芬塔 (VTR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Nationwide Health Properties earnings conference call. I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today's conference, Mr. Danion Fielding, Vice President of Finance. Please proceed, sir.

Thank you, Jerry. Good morning and thank you for joining our conference call and webcast presentation to discuss Nationwide Health Properties fourth quarter and full year 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. As 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 February the 18, 2010. The Company believes funds from operations and funds available for distribution are important supplemental measures of operating performance. Companies definition of FFO and FAD, the reasons for their importance, certain limitations and reconciliations to net income are included in our earnings release dated February 17, 2010. As a reminder, NHP's complete fourth quarter and full year 2009 earnings release package was filed on February 17, 2010, in a Form 8K 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. Douglas Pasquale, Chairman and Chief Executive of Nationwide Health Properties.

Thank you, Danion. Good morning 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 will provide an update of our transaction with Pacific Medical Buildings, review our portfolio performance, and conclude with our outlook for 2010. 2009 NHP increased revenue by 6% and FFO by 8%.

While nearly 70 REITs cut their dividend or issued stock in lieu of cash, NHP maintained its cash dividend with a strong 1.3 times coverage. Our FFO per share was down a $0.01 to 223 per share from the prior year while FAD per share increased $0.03 over the prior year to $2.22 per share. We issued 76 million of equity in the fourth quarter at an average price of $33.27 per share. During 2009 we issued 286 million of equity at $30.34 per share. To raise the same amount of net proceeds in a traditional secondary offering NHP would have had needed to issue stock at nearly $34 per share. So far this year we have raised an additional 22 million in equity at an average price of $35.07 per share. With nearly 1.1 billion of liquidity, a fixed charge coverage ratio of 3.5 times, debt to EBITDA ratio of 4.2 times, and a conservative undepreciated book leverage of 36%, NHP is very well-positioned for whatever opportunities and challenges 2010 brings.

Our last call we announced our agreement with Pacific Medical Buildings for the acquisition of all or majority interest in seven medical office buildings. On February 1 we acquired a medical office building in the San Diego area for $74 million at an initial yield of 7.6%. This 160,000 square foot building was completed in May 2007 and is on the campus of an A-rated hospital system. For 6.3 million we also acquired a 70% interest in a joint venture owning a 65,000 square foot building completed in January 2007 and located on the campus of an A-rated hospital system in the Phoenix metropolitan area. NHP receives a 10% preferred return on its equity which escalates to 10.5% in year two and 11% in year three and there after.

In conjunction with this investment we also agreed to fund an 8.87 million 7% loan. In addition to the acquisition we also completed our new development agreement with PMB. Key elements of the modified agreement include a joint venture arrangement with PMB responsible for development and NHP responsible for project financing. NHP will receive a 10% preferred return on equity as well as 62.5% of the remaining operating cash flow up from 50% in the original agreement and on a capital event NHP receives a preferred return of its equity plus 62.5% of profit again up from 50% in our original agreement as determined by applying the fair market value cap rate at the time of the capital event.

We also expect to acquire four additional PMB buildings for about 160 million by the end of the first quarter comprising nearly 400,000 square feet at an approximate initial NOI yield of 7.6%. In tandem with the acquisition of these assets we will assume 110 million of debt at a blended rate of 5.8% which further enhances our return on these assets. Finally, for 13.5 million we will acquire a 70% interest in a 190,000 square foot building completed in July 2009 and located on the campus of an A-rated hospital system in Pasadena, California. Similar to our investment in Arizona NHP receives a 10% preferred return on equity which escalates to 10.5% in year two and 11% in year three and thereafter. In connection with this investment, we have also committed to fund a three-year bridge loan for up to 60 million at about a 6% rate.

Phase One asset located on a hospital campus in Burbank, California, the acquisition of phase of our original multi-year transaction will soon be completed. We can now focus our full attention on the development pipeline and the exciting growth opportunities that should lie ahead for our MOB portfolio which post transaction will comprise over 4 million square feet having a value of over $1 billion or 25% of our portfolio with 87 buildings geographically disbursed across 19 states. Turning now to the performance of our portfolio, NHP senior housing tenants maintained slight year-over-year improvement in monthly rent apple rates, operating margins, and EBITDA coverage. We continue to see a slowing in occupancy declines with our year-over-year senior housing occupancy declining 40 basis points and improvement from the 180 basis points year-over-year decline experienced in the first quarter. In 2009 senior housing operators did a good job cutting expenses to maintain or improve margins. However, any further margin improvements will primarily have to come from occupancy gains and rate increases. Overall we do expect modest improvements in occupancy over the course of the year due to pent up demand, small additions to supply, and an economy trying to heal itself. These improvements, however, will likely be choppy with some quarters causing undue optimism and others reflecting flat performance or perhaps even modest pullbacks. The good news is that overall the trend line should be somewhat positive.

