芬塔 (VTR) 2010 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter 2010 Nationwide Health Properties earnings conference call. My name is Lacey and I'll be your coordinator for today. I would now like to turn the preponderance over to your host for towards call, Mr. Danion Fielding, Vice President of Finance. Please proceed.

Thank you, Lacey. Good afternoon, and thank you for joining our conference call and webcast presentation to discuss Nationwide Health Properties' second quarter 2010 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 statement, due to risk and uncertainties described from time to time in the SEC report filed by the Company. This webcast will be available on our website for sometime, and it's important to note that it includes time-sensitive information that may only be accurate as of August 3rd, 2010.

The Company believes the funds from operations and funds available for distribution are important supplemental measures of operating performance. The Company's definition of FFO and FAD. The reasons for their importance, certain of their limitations, and reconciliations to net income are included in our earnings release dated August 2nd, 2010.

As a reminder, NHP's complete second quarter earnings release package was filed on August 2nd, 2010 in form 8-K and is avaluable in the Investor Relation's 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 senior management team. After reviewing our financial results and updated guidance I will review our investment activity and conclude with a review our portfolio's performance. Shortly after this call, we will participate in the New York Stock Exchange closing bell ceremony to begin NHP's commemoration of 25 years as a public company, a significant milestone by any measure.

On the strength of investments totaling $194 million for the second quarter, and $578 million for the first half of the year, we achieved year-over-year quarterly revenue and FFO increases of 13% and 12%, respectively. FFO per share increased by $0.03 or 6% relative to the first quarter. Our credit metrics remain among the best in the entire REIT sector, with undepreciated booth leverage at 36%, secured debt leverage at 14%, fixed charge coverage at 3.7 times, and debt to EBITDA at 4.5 times. In June, we exercised our option to extend our $700 million credit facility maturity to December, 2011.

In tandem with our operating results and excellent financial position, NHP's board of directors just increased our quarterly dividend for the Second consecutive quarter by $0.101 to $0.46% our dividend coverage remains at a comfortable 1.2 times. We are also significantly increasing our FFO guidance range by $0.09 on the low and $0.08 on the high-end. As you know, our guidance range does not incorporate results from acquisitions, except those contemplate or previously announced, nor does it incorporate the impact of any future capital transactions or impairments.

Due to the healthy volume of completed investments, and the favorable equity market, we issued $139 million of equity since our last earnings call, at an average price of $36.352 per share. For the year, we issued $239 million at an average price of $36 per share.

Our Our second quarter investments of $194 million provided a blend rate of 9.1%. Substance kept to quarter-end we closed $60 million of additional investment at a blended yield of 8.9%, bringing year-to-date investments to $638 million at a blended initial yield of 8.5%. While we are seeing reasonable activity within the medical office and skilled nursing sectors, relatively little assisted-living product has been sold or brought to market in 2010.

We expect that potential sellers will continue to be reluctant to sell their senior housing assets, so long as they believe increases in asset values are on the horizon, due either to improving operate performance, or declining cap rates, or some combination of both.

Despite the unevening economic recovery, our portfolio performance remains relatively stable. While occupancy in our senior housing portfolio decreased 20 basis points year-over-year, operating margins increased by 50 basis points. EBITDA remains flat at 1.3 times.

For several quarters we have provided you with our senior housing operating fundamentals forecast, which has played out much as we had anticipated. Not withstanding the benefits of low new additions to supply, high unemployment rates and unstable consumer confidence, there remain strong headwinds which are preventing the industry from hitting full stride. Accordingly, we expect improvements in our occupancy, will likely be uneven with some quarters inspiring optimism and others reflecting little change or modest pull backs. Meaningful increases to rates and margins will likely trail occupancy gains, but over time, they too should show signs of improvement. Our Our medical office portfolio occupancy remains at 90%, with annual NOI growth of 3.5% and operating margins of 61%. For skilled nursing, EBITDA coverage remains strong at 2.2 times.

