芬塔 (VTR) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Nationwide Health Properties earnings conference call. I'll be your coordinator for today. At this time all participants are in a listen only mode. We will conduct a question-and-answer session after the presentation. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today's call, to Mr. Danion Fielding, Vice President of Finance. Please proceed, sir.

Good morning, and thank you for joining our conference call and webcast presentation to discuss Nationwide Health Properties third 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 statements due to risks and uncertainties described from time to time in the SEC report 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 November 9, 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 reconciliation to net income are included in our earnings release dated November 8, 2010. As a reminder, NHP's complete third quarter earnings release package was filed on November 8, 2010, in a Form 8-K 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 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 financial results and updated guidance, I will review our portfolio's performance, introduce a new strategic initiative and conclude with a review of our investment activity. With investments totaling about $100 million during the third quarter, and $676 million through September, we posted year-over-year quarterly revenue and FFO increases of 18%. FFO per share increased $0.02, or 4%, relative to the second quarter. With a cash balance of about $120 million and the full complement of our $700 million credit facility, our liquidity remains excellent. In anticipation of refinancing our $339 million senior unsecured notes that mature July 2011, we executed treasury hedges of $250 million.

Our credit statistics remain among the best in the entire REIT sector, with undepreciated book leverage at 34%, secured debt leverage at 12%, fixed-charge coverage at 3.9 times and debt-to-EBITDA at 4.2 times . Since our last earnings call we issued $97 million of equity at an average price of $39.93 per share. For the year, we have issued $339 million at an average price of $37.04 per share. We are increasing our FFO guidance of $2.23 to $2.25 per share to $2.27 to $2.28 per share. Our guidance range does not incorporate results from acquisitions, except those completed or previously announced, nor does it incorporate the impact of any future capital transactions or impairments. Consistent with our solid third quarter performance and robust investment activity, NHP's Board of Directors increased our quarterly cash dividend for the third consecutive quarter by $0.01 to $0.47 per share. Our dividend coverage remains at a comfortable 1.3 times.

Despite slow growth in the economy and sustained unemployment at near 10% levels our portfolio performance remains relatively stable. Occupancy in our senior housing portfolio decreased 20 basis points, while rental rates increased 160 basis points and year-over-year operating margins increased by 10 basis points . The EBITDARM coverage remained flat at 1.3 times. As we have said for nearly two years, sustainable improvements in senior housing operations will come in tandem with improvements in the economy.

Our medical office portfolio occupancy remains at about 90%, with annual same property NOI growth of about 0.5% of 1% and operating margins of about 61%. For skilled nursing EBITDARM coverage remains at strong at 2.2 times. We updated our supplemental report to significantly improve information regarding our skilled nursing portfolio, focusing on elements we believe are most important in deriving a portfolio value, including Q-mix, coverage and age of assets. As shown on page 48 of our supplemental, 57% of our skilled nursing portfolio has a Q-mix greater than 45% and only about 9% has a Q-mix less than 25%.

Going forward, we intend to be more proactive in allocating capital in a focused effort to provide mortgage and other loans, and otherwise making debt investments to new and existing customers of NHP. This initiative will expand NHP's product offerings, particularly in the senior housing sector, where there has been a substantial reduction in lending. In addition, we expect this initiative will augment senior housing, skilled nursing and medical office investments, enhance existing relationships, as well as develop new customers.

To ensure the success of this undertaking, Craig Jones, formerly CEO of Red Capital, is joining NHP to lead this effort. Prior to his 10-plus years at Red Capital, Craig spent nearly 20 years at various top-tier investment banks, managing healthcare finance groups and developing innovative financing progress -- products for the senior housing and long-term care sector. Craig has an excellent reputation and an enviable client list within the senior housing and healthcare industry, and we are thrilled he is joining our team.