Meaningful increases to rates and margins will likely trail occupancy gains but over time they, too, should show signs of improvement. Skilled nursing portfolio experienced slight improvements in operating performance with 2.3 times EBITDA coverage. Skilled nursing may see some challenges ahead until pressures on Medicare and Medicaid abate. The caprice' nature of Medicare and Medicaid as well as low margins associated with the long-term care business are precisely the reasons we underwrite skilled nursing with significant coverage.

Our MOB portfolio continues to perform well with occupancy remaining stable at about 91% and year-over-year NOI growth of about 3%. For the foreseeable future we see medical office buildings experiencing modest pressures on both occupancy and rental rates throughout 2010. Overall, our portfolio performed well in 2009. However, since we expect a protracted economic recovery, we remain keenly vigilant in our portfolio management oversight, and we are doing whatever we can to facilitate our tenant's willingness and ability to improve our assets.

We began 2009 with the Capital Markets under extreme duress and the great recession gripping the US economy. During that difficult period NHP's primary goals were to fortify our already strong balance sheet and further enhance our liquidity position. These goals were clearly accomplished as evidenced by upgrades to our investment grade rating, leverage related statistics among the very best for investment grade REITs and over 1 billion of available capital. As we highlighted throughout last year, we achieved these important enhancements to our balance sheet and liquidity position primarily by issuing nearly 300 million of well-priced equity. However, these enhancement comes with the short-term sacrifice, namely about $0.17 per share FFO dilution. This dilutive effect would traditionally be mitigated by the four year impact of prior year investments but as we also highlighted throughout last year, NHP like nearly all REITs invested comparatively little last year while the accretion from the PMB transaction as well as existing portfolio growth will contribute about 15 million of additional FFO in 2010, a variety of other factors as detailed in our press release will offset these FFO gains. Accordingly we initiate 2010 FFO guidance of between $2.05 and $2.09 per share and FAD guidance between $2.01 and $2.05 per share with ample upside potential.

As we invest our cash, which is currently earning about 10 basis points, and we are confident that we will complete our fair share of transactions this year, the positive impact on FFO and FAD will be significant. For example, investing 250 million of our cash at an 8% rental rate you will sufficient FFO on annualized basis to exceed our 2009 FFO per share. For that reason alone we expect improvements to our guidance as the year progresses hence as always 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.

In summary, our 2009 strategy to emphasize portfolio management and to strengthen our balance sheet and liquidity position delivered the results we intended. We are very well-positioned to proactively address whatever challenges or exploit whatever opportunities 2010 brings. Still in the shadows of uncertainty we attribute significant value to the substantial flexibility we have. In 2009 the markets did not provide the opportunity to acquire quality assets on terms acceptable to us. We have not and will not compromise our investment underwriting nor will we shy away from raising attractively priced capital. We have redoubled our investment efforts to grow FFO and as investment momentum builds, FFO per share improvements should accelerate even before adding leverage to our capital structure should we decide to do so.

All the while NHP will continue to boast one of the strongest balance sheet of all REITs and a management team dedicated to long-term value creation for our shareholders. We're now pleased to answer your questions.

Jerry, please open the lines.

(Operator Instructions). Your first question comes from the line of Jerry with Stifel Nicolaus. Please proceed.

Hi. Good morning, I guess. Doug, I guess I wanted to try and explore the guidance a little bit better and a couple of issues associated with that. One, I guess you gave an example of how much accretion you will get from investing cash. I want to make sure that I understood in the guidance is how much of additional PMB acquisitions and so how much additional cash will be left after you do that given the debt and stuff?

Jerry, the guidance incorporates all the PMB transactions we discussed, so the one that is we have completed and the ones we expect to complete yet in this first quarter.

So you got like 382 million of cash, so I just don't have it right in front of me. So how much PMB -- how much of that do you need to complete the PMB that you consider certain?

Jerry, PMB is going to be financed with assumed debt, operating units, and cash, and once we deploy all the cash, we'll be around 250 million, maybe a little north of that.

250 million cash left?

Right.

Okay. And obviously why you use that number. You talk about leakage and reserves, and I guess the leakage if I remember your terminology right is basically the loan payoffs, purchase options, that sort of stuff, and you list a lot of that in the supplement, so is that running sort of higher than you expected or just about sort of where you expected and I also wanted to get more detail on a couple of properties that you were saying reserves for and how much we're talking about there.

Sure. Let me tackle the bigger part of it and then Abdo and Brent can help out with the second part of your question. Really leakage, rent roll offs, however you choose to refer to it is really a fundamental part of any real estate related business. I mean, it is across all segments in the REIT sector and in privately owned REITs or real estate as well, so it is really nothing new. We typically have amounts not terribly dissimilar to what we're showing in for 2010. Now, some of that can be abated through our working portfolio management in any given year. Some of it can be deferred into future years. For example, sometimes if somebody has an option we can either finance the purchase for them or figure out a way to defer if it works in our mutual best interests, and some of it is real, and every now and then will you have a little bit of unexpected leakage that you didn't see coming, but as our history reflects over the last several years, we have done a very good job of managing it.