We continue to monitor the fiscal condition of states within our portfolio, assessing the potential impact of state deficits on Medicaid payment rates. Medicaid dependent skilled nursing facilities, which we define as facilities who our Medicaid paid revenue accounts for greater than 65% of pay or mix, represents about 5% of our portfolio by revenue.

As I mentioned in my opening remarks, NHP is celebrating a25 years as a public company. Nationwide Health Properties began in 1985, with 35 skilled nursing facilities valued at $100 million. Now as we approach your 25th anniversary, we have a well-diversified portfolio of over 600 assisted-living, skilled nursing and medical office building assets in 43 states, and a near-price value of about $6 billion. Over these 25 years, we have delivered to our shareholders an average annual return of 17%, inclusive of $2 billion paid in dividends. NHP's accomplishments are a reflection of the time and talent contributed by those currently affiliated with NHP, and the many that preceded that. I am grateful to all who have participated in NHP's success.

We are excited about this unique opportunity to reflect on our past accomplishments, celebrate our present success and reaffirm our steadfast commitment to our investors, customers and employees. We are particularly appreciative of those of you who follow us so closely. Thank you for your interest and confidence in us. We take our responsibility as custodians of capital very seriously, and our unwaving commitment to perform with your high expectation. We now pleased to answer your questions. Lacey, please open the lines.

Thank you. (Operator Instructions) Our first question comes from the line of Jerry Doctrow with Stifel Nicolaus. Please proceed.

Hi. Thanks. I came in a couple of minutes late, so I apologize if you might have covered some things. One thing we were trying to think through -- first is on guidance. There was some equity issuance, I think already, subsequent to the end of the quarter. I think there were some acquisitions subsequent to the end of the quarter. Is any of that stuff in guidance or guidance is kind of right based op quarter-end?

Yes, it reflects both of those, Jerry and investment and equity raised since the end of the quarter.

Okay. I guess what I wanted to understand a little bit is sort of the strategy. You have been issuing a fair amount of equity and I think we've got it 60-70%, plus equity. What do you see, sort of given where the stock prices are, debt prices and how do you see that equity and debt mix going forward?

Over time, Jerry, we'd like to increase the leverage on our balance sheet a bit, assuming that economic conditions and the way we view the world unfolding for as far as out as we can see. As you know, that's a difficult proposition. But, over time we expect that we'll be adding a bit net leverage to our balance sheet. Both the equity markets and the debt markets pricing seems to be reasonably attractive. We have about $340 million of debt that matures in July of next year. It will be reflected in current liabilities on our next 10-Q filing. So we're evaluating opportunities to issue debt, in tandem with additional investments we hope to complete over the course of this year. We're also looking at ways to maybe try and hedge interest rate exposure, because we think the rates in the market now are attractive. So what we're trying not to foreclose any possibilities and keep a good mix, but net-net we see an opportunity with a bit of additional leverage going forward.

Okay. The flipside of that is kind of the percentage of equity you have been using lately might come down a bit as we go out the rest of this year?

That is certainlily a possibility.

Okay. And you switched to more snips this quarter and I was wondering if that was a change in strategy or what happened to come down the pipe?

It's more the latter, Jerry. This is Don Bradley. We take the investments that are good investments as they come, and they come in bunches sometimes, and it doesn't really matter what type of asset it is. It's more is it a quality investment. Not any grand plan there that it was a large number of skilled.

Again, my apologies if you covered this -- any sense of volume of acquisitions? Just pipeline? And I apologize if you covered it.

No, we haven't covered it, really We've got some letters of intent out there. We've got some things that we're look at and it all depends on how the rest of the year plays out, and getting deals to close. So, there is still stuff going on.

Any change in the development pipeline on PMB?

Actually, we have a couple of developments we just got approved. So, we have some good news there. We're starting that out. It will still be about a year before you start seeing that hit our FFO.

And hopefully we'll be able to talk to you about those in more detail next quarter.

Okay. And then the last thing -- and everybody has been saying pretty good things about senior housing numbers, [Wayne Brookdale] report. Some of your colleagues (inaudible) have been touching on fairly good numbers. Just, Doug, you always seem to be my voice of caution here. Any -- your sense about how you are seeing the market in terms of more in real-time, even though what you reported, occupancy rates and that kind of thing?