Our $100 million third quarter investments in senior housing and skilled nursing provided a blended yield of 8.9%. Additionally we purchased a $16 million land parcel in Mission Hills, California, for our inaugural development with Pacific Medical Buildings. The total project is expected to cost $53 million, provide a development yield above 9% and is expected to open in November 2012. For this project, a successful multi-specialty medical group comprised of a 150 physicians, will sign a 20-year triple net lease for 100% of the building. The project will comprise 125,000 square feet and is located less than one mile from the A-rated hospital with which the physicians are closely affiliated. As you will recall, our development agreement with PMB provides NHP a 10% preferred return on equity, which for this investment is 30%. We are very excited to initiate the development phase of our PMB relationship with this first-class project.

We are equally excited about the development opportunities in our other primary asset classes, senior housing and skilled nursing. We have at least one development in progress in each of these asset classes, and we are diligently working on several others. Our investment officers continue to identify good transaction opportunities and, as a result, our investment pipeline remains robust. Accordingly, we are optimistic about a strong end to 2010 and another very good year in 2011. We are now pleased to answer your questions. Frances, please open

Thank you. (Operator Instructions) Your first question is from the line of Jerry Doctrow with Stifel Nicolas. You may proceed.

Well, good morning. Let's see, a couple of things. First, I do appreciate the added disclosure on the skilled stuff, although I haven't really had a chance to digest it yet this morning. And Doug, what I wanted to come back to, I mean, you kind of touched on this but I wanted to get a little more color. I think you're obviously putting a lot of money to work, seeing good investment pipelines, I think we're seeing some that at some of the other REITs. It seems to me that you are consciously not going after some of the TRS stuff maybe going a little bit of a different direction, and I wanted to understand maybe a little bit more strategically where you see yourselves positioned to go forward.

Sure. Jerry, we added to the skilled supplemental in part because of a report you placed that we thought had a lot of merit, and so we tried to respond to that, and hopefully you and others will find the information that we added to be very useful. With respect to the TRS, it's not that we have avoided it, in fact, we've been very active in trying to identify opportunities that fit for us. In fact, some may remember in our last earnings call, I was asked a question, how much might it comprise of our portfolio at a point in time in the future. And I believe I said something to the effect to up to about as much as 40%. The reason for that large number, and I think it took some people by a little surprise and a little concern, frankly, that it could be that large a part of our portfolio.

At that time, and this was back in early August we were looking, as were many, at the Atria transaction, which is, I think as most people know, really a fine collection of excellent assets and very good management. Unfortunately we weren't able to find a spot for us that worked both for us and for the seller and so we weren't able to accommodate -- or complete that transaction. But we looked at that and we've looked at many others, and to this point we just haven't found or been able to push over the finish line something that worked for us. And so we'll continue to look. We are in no particular hurry. Although, as soon as we find something that fits, we'll do what we can to complete it.

So, just to remind people some of the things that we said were important to us. We want some good assets. We want to make sure there is very good management. We'd like it to be properly-sized for our company, Atria would've stretched this a little bit based on the size of it and the size of our Company, and it carried with it a lot of secured debt, which was going to be, at least in the short-term, a bit problematic for us. We want to make sure that there's some real breadth and depth in the management team. You're relying very heavily on the management company, that which is now a third-party manager that has an alignment of interests with you through either fee arrangements or ownership in the assets. We want to make sure that there's upside to the assets.

Triple net is not that sexy, but frankly at 2.5%, 3% compounding of rents, you get good returns. So you need to make sure that for the incremental risk you're taking -- and take it from a former operator, there is incremental risk, you want to make sure you're going to be compensated for that risk. And so you want to make sure there's upside to the assets. And finding all of those elements has proven to be a bit more difficult than we found to this point, but we'll find our spot, it is just a matter of things aligning properly.

Okay. And then so in terms of the mix, the rest of the mix, how do you see yourself maybe in terms of rough percentages, sort of MOB, acquisition development, you talked about these new loans, I wasn't sure if that was all skilled or senior housing, but how do you see the mix going to go forward?