What you need this year is and what we thought we were telegraphing through the investment community was since we were issuing equity, and since we weren't making investments at anywhere near the pace we had in 2008 and earlier years, the impact from leakage was going to become more directly apparent. What we have done and what other REITs do is through your growth you're first covering the revenue and FFO that you are losing for whatever reason and then you build on that through incremental investments. Since we didn't have the cover if you will from investments in 2009, it tends to stand out a little bit like a sore thumb, so we kind of expect to have 5 to 10 million of potential leakage in any given year with the size of our Company. We have been very successful in prior years to like I say abating that somehow through a portfolio management program. Sometimes it is deferred and sometimes it just happens, just a natural part of our business. Brent, do you want to --

Jerry, your question in terms of what we're projecting for 2010, it is as Doug mentioned very similar to what we project in prior years, and really the real impact in terms of what we saw for 2009 is similar to what we saw 2008, and what we show is certain things we have actually received notice on but really the manageable portion of the leakage is really the high probability rate, so that's what we focus our attention on and try to manage as Doug said to defer to the future years or to see if we can either finance or renew those folks, so in terms of order of magnitude what we're seeing for 2010 is not terribly dissimilar from what we have seen the last couple of years.

How about the three that you just mentioned reserves, I mean, is that material or what can you just give me a little color what's going on there?

About three tenants that are each not related, they're small. We have a couple of them we are in litigation with, and there is about $2.2 million in totals for the three that in 2009 we receive grant. In 2010 we not sure how much rent we will be receiving, and we reserved about 2.2 million against that.

Okay. That's helpful. And then just one more and I will jump off. Just a little more color on acquisitions. Doug, clearly you like some of your colleagues that have already reported have huge war chests, so can you give me a little more color beyond PMB what you're sort of seeing out there in terms of acquisitions or what property types or yields or how optimistic you might be about beginning to ramp up?

Sure. Again, let me speak to that somewhat generally and then Don can add color to it, Jerry. It is a very interesting investment environment. As I said in the opening remarks, we're highly confident we'll be able to get our fair share of investments, and it will likely come I think primarily from our bread and butter type investment which is are the 25 to 50 to $75 million investments. There are some larger portfolios that are being explored for sale and we of course are monitoring in those into the degree there is a process involved we're participating in those. We expect heavy competition for the bigger transaction just because as you rightfully said there are a lot of people sitting on accumulated capital, so we'll see how well we fare in that arena with the larger transactions.

In the arenas where we really have made our mark, I think we'll be very successful. It is a little less even than we would like, and it is a little harder to bring something to closure. We in fact had some transactions that we were hopeful late last year that we would be closing in the first quarter and some of those have gone away and some sellers are a little more skiddish than we expected to be, but as we get into 2010, Don and our team of investment officers are really working hard at the local level and I feel good that we're going to bring some transactions to closure here and that they're going to produce some nice profit. Don, do you want to add color to that?

About all I would add, Jerry on the big deals you can really break them down spew three and by big deals it is 500 million plus several of them being $1 billion variety and as you well know skilled nursing seems to be the primary flavor. I put hem in three categories. One is too big, [Manacare] is probably too big a piece for NHP. We wouldn't want to be that that much into skilled nursing facilities, but then again it is a big piece for anybody and might be something that we participate in a sliver in, but otherwise it would be in the two big category, and then I would put the too bad category and by bad I mean quality. It is the kind of product we don't want to own and even though it would be a large hit, it is assets we really don't want in our portfolio, and the final one would be the good, but it is good stuff that's going to attract a lot of folks, and more sizable chunks, and it is just going to depend on how much of a feeding frenzy we have for those chunks. We have seen in the past where cap rates got a little crazy on some of these portfolios and if that happens again, we don't plan on going crazy. We'll have to see how those play out.

As Doug said our bread and butter is always been what we do most of our home cooking on and grow our portfolio and I am a lot more optimistic than I was at the end of the year. The guys are digging up pretty good opportunities, and you never know. Like Doug said last year, we had about 120 million at over 9.5% that were under letter of intent that I would have thought typically we would close, and instead because the market was so uncertain, it sort of got away from us in terms of the market getting more expensive and the deals looking less attractive to the sellers and ended up not going anywhere. I think the markets are more stable now and the pricing is a little more consistent, so I could easily see in the next several months us taking a significant chunk of that post PMB cash that Doug is talking about.

And these transactions Don is referring to didn't go to somebody else. The sellers went to the side lines and said I want to think a little more.

We were talking on assisted living getting rates close to 10% and that's laughable today.

Okay. Thanks.

Your next question comes from the line of Andrew Yu with Bank of America Merrill Lynch. Please proceed.

Thank you. Good morning. Regarding your 2010 expiring leases in your last supplemental it looks like you had about 15 million in rent expiring and now you have 6.5 million roughly, so can you give us a little more detail on this and what the leasing spreads were?

