew would come, we just didn't know when. So there are things that they've been working on all along and I think, Don, we're starting to see more activity and hopefully some of these things will come to fruition in 2010.

That's correct.

Okay. I appreciate it. Thank you.

You took my script, what am I going to say?

I didn't mean to. I got wound up on the introduction and I couldn't stop. Somebody throw us a floater for Don so he can nail it.

(Operator Instructions). And your next question comes from the line of Michael Bilerman from Citi. Please proceed.

Good afternoon, guys, this is David Shamas. I was wondering if you could give a little bit of color about your discussions with PMB and why the sudden change of heart on the pricing with them?

Well, I wish it was sudden because then we would have come to this place much more quickly, but really -- and it's -- this is where we think it's testimony to the quality of the people and the commitment to the relationship by both NHP and PMB. I mean this was a long, arduous process that would tax anybody that would have been involved in it because here we are in February feeling pretty good about the world, as most were at that point in time, and excited about this new venture that we were embarking on and we're involved in it, several assets closed, we're proceeding and as we got to the heavy end of what we thought was going to be the acquisition cycle, the markets just went to hell in a hand basket.

It put all of us in a position of having to regroup. We believe that NHP did the exact right thing within the confines and the requirements and language of our agreements, and we stepped aside and said we just could not close on the transaction at the pricing that was caused by the economic and capital market crisis. So we had to regroup and, as you will recall, as with most asset classes, there was very little clarity as to what values were, because there weren't many transactions completed, constant capital was all over the place, and that's what led to the freezing of the markets in many respects.

So we had to kind of work through what we thought values were. We came to an opinion of what they were a little more quickly than PMB did and they had to acclimate and had to test the market, but eventually we got to the place where we are now today, which is what we think is good pricing for both of us.

Okay. And just for your further acquisitions down the road, any interest in asset classes other than medical office, like SNFs or senior housing?

Any more acquisitions along? Yes --

Absolutely. I mean after all, roughly 50% of our portfolio is in senior housing, so that continues to be one of our focal points. It's just we're seeing a few more opportunities of medical office buildings right now, so that's what we're following. But we're very interested in skilled and senior housing, as well as the MOBs, all three asset types.

Okay. And finally, just with respect to your senior housing portfolio, any notable diversions between assisted living and independent living performance?

No, not that we've seen today.

Okay. Thanks.

We really don't have much in the way of true, independent living. When you're thinking of the entry fee CCRC, or the total stand-alone independent living, it's mostly senior housing -- need-based senior housing.

All right. Thank you, guys.

You're welcome.

There are no questions at this time.

Okay. Thank you very much. Have a good afternoon. We'll see many of you at NAREIT down in Phoenix. Bye.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.