Yes. We're still working that out. Craig is just now getting geared up. He hasn't officially joined us but will do so in about a week's time. And for those of you that know Craig, he really knows everybody in this space. But were hoping that for specialty-finance-related things, we should be able to do about $100 million investments not too far out of the gate, and we hope to be able to ramp that up to maybe $200 million in the not too distant future.

In terms of TRS stuff over time, we can see that being 10% of our overall investment portfolio. Just based on new investments, with the passage of time we may make a determination that it's in our and some of our tenants' best interests to convert existing triple net lease arrangements to a TRS structure. So I'd say toward the upside rather than the 40% I mentioned when we thought we might still have a chance at Atria, it'd be more like -- the upper echelons would be maybe more like 20%. MOB development, we're hoping to be able to do maybe between $100 million and $200 million a year, both with PMB and others that we are talking to, and I think we'll make progress there.

And then the senior housing and skill development, we should be able to do between $50 million and $100 million a year. We're starting to gear up on that. So you take that in addition to the type of investments we think we should be able to do, which should be materially in line with what we've done in most years. We see some really -- some significant growth opportunities ahead for us.

Okay. Alright. That's good. I'll jump off and let somebody else ask. Thanks.

Your next question is from the line of Todd Stender with Wells Fargo Securities. You may proceed.

Good morning, Todd.

Good morning, thanks, guys. So far in the fourth quarter, you've acquired three SNFs for close to $40 million, can you just expend some of the details surrounding the operator and initial lease yields?

It's a new operator, this is the follow-on deal. Oh this is Brent Chappell's. This is a loan that we converted into -- we changed -- Brent, why don't you take this one?

It's just a follow-on investment with an existing customer. Essentially as a bridge to HUD. So we anticipate it to mature sometime next year, but really is an accommodation on -- to them and helping them bridge to HUD and we think in the interim it's going to be terrific investment for us.

See that just goes to show you how many things were working on, we can't even keep track of them all.

I guess switching gears, you answered a lot of my questions with the medical office development project with PMB. When do you expect to break ground on that?

This is Abdo. Probably in the first quarter, probably January 2011.

Okay. You mentioned it's a 9%-plus development yield. How about the initial cap rate that you'll likely acquire it at once it is completed?

Here, our new arrangement with PMB, it's not really based on a cap rate -- we will, when the building is completed, because it's 100% pre-leased, as soon as the building is completed we will buyout PMB's promoted interest. And who knows what the cap rates will be in November 2012, but looking at what's going on in California, it's hard to tell, but I would say it will be at least in the low 7s, high 6s.

Okay.

That would be only because we own the majority of the building and so we'll be buying their promoted interest at that time?

Okay, thanks. And last question. The reserves you allocate to your receivables was unchanged from the end of 2009. Can you just speak to your underwriting, and is that expected to move around at all?

The reserves -- this is Bill Wagner. Are you asking in regards to our reserves on our mortgage loans receivables and our receivable loans?

Yes.

They remained unchanged since the end of 2009 largely due to some of the reserves -- additional reserves that have been taken on during the year, and as well as offset fully reserved loans that have been written off.

Okay, thank you.

Thank you.

Your next question is from the line of Rob Mains with Morgan Keegan. You may proceed.

Yes, good morning. Just want to make sure I've got -- I understand what's going on with the medical office building portfolio, which you touched on. Also I don't -- there's a discussion on page 42 of the supplemental, but we saw a -- from the second quarter to the third quarter, a little bit of a decline in rents, a little bit of an increase in operating expenses. But when I look at the supplemental on a trailing-12 basis, things look more or less where they were last quarter. Is this just quarter-to-quarter variation or is there something else that's particularly effecting the results in the third quarter?

No, I think it's just quarter-to-quarter variation. And in terms of the presentation of some of the materials, Rob, you've got -- in some instances were looking at a trailing-12 data, and in other instances, you're looking at forecast. So depends on -- specifically on page 42, that's a trailing 12 representation, and elsewhere it may be a forecast for the balance of the year, just so we're looking at apples to apples.