Jerry, we're still actually consistent with where we are. We're generally optimistic. Unless the economy really slips again, which remains a possibility in our view. We see slow and steady, but choppy. I personally don't get that agitated by a little up or a little down in any particular quarter, because of the seasonalitie. And just having been in that business so often, a quarter or two doesn't tell you much. And there is false-positives and false-negatives, in my view. So I think that it's generally positive, but I think it's going to be very choppy and as we've said for a couple of years now, until we see unemployment starting to stabilize and really improve meaningfully, we just don't see a breakout type of event from the operators, where they have dramatic increases in occupancy. I'm talking 150, 200 plus basis points. It could happen, but we think the probability is against that until there is further strengthening in the economy and more specifically in the unemployment rate.

Okay. Given that, I think you were talking about you would be interested or willing do a TRS if you find the right opportunity? You sort of have enough optimism that something like that still makes sense?

Yes, absolutely. And if you are evaluate it, you can, looking forward, you can certainly see incremental risk and you also see incremental opportunity. Right now, given what we have been through and what we've come out, I view there being incremental net opportunity. It's not dramatic, but I think now getting involved in the TRS it's not a bad time at all, because I think the prospects of better things happening outweighs that negative things happening.

Lastly and again -- I was sort of hearing what might have been the last of your comments on this when I jumped on. Most of your peers have been saying neutral to even slightly positive things about Medicare and Medicaid. Your sense is the same, or you are concerned about that?

I'll let one of my colleagues take that.

Hey, Jerry. It's Don Bradley again. Medicare; not really much of a concern there. In fact, wasn't there just a percentage or so bump, that was a nice bump to see. The Medicaid side, that depends on states. We've done a stress test of our portfolio and are pretty comfortable with where our portfolio sits, given the coverage that we have. We're not concerned at the present.

Thank you, that is all for me.

The next question from the line of Omotayo Okusanya with Jeffries and company.

Yes, good afternoon and congratulations on 25 years.

Thank you.

Don, you've been busy again this quarter with acquisitions.

I try.

On the MLB side in particular, kind of curious about 9.3% cap rates? Six to nine months ago everyone was talking about, "we can't really buy MOB's because the capital is just incredibly low". You guys kind of went through a similar thing with PMB, and now all of a sudden, the deal is being done at 9 cap. I was wondering, has anything really changed, or was it really unique to this one transaction?

You're talking about the second quarter?

Yes.

A lot of the second-quarter 2nd quarter was in the skilled nursing side of things. There was some MOBs. Those were in the Midwest.

Okay.

Rural markets, but with good healthcare systems. So, you get a little bit better pricing in those markets than you would on something that's in California, on the coast.

Okay. But on that account, for that amount of the difference of 100 to 150 basis point difference?

You could see in urban markets, not like California, you could still get caps in the 8's. It's tightening, but then you get into more rural markets and you still see things in the 9's.

Okay. Got it.

If you look at the supplemental, you'll get a picture of what the facility looks like. Which page is that? Page 26? 25?

I think it's 26. Thank you. That's helpful.

And one other thing -- time is flying by and we did that deal about six months ago, so, markets change and we got a good opportunity there.

Okay. Helpful. On the skilled nursing facility that you bought, the newer facility -- the Q-mix, is that the Medicare and the private-pay piece of it?

Yes. And that is really focused more on the high acuity things, the rehab where there's a lot of Medicare and private-pay dependency. More so than the Medicaid shots that you are hearing a lot about.

Got it, that is very helpful. I guess -- Anything new on the PMB front?

We didn't close any acquisitions on PMB for the quarter. As I mentioned to Jerry, we've got more in the pipeline and we'll talk about those more in our text call.

Sound goods to me, congratulations again.

Thank you very much, Tayo.

Your next question comes from the line of Rob Mains with Morgan Keegan, please proceed.

Thanks and good afternoon. I guess still morning out there. Just a follow-up to Tayo's's question about the acquisitions you are making. Is this the kind of thing you are seeing in the market, for lack of a better term, small chains of higher-quality facilities?