In terms of I think you're referring to page 30, Andrew.

Yes, that's correct.

What you see on the supplemental, that reflects a pro rated amount of annual rent, so as opposed to last quarter where it was the gross amount of rent for the year, what you see is a pro rated amount, so it is a little understated in terms of the delta between the two in in fact it is overstated. The actual number on a comparative basis is about 14.5 versus about 11.7, so we have successfully renewed about 3 million square feet of what you saw inspiring from Q3, and in terms of the yields really in terms of how we approach the renewals it is not necessarily yield driven, it is more a function of performance, so again it gets back to coverage for us. We certainly don't want to compromise the coverage, but certainly want to make an equitable deal for the parties to make sure we're on the same footing as we were when we originated the deal.

Okay. Thank you. That's helpful. Just regarding your ATM program, can you show us like what your thought process and how you are weighing between the use of equity versus debt as new opportunities arise or as you think about putting your capital to use?

Sure. Let me even give a little bit broader perspective on that because I think it may answer some other questions that are either in the queue or is on people's minds and then I will more specifically get to that. In any business there are drivers over which you have varying degrees of control, and in our business the Capital Markets are more important driver to the success of our operations for which we really have fairly little control over other than having a strong balance sheet and whatnot, but when you experience difficult Capital Markets like you did not that long ago in the past, just certain things you don't have control over, so we tend to view on the equity side and our controlled equity offering are at the market program different points in time we have different reasons for issuing the equity.

First, is to strengthen your balance sheet or enhance your liquidity position which was when people forget this, which is a little surprising to me, but it really was not that long ago when people could not get that on their mind. People wanted to know how you were going to pay your debt in 2011 and 2012, and this was in the fourth quarter of 2008. So that's a good purpose for it. We used it effectively and did so earlier in 2009.

Second, is to fund investments or to invest in your existing asset base in the form of capital renovations and improvements, and we have done that. Then third is when capital is very attractively priced. Sometimes with the vagaries in volatility of the Capital Markets the capital is frankly on sale, and you can issue equity at a time that is going to provide greater returns for your shareholders because you priced the equity very well, so over the course of the last twelve months or so, we have issued equity for all of those reasons. Those are all good reasons to do it, and we'll continue to issue equity for those purposes. We have not focused on debt as there is no reason to be with our large cash balance and stability returning to the debt markets.

The secured markets were not clearly as volatile as the other Capital Markets were. At one point in time we thought about issuing secured debt in 2009 and then thought better of it until we had some more investments under our belt, but really these are the reasons that you look to do that. Our leverage as you know is quite low. We like that position because we still think that while the situation has improved substantially from its NIDIR, we do think we're still in the shadow of significant uncertainty and there are enough things that still could go wrong we tend to favor to be toward the more conservative end of the range because these are matters for which we have no control over. Over time we do believe that once investments are secure and the environment continues to stabilize and we have further evidence that the Capital Markets really are stable and there are less threats to cause them to become unstable, then we can consider introducing a bit more leverage into our capital structure.

We can consider introducing modest amounts of variable rate debt in our capital structure which we have very little, and these things will all enhance profitability, but we to want do that very intelligently. Our focus is really on a strong balance sheet and liquidity and we'll continue to -- it doesn't and won't come at the expense of investment and over time we will continue to reevaluate the dynamic Capital Markets and where we are in modest adjustments to our capital structure as we go forward. That was a little long-winded and I want to make sure I answered your specific question. Did I?

Yes, you did. Thank you for the detail. Just one last question regarding public pay and given a lot of state budgets are under pressure, which states are you most concerned about where you have exposure?

Basically our largest state is Texas, and as you know they've got an increase last year and they're one of the states that have the least issues and problems. Massachusetts is the next large state in skilled nursing, and they have some pressures, but we're not that concerned. We have good coverage on the portfolio.

Great. That's it for me. Thank you.

You're welcome.

Thank you.

You have a follow-up question from Jerry trial from Stifel Nicolaus. Please proceed.

A couple of things. One, Doug, I was wondering if Hearth Stone if you could give us more color on what's going on with them and then also a little more color on the your forecasting sort of declines I think in MOB maybe occupancy and rates and wanted to get more color there sort of what you're assuming and maybe some specifics if you can.

Sure. I will take the second one first. Then I will go back to Hearth Stone because I will make general remarks about that and ask Brent and Abdo to add color to that because they're having frequent visits with the Hearth Stone senior management team. With respect to medical office buildings and a little bit just the lay of the land, but our portfolio in medical office buildings really has grown handsomely. It is I think again if I can just be nostalgic for a second it was in 2006 or prior to 2006 we had zero investments in medical office buildings.