Right. Well I was just thinking in terms of the third quarter versus the second quarter on the income statement as reported by the -- if it's seasonal variation, that's, I guess, to be expected. (Inaudible) is typically like first and third quarters tend to be a little bit weaker than second and fourth because of utilities or anything like that that we should be looking for?

I don't think so, Rob.

Okay. Alright, everything else I had has been answered. Thank you.

Thank you.

Your next question is from the line of Mike Mueller with JPMorgan. You may proceed.

Good morning, it's a Ralph Davies on the line with Mike. Just had a question in regards to your comments about your senior housing portfolio. My sense from what you're saying is that you're not really seeing any, I guess, increased traction at present. And I'm wondering if my read-through is correct, then I guess looking forward into 2011, where do you -- would you hazard a guess in terms of where you see occupancy moving?

Well, several people have done research, including Nick, and I think several people that have published reports, the high correlation between various factors and how senior housing performs, specifically occupancy. And among those are the factors that we've been talking about for years based on our experience as operators. And the big one is, we think, the employment rate or the unemployment rate.

And so, as we've said and we continue to believe, we think that performance quarter-to-quarter is going to be choppy, and some quarters you're going to see flat, some you're going to see up a little, some you're going to see down a little. We think the overall trend is slightly positive, but we find it hard to be able to come up with a thesis right now that suggests that you're going to see some real substantive improvement that you feel comfortable is going to be sustainable and will continue until we see improvement in the unemployment rate. And so we've seen no data to suggest that that won't be the case. It correlates with our many, many years of being in the operating business. So we think it will -- the trend will be slightly up, but choppy, and don't expect to see a whole lot until the economy firms up, even more than it has to this point, which isn't, in our view, that much.

Okay, so on the margin I guess post -quarter, you're not really seeing I guess anything that modifies your view one way or the other?

Actually, everything we see affirms our view. When you look at it, occupancies, some people are reporting up a little, some people are flat, some are down a little. We have the benefit of seeing results from private operators, as well, and they tend to be a little less guarded in trying to get to occupancy that looks a little better. There's lots of ways to calculate occupancy and the private guys spend less time trying to figure out how to do that in a way that makes it look a little bit better on the margin.

We look at all that, and you see what people's reported revenue increases are, and they're up a little bit and the optimists will say, here we go it is time to feel better about things. And we like to be optimists, too, but we are realists, and at the end of the day we just say, overall the trend should be slightly up because the economy seems to be firming slightly, but there's just not enough of an impetus -- we haven't got to the critical mass where you can say people are going to feel comfortable enough that those that this -- that going into assisted living requires a high proportion of their financial resources are going to make the move because they have greater confidence in where things are. So I think 2011, at the end of the day, will prove to look similar to 2010, but hopefully a little bit better. I'd be very surprised now, absent additional economic indicators, to say 2011 is going to be the year that you really see the big turn.

Got it. Thanks. And then just finally, I know it's been touched on a little bit, but in terms of that expense number in the MOB portfolio, it does look like it's up pretty significantly on a year-over-year basis. I'm looking at that 7.5% growth. Is there anything that's in that number?

Yes, there's a couple things, one of which was there was some property -- we've had some reassessed property taxes. Another is that part of the property taxes had been previously booked as an impound to the lender that's appropriately reflected as an operating expense at this time. So if you take some of those items out on a normalized basis, you're really looking at something more like 3.5%.

Okay, got it. And that's what we should be thinking about going forward?

Yes.

Okay. Thank you.

Thank you.

(Operator Instructions) Your next question is from the line of Omotayo Okusanya from Jefferies & Co. You may proceed.

Hi. Good morning, everyone.

Good morning.

Quick question about the renewed emphasis on the mortgage loans business. Just wondering how big you could -- we could expect that business to get? What kind of returns or interest rates are you generally charging on those loans, the nature of those loans, as well, whether they're small construction loans or work in process loans? Just to get a general sense of just how big this thing could become going forward.