We have been fortunate to see a couple of deals like that, Rob. And it really sort of plays out things we were working on last year, when we are doing our so-called project snuggle and establishing some new relationships and those were off-market deals that came through some of the work we did last year.

Okay. So I shouldn't read into this that there is kind of a pipeline of sniffs out there?

They are opportunities that came in. I would love to see the same amount next quarter, but I'm not counting on it.

Okay. And then I've got a couple of number questions or Abdo. In the FAD calculation, straight line rents were up Q1 to Q2 is that the acquisitions kicking in?

That is correct. A big part of it is coming from the acquisitions, the MOBs that we did early in the first quarter and end of the first quarter.

So that is probably a good run rate to use?

Yes.

And then TIs and Cap Ex, is that going to be kind of back-loaded?

It has been. We have been running a little behind on what we had included in our guidance. So it's going to be back-loaded, yes.

Okay. All right. That's all I have. Thank you very much.

Thank you, Rob.

(Operator Instructions) Our next question will come from the line of Rich Anderson with BMO Capital Markets. Please proceed.

Hey, good afternoon. I'm assuming you guys are in New York?

We are in New York.

It sounds like in a basement somewhere, but anyway.

We're in the New York Stock Exchange boardroom and it's big and cavernous and fit for a queen, but not conference calls.

In terms of the acquisition activity the 9 plus growth even on the MOBs you completed, are we looking at sort of below market escalators there? Can you talk about the growth potential activity that you did?

Actually on the skilled sides, it used to be -- look more at 2% and these were all carrying 2.5% on the skilled. The MOBs, I don't know if I have the ups in front of me, but I recall them being close to 3.

It's not like the growth fit into the yield and there is nothing else coming.

Okay. You mentioned on your TRS -- sort of looking over at the TRS opportunity. What would you guys think of as the top-end of the range in terms of amount of TRS-type of assets you have in the portfolio? The percentage of the total? You want to get any more then 5% or 10% of your portfolio in some type of TRS structure, or is it more than that?

You know, Rob, or Rich, sorry.

No problem, Jay.

I apologize, I'm talking to you and looking up at the scene. But actually, you can call me Jay any time.

How about Debbie?

Why not. I like both Jay and Debbie. Anyways, now I forgot the darned question. Really, Rich, the size would be dependent on really the transaction. It could be anywhere from 5% up to a whole lot more than that. If we found the right opportunity in a large transaction, we would not be -- We would not eliminate the transaction because it might comprise 30 or 40% of our business. But you'd have to take real hard look at that, because now you're change the complexity of the business. There are good elements to that, and elements that would be not so good, in terms of variability and income. People would have to recognize that NHP's not a triple-net business. We've gotten away from that with medical office building, but in senior housing, the variability range would be much greater than medical office building. So, we're comfortable enough that we understand that business, that we could evaluate the specific opportunity, and I can't really think of any size out there as a possibility that we would walk away from saying, "it's just too much TRS for us because of the size".

When you say 30-40, I know that was kind of a random number, but is that in your mind inclusive of your medical office business, which is kind of TRSish, right?

It's kind of a subset of TRS, but I'd say it's TRS very light, because the variability is just not that much. The real variability would be in senior housing, where you could have some years that maybe your income would be up 8, 9 and even low-double digits, depending on what is going, and you wouldn't see that in medical office building.

Right.

But on the downside, you could see negative and that could be approaching double-digits in the negative side, too. So you are talking a different model there. Medical office buildings, you'll have some variability. You may have a large tenant, or just where you're in a debt maturity schedule where you just have too many leases rolling. For the most part they are pretty stable. So to answer your question, I don't know. I was throwing it out as an example, to make the point that size in TRS wouldn't really scare us. But if we were really confronted with that opportunity, we would weigh all that and assess the situation.