In 2006 in the first or second quarter we stuck our toe in the water with a small 50 many million dollars investment and now here we sit on a billion dollars investment of what I think is probably the best portfolio of medical office buildings on the West Coast, so portfolio is getting big, Jerry, to your point and with that you expect handful of leases to roll. We seem to have a fair amount of leases that are rolling in 2010, and the whole health care reform it iso it is off, we don't know if it is up or down kind of thing really puts a bit of a damper on things and in particular in physicians perspective of the world, and it is a shame that these talented professionals can spend more time on delivering medical care than less time on some other things, but they're nervous a bit, and it is terribly important for us to be successful over the long-term with hospital systems to while working towards to achieve our financial goals to also be mindful of the relationships they have with physicians and whatnot, and right now with skiddishness at a high level we want to be careful to not push too hard on things, and frankly our first investment when we stuck our toe in the water if you recall, I think that investment was around $70 a square foot or something like that, and we knew when we bought it that we weren't buying all high grade assets, and some of those frankly had some leasing challenges to them.

We have changed out management of many of those properties and now some of the leases are rolling and they're not in the strongest market, so we're feeling a little bit of pressure there and so that's really what's going on there. In the most in-field markets, the PMB type things they're feeling pressure there as well but it is not as significant and really compared to other asset classes and traditional office buildings, for example, the thesis that medical office buildings really do warrant a good value because of the less risk in terms of things like that is pretty good, the little anxiety we're feeling and maybe having a rollback of about a million dollars NOI is not in these times I am happy with that. It is not perfect. We always like I think it to go up but when you get in these tougher times it is not so bad so I will set that aside, Jerry, unless you would like more comments.

That's fine. Thanks.

With respect to Hearth Stone, generally Hearth Stone is doing well. I mentioned Abdo and Brent are meeting frequently with Tim and some of his key people. We're out touching the assets. We're having as many contacts as we can because we think that's important. As you know, Tim has always been a good operator. They have been a terrific job, I would say better than most in their cost management, and they need to get some increases to the top line. Everybody is fighting that battle of debt. They will benefit hugely as the economy continues to strengthen, and I think that they're going to be subjected to the same kind of ups and downs that I mentioned in my opening remarks which is things tend to be improving. Jerry, that I have been a little more skeptical about how long it was going to take to improve. I have now switched over to I think we're seeing signs of improvement but in my view it is not going to be a linear line to better occupancies and better rates and better markets. It is going to be a fight. I do think there will be false positive and negative that is come out in the ensuing quarters but overall the trend line is up. With that, Brent, do you have anything to add to Hearth Stone specifically? I talked long stuff I stole their thunder.

And remind me is there some upside? Are you sort of sharing an income now? I know you read the leases, so if they show performance, is that translated into higher rents or higher income for NHP and I assume you're not assuming any of that in guidance?

No, we're not. We have reserved for all the supplemental randomness rent -- I don't remember on straight line.

We don't recognize any straight line rent or supplemental rent. The supplemental rent is not due until January 2012, so, no, if their performance improved, that will improve our coverage, but we'll not improve our revenue.

Okay. Thanks.

We did that deliberately. We anticipate it is going to take awhile for the economy to sort itself out, so we didn't want Hearth Stone to be under any undue short-term pressure. We said let's assume it is going to take awhile to sort itself out, i.e. 2010 and 2011, but you need to mind the store because the supplemental rent is down the road, but relax, let's do the right things, work together. Let's continue to manage the business extremely well, and aided by a strengthening economy hopefully it has a results we intended to when we restructured the deal.

Okay. Thanks.

You're welcome.

Your next question comes from the line of David Toti from Citigroup. Please proceed.

Good morning, guys.

Good morning.

Just want to circle whack to something you stated during your opening remarks, and that was relative to that your expectations for improvement in guidance as the year progresses and I am just wondering if you can maybe elaborate a little bit more on what percentage chances you think there is improvement? Does it really depend on just capital deployment to acquisitions? I just want to be more clear on that statement.

I can't help you too much. It is really a nice try. What we're really saying is because there is a concern and we understand the concern, you've got a lot of cash, you haven't at least through the beginning of 2010 that you can see taken our foot off the accelerator for issuing equity. What are you doing? It is causing dilution and we're not seeing investments beyond PMB. What we're saying is that even though we won't as a matter of policy give specific guidance, we also can't practically speaking because we really don't know exactly when things are going to close. Things come in and out and there really are a bit caprice and just their nature. We are going to do investments this year. We are sufficiently comfortable that our pipeline is building momentum. We will find transactions to close and as we do, we get to the point we can announce those. It is going to have a dramatic impact on restoring the FFO that we lost through the dilution from the equity rates, so what we're trying to do is tell you we're minding the store. We know what we have to do. This should accomplish for 2010. We whan we have to do in 2010 and we're doing it. How it exactly plays out, we don't know, but we think it will have a happy ending like most of the chapters we have written since we have been here.

That's helpful. We can do the math around some of the assumptions. I just had a couple of other detailed questions. Can you remind us what's left in your ATM program at this point?

I can't. What's left in the ATM program at this point?

What did we say, 600? Probably 4.5 or 4.4 million shares.