I'll tell you a little bit, and then next time we have a conversation in early February, we'll let Craig tell you more. We don't want to give away the secret sauce before he's even got his business cards printed. But we see it more really in terms of some mezzanine loans, we may make some debt investments, CapEx loans. We may see how much market there is where maybe we could originate some loans and give a piece of it to life insurance companies and keep another piece that would get us good return.

So there's a lot of things we can do, and we do think that we can generate meaningful business from this or we wouldn't go down this path. I mentioned earlier that it's going to take a little time to ramp-up. We think we should be able to do somewhere in the vicinity of $100 million in investments in the first 12, 14, 16 months, something like that. And -- but we really think it's going to help us generate other business.

People in the business, actual operators and managers and whatnot, everybody out there in that capacity knows Craig, and he just knows a lot of people and has been involved over the course of his career in literally billions and billions of transactions. So we think he's going to help complement the already terrific work our investment officers are doing just finding things for us, and we may originate the relationship with some kind of loan capacity. And who knows what's going to happen with Fannie and Freddie with the passage of time, and there are others that have provided loans, debt capital to the senior housing interest that are less active now. So we believe there are some opportunities there. We'll give Craig the benefit of time to catch his breath and come up with a plan, and then we'll talk more to you about this in more detail in February.

Okay. Is there any kind of a loan-to-own strategy as part of this whole thing?

I'm sorry, say again?

Is there a loan-to-own, lending money to the developer ultimately to own the asset?

Sure. We don't -- our primary business is never going to be a lender. We want to own assets and hopefully that making loans will not only provide us with a terrific risk-adjusted return, but it's going to lead to owning more real estate and relationships with people that we haven't done business with before.

Okay, great. Thank you.

Thank you.

Your next question is from the line of Karin Ford with KeyBanc. You may proceed.

Hi, good morning. Doug, just wanted to ask you on the criteria you're looking for to go ahead with a TRS-type transaction, you mentioned requiring additional upside to compensate you for the additional risk. Can you just talk about what type of upside you think you need to make it attractive on a risk-adjusted basis?

Well, I'll try. It's a little difficult, frankly, because it's so situation-dependent. Let me tell you what we probably wouldn't be interested in, and that's a portfolio that is either at the very top of the spectrum -- a portfolio let's say was averaging 94% occupancy, 95% occupancy. We didn't think there was really much hope for additional penetration and they seem to be charging rates that were at or above market. Let's say that they were the top producer in the market so they could charge a premium, and that they were at margins where we knew it would be almost impossible to improve on. In that situation, we'd probably say it's less attractive to us, because really where could it go from there. It's a little bit like looking at interest rates at a point in time where you're saying it can't go much lower, there's certainly more opportunity to go higher than lower, it's a little bit of the reverse of that.

Now you may also say, too, it's such a terrific portfolio that we just want to own these assets, and we make the determination the downsize risk is not significant, and so we're comfortable with not much upside potential. But you'd really have to step back from our point of view and say, why are we doing this? Conversely you could have a portfolio that's 80% occupied running at low margins and say, we're not interested in that at all because you just think they're on the wrong side of the track and you just don't see potential there.

So, what's it going to look like? I'm not really sure, but we'll know it when we see, for sure. It's a little bit like the definition of pornography. I'm very comfortable that we'll know it when we see it, but it's very hard to describe.

Is there a way to describe it in terms of IRR differential between a triple net deal and a TRS deal on the same portfolio, let's say?

I'm sorry, would you repeat that? People are throwing out things at me for talking about --.

Can you translate that to a IRR differential between a triple net deal and a TRS deal, say on the same portfolio?

That would be difficult, too. You'd definitely have to have some upside to it. The 3% compounding is pretty powerful. And I think it was Benjamin Franklin that said, of all the things that he saw that amazed him, it was compounding, and it really holds true. And it's really not to say that we're not interested in it, it's just we're not in a hurry. We want to make sure -- and frankly when we do this, you and the rest of the investment community is going to say, boy, you better get this right because you did this business for awhile. So we want to find the right spot, and we're looking hard, we just haven't seen it.