Fair enough. Last question is you talked about how there is no coincidence or -- Not coincidence or no issue with you doing a bunch of skilled nursing that past quarter and it's not meant to be a signal you're suddenly favoring that over others, but it's just the way it worked out. Do you have any kind of property mix focus in mind at all or is it truly like it could be anything in terms of skilled nurse, senior housing and medical office, depending on if you find the right asset quality or whatever?

Yes. That's a very good question, Rich, and a little difficult to answer. So let me try to answer it as specifically as I can, but still give the flexibility in my own thinking. We kind of like where we are now, in terms of 45% of assisted-living, 25% each in skilled nursing and medical office buildings and 5% other. That's not a bad mix. We favor medical office buildings, so we would not mind seeing that grow over time. You know well that we understand senior housing very well, and you could also see that growing substantially. But at the same time, we see some real opportunity in skilled nursing. We have done, I think, and kudos to Don and his team, finding as good a quality skilled nursing as we think is out there. So to the degree that we can find those kind of assets, we're happy to do a lot of it, too. So at any point in time, you could see some material shifts in any one of those things, and a lot of it depends on how the marketplace plays out and things over which we don't have control. And you know, we would be sensitive to investor sensitivity. If we were going to change the risk and return profile of the business significantly, like, for example, taking MOB's from 25 to 40, and senior housing up considerably and in a TRS. We would have to take sure we were very clear as we're doing this, to communicate to our investors, so they would have ample type to assess whether that is the kind of change that they were comfortable with. But what's nice is that I see a lot of different avenues that we could work toward ours advantage, and we'll direct it as we see in your boast interest. But we also want to be really flexible with the marketplace is providing and work within those two sets of guidance.

Could I just add one, Doug?

Please do.

We've been really surprised on the skilled side. We have sort of been thinking that was going to start shrinking as part of our portfolio, for the simple reason that the kind of stuff we're interested in is hard to find, and we've just been lucky and my guys have done a great job in finding some opportunities that fit our criteria. There is just not a lot of them out there. Like I said, I would take the same opportunities next quarter and the quarter after that. But I think the reality is that you will not see that many on the skilled side, but more on the MOB side and senior housing.

Okay. Thank you very much.

Thank you, Rich, and Rich?

Our next question will come from the line of Michael Mueller with JPMorgan, please proceed.

Hi. A couple of questions. First of all, I apologize if I missed this, but how much common equity was raised in the third quarter?

You want to know, Mike, just the third quarter and not subsequent? Just in the third quarter?

Yes, subsequent to Q2. Okay.

Third quarter.

Third quarter, July 1st on.

It's about $60 million $60.6 million.

Okay, do you have an average price or shares?

$37.03.

Great. I think maybe one question just staying on the line of putting a business into a TRS. I mean, how are the rating agencies thinking about that to the extent it is a bigger part of your business? Do you expect any noticeable changes on the debt side as you take on more operating risk?

We're not 100% sure how they are going to look at that. I guess we could look to [Vent House]and Sunrise a bit. That is a market indicator as to one thing that is happening and frankly, I couldn't tell you off the top of my head. Maybe one of my colleagues could how that went down interest their point of view. You would expect that they would recognize there is incremental risk to that structure, but how exactly they would view it is not something that we have explored in-depth with them and it would be to be somewhat fact-specific. So I don't have a great answer to that. Do you guys?

That is something that we would certainly find out before we complete Nid transaction of size.

Okay. And sticking with financing. I guess given the comments before about maybe taking an opportunity to add incrementally a little more leverage to the balance sheet, I mean, should we -- I guess you mentioned in Q3 you raised about $60 million of common equity. Should we expect a debt yield to fund the next round of new investment active over the balance of this year? Should we think for something either coming up in the fall?

We don't want to do a debt issuance, $250 million. We want to take advantage of the debt markets, because again, they are very attractive and one never knows how long that might hold up. That That is why we're exploring some hedging opportunities and other things. So let me put it this way just by way of example. This is in no way a forecast of our investments. Let's just say we did between now and our next call $150 million of new investments. We wouldn't finance that with public debt, because it's just not big enough. We have to group it into a sizeable piece. So we would be looking for a spot, and we're kind of finding that spot, sooner is better than later, but it has to be investment-driven.