Okay. Great. And then just switching over to the leakage assets or the rent problems, what are the chances for a new lease or new operator with those assets?

I am sorry, what is the question again?

The question is relative to the three troubled assets where you're expecting lower rents or no rent, nonperforming rented, and what the opportunities are for a new lease in those assets?

That's certainly an avenue we would pursue under certain circumstances if we feel that the asset is better served by an operator and the operator is having difficulty and we're in litigation with one or two like Abdo mentioned, that is something we would certainly pursue.

There is no clear outcome to that yet?

Not at this time. We'll have to play a little further.

Not at this time. We first need to through the litigation resolve the issues and be in a position to move the assets and some instances we have a trust in place, a receiver, and so we working through the process and hopefully we'll see a resolution during the year and we have set up a reserve for the issues we have.

And I apologize for beating questions. We were having technical issues this end. One last question is relative to PMB and the new renegotiated contract. Did you cover how pricing is determined at this point on future acquisitions?

We did not.

You did mention that it happens at the time of the event which means when we are acquiring 100% of the property that's being dissolved and will be whatever fair market value at the time, whatever the cap rate and NOI was at the time of the event.

And how is the fair market value determined? Is it a third party assignment?

We first try to agree on the fair market value between the parties and if we have a disagreement, we get third party involved.

Okay. That's helpful. Thank you, guys.

Thank you.

Your next question comes from the line of Todd Sender with Wells Fargo securities. Please proceed.

This is Phil DeFelice for Todd. Thanks for taking my questions.

No problem.

At the end of Q3 there were no assets held for sale on the balance sheet. You sold three in Q4. Can you talk a little bit about those sales, maybe what was the driver for your decision to sell?

Those three assets, Phil, were purchase options that were exercised, they had I think a 30 day notice period, so those were noticed up and closed quickly. So that was just an option afforded the operator of the exercise at the end of Q3.

Was it seller, financing provided on those sales?

No.

And then on page 27 of your supplemental it looks like there is about 34 million of facilities expected to be sold under tenant purchase options as well. Do you expect any seller financing on those?

That's to be determined. When you say we have got about 24 of which are in the high category, Phil, but those are facilities to which we have assigned a high probability, but in terms of those, those are to be determined. The $10 million that you show in the certain category, those will not be seller financed. Those are third party financials are actually taken out of the portfolio. That pertains to the 24 million that you see in the high category. That's something that we can pursue with the operators.

Great. Thanks. And you have about 25 million of loans that are expected to be paid back this year. How many loans make up that number and who are the borrowers if you can offer that and do you expect to refinance these loans?

Yes. It is comprised of two loans. At this point I would expect those will be paid off at maturity, but again we haven't received notice of their election to do so, and frankly we have been successful previously in extending each of these loans so while they're in the high category there certainly exists a they could be beyond maturity date in 2010.

Thanks, guys. Very help. That's all I have.

You're welcome. Thank you.

Your next question comes from the line of Thaio Okusanya from Jefferies. Please proceed.

Good morning, gentlemen. Just a couple of quick questions. The 2010 guidance, I just wanted to confirm, that includes all of the seven PMB MOB assets or just the two you announced so far February year-to-date.

That includes all of the seven and the ones we closed and the ones we expect to close in the next 45 days or so.

Okay. That's helpful. And then for the three tenants where you had to take the reserves, could you tell us a little bit about what kind of EBITDAR coverage those were at and how it made more sense to take the reserve?

The reserve is taken because we have litigation (inaudible) year end so one of them was in lease up, so have barely any coverage. One was a medical office building that was on a triple net lease and we have successfully took possession of the building and turn touchdown into a multi-tenant building and leasing it up. Have put manager in place, and the third one is skilled nursing that had low coverage.

Okay. That's helpful. Thank you. There was nothing in it that was assisted living or independent living?

The first one was in lease up was assisted living.

Lease up. Got it. That's helpful. The new PMB deal, any other detail you can give us in regards to any part of what you said was PMB lower promote now? Could you give us a sense of what the lower promote is versus what it used to be and then also your preferred returns, can you talk a little bit more about what exactly that means?

The preferred return means the first cash flow available for the property comes to us, and we have to receive a 10% return on our investment. We have a preference until we receive a 10% PMB will not be a receiving any cash flow or any proceeds from sales. The change in the promote in the previous agreement promote was close to 50%. We have to really see split the development gain if you like in 50/50. Now it is 62.5 versus 50. We improved from 62.5 to 60.5 from 50%.

Got it. Okay. That's helpful. Thank you very much.

You're welcome.

Your next question comes from the line of Rich Anderson from BMO Capital Markets. Please proceed.

Thanks. Good morning, everybody.

Good morning, Rich.

The loan remaining acquisition in Burbank PMB acquisition, is it right that you're obligated to purchase that at a 6% cap rate.

That's generally right, Rich, and my memory is that the asset is a little more than 90% occupied at this time, and they have a right to cause to us buy (inaudible)

95%.