The Atria thing at the right price for us, and could we have gotten ourselves comfortable that we could have refinanced the secured debt, that would've been an attractive thing. There are a couple of things that we've seen that we've said, boy, they're just -- this is pretty neat, but we just haven't been able to get all our criteria checked off. So for us it's better to just wait until we find the right spot. And I'm sorry I can't provide you more color, but it really is so situation-specific that what I told you, you might take as having more value than it really would.

Okay, that's helpful. Last question is just a clarification on the swap, I guess it's for Abdo. Is the swap -- the 3.16 rate on the $250 million, does that lock in your refinancing -- your total refinancing rate on that debt maturity next year, or is it just the underlying rate that's hedged?

It's the underlying that's hedged with a forward swap.

Just the base rate, so there'll still be spread differential, potentially?

Yes.

Okay. And is there any income statement impact from the swap between now and the issuance of the debt?

No.

Okay, thank you.

You're welcome.

Thank you.

Your next question is from the line of Rick Anderson with BMO Capital. You may proceed.

Thanks, good morning.

Hey, Rich.

Hey, my first question's on pornography.

Rich, I as saw that you were coming on, I'm thinking I gave you something to work with, because you consistently have the absolute best headlines. So see if you can't work that in for us.

I'll try. I don't think it will be too hard. Just ask the editors how they feel about it though. Just referring to your disclosure on page 48, I'm going to ask you a couple of dumb questions, but is DARM short for EBITDARM?

Yes, it is.

Okay, just wanted to be sure of that. And the EBITDARM percentage, what does that measure, I'm sorry, that's another dumb question.

No, it's not, Rich. That's just their margin.

Oh their margin? Okay, thank you. And then the bigger question is on the skilled nursing business overall, you guys have in your DNA an association with the senior housing business in your former lives, and obviously you're locked in with medical office with PMB and others. I'm wondering if, given if the situation presented itself, the question is what does skilled nursing bring to the table for you, in your opinion? And would there ever be -- if something were to materialize where you could sell most or all of that portfolio and redeploy into what is really -- seems front and center in your minds, would you take advantage of a situation like that?

Well we've sold some skilled nursing assets, and I think a couple sizable portfolios, haven't we guys? And we continue to look -- there's some assets that we think might be better situated in somebody else's portfolio, just that the kinds of assets others are interested in. They provide really nice yields and stuff. So we'll continue to look for periodic sales of some of our portfolios in skilled nursing and, frankly, other asset classes, as well.

But what skilled offers to you, you can get some really fantastic returns and, in a lot of cases, we think that the risk is exaggerated. We are very happy overall with the skilled investments that we've made, particularly in the last handful of years where we've got, what we think, in many markets top-of-the-line assets in models that are built for the future, where they are doing a lot more rehab work, they have very good Q-mixes, you can get really excellent coverage.

And so we think there is a real case to be made to be invested in that sector. But with the passage of time, we would like to further enhance our portfolio by making the higher-quality investments and making some dispositions of some assets that maybe are in markets that are tertiary or the assets are a little older that will provide to somebody a terrific return, but we don't have to be as concerned about issues that come with being in the smaller markets, which can be, frankly, a bit of a bonus, too, for somebody, we just -- it doesn't fit where we want to head over time. So there's good and bad things about them, and I think you'll see over time some dispositions, but certainly some more investments, as well.

Okay. And then lastly, how much -- can you comment on how much you missed Atria by?

We were just a bit outside, but not -- we put up a good fight, and I don't know, we're probably bound by a confidentiality agreement. We shouldn't comment on it anyways. We gave it -- I will tell you, we gave it the best we could, because Abdo and I are very familiar with both the assets and the manager and we have high regard for both. And for our size Company it would've just ended up too dilutive, even at the prices we were looking at, going beyond that it was a lot of debt for us. So sadly we weren't able to do it, but we are happy that it's going to end in a place, and I think it will become more public, which it deserves to be, because they're good assets and good operators and we wish everybody involved in that very well.