Okay.

We're really financing the invexes in the second quarter pretty much in line with our capital structure,60% equity and 40% debt.

Okay. Great. Thank you.

You are welcome.

Our next question will come from the line of Michael Bilerman with Citi. Please proceed.

Hey guys, it's David [Seamus], not Michael. How much is remaining on your ATM program?

We just filed the 5 million shares in July, end of June, so we probably still have about 4 million shares left.

Okay. And then the Pacific Medical Burbank asset a 5.8 cap, that's obviously very rich to where you've been buying medical office buildings, is it fair to assume you will just pass on this and eat the $3 million charge?

It's possible. We still have until next June/July 2011 it make that decision. We will see what happens between now and then. We could very well also engage PMB in discussions like we have done previously on the other deals and we might be able to reach a different arrangement for that building. It's a building that is on the same campus motherboard we own. So we are very interested in it, but we'll see what happens.

And the Pomona asset? Are you obligated to buy that one at the 7 cap or is that negotiable?

No, we are obligated to buy it at that cap. Once the conditions have been met we're obligated.

Thank you.

Thank you.

Our next question comes from the line of Karin Ford with Key Bank. Please proceed.

Hi, good afternoon. Question on medical office and I guess really any of your asset classes. Are you guys currently happy with your PMB relationship or would you consider wanting to own more of a platform within the organization, Ala ventas acquisition, somebody like Cogdill Spencer with more of a platform?

We have evaluated that, and made the decision with PMB that we wanted to not bring it in-house. And of course, that could change over time, but he think for us, at least that is the better strategy. But we're also exploring opportunities for doing business with other medical office building specialists in different parts of the country and we are hoping we can do that in way that is complimentary to PMB and net NHP, bringing it in-house doesn't suit our interests at this point in time.

What we did do is bring in half of the property management business. We acquired half of PMB's property management business. We didn't bring in development and setup the development pipeline agreement instead. We do have an exclusive contract relationship it's done off balance sheet. That's a really good point.

I'm glad Don pointed that. We have other managers as well. Dasco which is doing some property management for ys. And McShane, which also does a real nice job doing property management. So we're spreading our wings a bit and hope to continue to do that, so we have good representation cross the country.

That is helpful. Final question, can you update on your appetite for life science?

We continue to evaluate that. We haven't found something that fits with our cost to capital structure. We just haven't found something that fits yet. We'll continue to monitor, but if we don't see anything imminently that would cause us to jump into that space?

Thank you very much.

You are welcome.

Our next question is a follow-up question from the line of Jerry Doctrow with Stifel Nicolaus. Please proceed.

Hi, just is any of $108 million restricted and if so, how much?

$180 million cash on balance sheet, Jerry?

Yes.

The $100 million, I don't think any of it is restricted.

Danion?

It's not.

It's not.

Thanks.

(Operator instructions) We have a follow-up question from Tayo Okusanya from Jeffries & Company.

A strategic question, Don was just talking about product snuggle a few minutes ago and I was just wondering if there was anything else of that nature going on? Like a project cuddle or something some regards to other things you might be thinking of doing that could be a significant game-changer for NHP?

We're constantly snuggling, Tayo. [ LAUGHTER ] As Doug said we're looking at other opportunities to compliment the medical office building platform we have. So we're constantly looking at relationships there that seem to work with our PMB relationship. We're constantly looking for new business opportunities in and the ability to attract investments off market. That is certainly something that is very attractive to us.

Got it. Will you still have any interest in looking at any regard to building the MOB platform, possibly, one of the public MOB players as a potential takeover? Is that interesting to you?

You would always have to examine those possibilities and see if they made sense. We wouldn't foreclose it. I don't know that we would do it.

Okay. That is fair enough. Thank you.

Thank you.

At this time we have no further questions in queue. I would like to turn the call back over to Mr. Doug Pasquale for any closing remarks.

Just thank you very much for your interesting and participation. If you have any follow-up calls, please let us know. Thanks very much. Have a good afternoon. Bye.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day everyone.