95%, so it is not at that level yet. It has been stuck at this occupancy for a little bit is my memory, and so if we chose not to buy it, we could exercise the liquidated damages provision which is 5% or so of the specified purchase price, so we have options available to us with respect to that. Also, it is unlikely at this point with what's going on in the debt markets but again if the debt markets went nuts in the triple D penetrated through I think it is 7.34 or something like that, then that would extricate us from the obligation, so we need to see how it settles out, and at some point in time sit down and talk to PMB about that and see what they want to do particularly if it doesn't get to the 95%.

It is a pretty big one, probably like 65, $70 million or something like that?

$58 million.

58 million?

Yes.

We love the asset. In fact, we own one adjacent to it. It is really a terrific asset. The price in today's market cap is not what you would pay so evaluate the economics at the time, but it is a fantastic asset, and we would otherwise like to own it and have to see how the pricing holds out.

Regards to your comments about raising equity, you went through the reasons, strengthening balance sheet, check, fund investments, you have I think you said 1.5 billion in available liquidity today, so really the reason why you're raising equity is because it is attractively priced in your view. Is that where you're at in terms of those three stages?

I am really glad you asked that question, Rich, because I think it is probably on a lot of people's minds, and I think it is a really good one. Those are the three primary reasons you would do it, and if you look at it, really our balance sheet for now is plenty strong, and until we're confident that we have investments that have or are going to close, we really don't have an immediate need for investments, so it is really the latter of the three, the capital is really attractively priced. If you look at that we did in the early part of this year, we issued 22 million of equity at $35 a share, and based on our arrangement compared to traditional thing we issuing equity at $39 a share. We look at that and say even if we don't need the capital immediately today, that's really well priced capital and we put some obviously we're not at that level today, so one could reach the conclusion we would be less aggressive and less motivated to issue capital until one or more of those three things changed.

Okay. And do you think that you're trading at a premium to NAV then at this point?

I will give my own gold medal to anybody that can really come up with what NAV is because it is just when you have 600 assets it is just really hard, but we think that NAV is kind of somewhere around certainly where the stock is trading at now is within the reasonable range of NAV, some people could argue it is higher, some people lower. Some around here.

Okay. And then just want to revisit quickly the leakage disclosure that you provided and sometimes it gets you into trouble because you provide great disclosure that other people don't and everyone focuses on it, so it is sort of double edged sword type thing. I commend you for providing the disclosure.

Thank you. Send us some band aids because we feel cut.

I just want to understand you mentioned typical leakage is between 5 and $10 million a year. Is that the kind of the actual revenue, does that apples-to-apples, actual revenue that you're losing? Is that what you mean? Is that the 5 to 10 million per year typical?

Yes, (inaudible). It is the impact -- what we say actual is the impact on the current year.

Right.

And the 10 million, 5 to 10 million is more the full-year impact of that.

So that would be apples-to-apples to the 9.1 million that you disclosed this quarter?

The 9 million we disclosed?

In this page 27 you have 9.1 million of full year revenue in tact.

That's correct.

The 5 to 10 is apples-to-apples with that number?

That's correct.

Now, so in looking at this, the timing of these should average about Midway through the year, right, since the actual revenue is about half of what the full year revenue impact, is that the right way to think about it?

Rich, that's correct.

And then finally the reason you put this investment required at 9.5% yield, that's just to say how much you need to spend to recoup that 9.1 million, is that just really basic math like that? Is that what you're doing there?

That's exactly right.

So but it is still not apples-to-apples either, right, because have you to spend more money and exhaust more capital to get to that return and so it is still going to be I guess I just wanted to understand better why you include that column and kind of seems trivial to me.

What we are saying is just to take what we have on page 27 is that we will select call it $60 million in proceeds.

Right.

To be able to replace the rent we're losing we are going to need to invest 96 million.

Okay.

These proceeds to provide 62% of the way the rest is have to be from debtor cash we have or equity we have to raise.

I understand. Okay. Pretty simple. Thank you very much.

You're welcome.

Thank you.

Your next question comes from the line of Michael Mueller with J Morgan. Please proceed.

Hi. I know you guys have talked a little bit about balance sheets and acquisitions on the call so far, but just wondering can you comment on a couple of things, number one, a lot of the transactions you're looking at do they tend to have debt on them or do they tend to be free and clear and then secondly, how do you think about if we're starting off with that $250 million of cash hypothetically say you plan to spend 250 this year, you plan to buy $250 million property this year. Can you walk through conceptually how you would think about the peeking order of capital sources? Is it you blow through all the cash first and then you move on to the credit line and then you think about debt, et cetera, or do you kind of use cash and use some debt and just how do you think about that?

I think the first part of it is easy at least in my mind. We use our cash because with the full complement of the 700 million credit facility that's very attractively priced and earning the 10 basis points on and not having any meaningful debt maturities until the middle of next year I think we deploy the cash first. That's the highest and best use of it. Then once you get through that, I think you reevaluate, and even when you're spending the cash I think you reevaluate exactly where you are with the various different components of the capital structure or price debt and start to plan ahead and I think, Mike, you do that, too, with in mind how robust you think the pipeline is going to be and with what certainty you think investments are going to be able to close just by way of example if you're going to do an unsecured debt piece you want to do that in a significant tranche. You don't want to do that in a small piece, and really if you're going to do a secured debt piece if it doesn't come with the asset that you're assuming, you want to do that in a fairly big tranche and leverage the assets that are going to be collateral relatively highly because the way the unsecured creditors look at it is the available collateral they have and so you don't want to end up with 20% secured debt on a bunch of assets that's just poor utilization of your collateral, so there is a lot of dynamics that have you to think about, but I think for now we're anxious to find ways to get cash out of our accounts and putting it in assets that are going to provide a nice return on the investment.

Okay. And in terms of the assets you're looking at right now or have been looking at do most of them tend to be unencumbered?

The ones that are in my mind as we're speaking here and I am thinking near term are unencumbered but I am sure as we go throughout the year we'll find portfolio that is have debt on them and we'll take a close look at those as well.

It is a real mix and it is a little potpourri. You don't know what investments you're going to look at. You just don't know what they're going to have.

The near-term stuff is unencumbered.

Okay. Can you comment are you close on anything on the acquisition side that's not PMB.

Define close.

By the next earnings call?

I really don't want to comment, Mike. Like I said I have 120 million under LOIs last year and went away. When they're done, they're done.

Okay. I think that's it. Thank you.

Thank you.

Your next question comes from the line of Rob Mains from Morgan Keegan. Please proceed.

Thanks. Good morning.

Good morning.

A couple questions about the guidance reconciliation on page 10 of the press release.

Supplemental when we get to page 100.

Yes, then grow an extra tree out here for you. The lease commissions and TI's are going up a lot. Is that all PMB?

No. As you may have noticed, we have a lot of rollovers in leases in 2010, and it is not PMB, other portfolios we have and so we expect to have to spend PI's and leasing commissions.

Okay. So that's kind of a blip in a way?

Yes.

Okay. Then you're assuming no additional shares being issued. Does that imply that diluted weighted shares count roughly 119 million is kind of where you are run rate right now? Now as we're speaking today?

Yes.

And then do the NHP PMB units, do those filter in as the deals are done?

That's correct.

So the timing of that would be mostly by the end of the or by the end of the quarter given Doug's commentary when you expect the deals to close?

That's correct.

Okay. All right. I think that's everything I had, everything else was answered. Thanks a lot.

Thank you.

Operator Instructions) Your next question comes from the line of Karin Ford with Keybanc. Please proceed.

Good morning.

Good morning.

Wanted to ask you about the Pasadena asset you're going to be acquiring later on this year. Did you say you're also along with that going to be making a bridge loan and how big was that and what's the rate?

We are. It will be up to $60 million at a rate of about 6%.

And what's the use of the funds and what's the source of repayment on that?

The use of funds is to pay off existing construction loans for the property which is currently under lease up, and the repayment will be likely some type of refinancing down the road three years from now or may be additional equity from us or at least for part of it.

Acquisition by NHP.

Okay. Got it.

We will own 70% of the building, and this will be consolidated JV, and we own 70% of it, and down the road when the building is stabilized, we will probably buy the remaining interest in the building.

Okay. Got it. Next question is just on guidance. Did you guys tell us what you think G&A will be next year?

It is very similar. What you see in '09 is very close to that.

Okay. And your triple --

Significantly increased from '09.

Okay. And your triple net lease escalators for next year, where are you expecting those to come out roughly?

It is in the 2 to 2.5% range.

Okay. And Jordan Sadler is here with me and has a question as well.

Hi, guys. Just wanted to see if you had any sort of return hurdles or expectations on sort of investment that you could sort of maybe add some parameters and maybe discuss them relative to sort of the cost of capital that you guys had been talking about?

We look things on an accretive basis when we're doing investments, but the kind of cap rates you're looking at actually we look at lease rates for senior housing and long-term care and cap rates for medical office. That's because we do the triple net lease and the senior housing and long-term care, and those initial rates are comparable to what have you heard others say. They're in the eight's for senior housing. They're in the nine's to ten's for skilled nursing, and then on the medical office building theist all over the board, the really good stuff you see in the seven's, and you can find stuff more average in the eight's or nine's.

Are you looking at it at a particular spread relative to your cost of capital? Others have different obviously costs of capital than you guys do, so I am just curious when you are underwriting individual assets what types of either IRR's are spreads relative to your cost of capital are you looking at?

Looking at doing if above our cost of capital.

Plus 100 or 200 basis points or just above?

Above our cost of capital and how much depends on the deal.

Okay. Thank you.

You're welcome. Thank you.

There are no additional questions in queue at this time.

Thank you very much. Have a good day.

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