Great, thank you.

Thank you.

Your next question is from the line of Jana Galan from Bank of America Merrill Lynch. You may proceed.

Hi, good morning. I just wanted to maybe switch gears and talk about the dividend a little. You've been increasing it, I was wondering if you could give some insight into how your Board is thinking about it? Are you right at the net taxable income or are you targeting a particular payout ratio?

It's a combination of a lot of things and, of course, that's -- the dividend policy and the declaration of dividends is among the Board's more important responsibilities and that falls directly under their purview. They consider a lot of things, and every quarter we look at it, and I think we have a terrific analysis package that helps guide us as to when it's appropriate to increase our dividend.

And, first and foremost we look at what the source of the cash flow is that would give the ability to pay the dividend, and we want to make sure that it's sustainable. We want to make sure that our payout is in the range that we've talked about before, between 80% and 85%. Because we want to make sure that the recipients of our dividend, our stockholders, can be comfortable that that dividend is going to be there and it's not something that they have to pay much attention to. We also look at our growth, and we don't base our dividend policy on what we think might happen, we base it on what has happened. We look at the leakage that may be coming up in terms of purchase options that people may have, or write-downs that we may have to consider.

So we really look at things from soup to nuts and it touches every aspect of NHP, and then we put it all together and we evaluate it and we make a determination what the dividend should be at that point in time. And, of course, you have to consider your tax position. One of the mandates that we've given ourselves is that we don't want our dividend policy to be driven by a tax situation. So we make sure that we try to avoid that, because that's not a good dividend policy to just have to comply with with tax needs.

Great. Thank you very much.

You're welcome.

Your next question comes from the line of Quentin Velleley with Citi. You may proceed.

Good afternoon. Just going back to the Atria deal, I just wanted to get your thoughts on that transaction in terms of, from your perspective, was it surprising that ultimately held you back -- or it sounded like there was also some structuring and maybe the size of the deal that were major issues, as well.

Let me ask you first, if I can, you -- because I get your and your colleagues' phone blasts every Sunday evening or Monday morning, and you're usually covering shopping centers. Are you drifting to healthcare, too? Did you get punished or what's going on?

No, this is a reward for doing so well on the retail side, I also get to look at healthcare, as well, and data centers, as well. So it's all exciting.

Well you do a great job on that other sector and you've got a great attitude, we're glad you think it's a reward. We do, but some --

It is, it is

Now I forgot your question. On Atria --

Well I'm just -- obviously the size of it was a little bit of a concern for you, and it sounded like maybe some of the structural something or having Lazard holding shares. I'm just trying to work out, was it ultimately the pricing that was just too rich from your perspective, or was it a combination of things?

[It] was a combination of things. It was a very large size, we're about a $6 billion-plus enterprise Company, and the transaction traded at about $3 billion, so it's a large transaction. It had about $1.6 billion of secured debt, and that would've pushed us closer to a secured debt covenants. We could've accommodated, but it's a lot of secured debt and it wouldn't have been inexpensive for us to convert it to unsecured debt.

The pricing was certainly something that was impactful to us, and, again, based on our size, it would be relatively more [dilutive] to us that it might be somebody that was larger, just again by size. So it was a combination of a lot of things. We gave it our best shot and it just wasn't to be. So it just works out that way sometimes.

And just with the pricing of it, do you think that's, I guess set a new bar for seniors' housing valuations now?

Well I think every seller is going to try to point to it and say, we want to benchmark off that because that's certainly in their best interest to do so. But given the size and the uniqueness of the portfolio being in primary markets in the United States, and the quality of the assets, there's been a lot of rehab done to many of the assets, much of which we've financed because we have some Atria assets in our portfolio. So sellers will point to it and buyers will point to the differences, and there's going to be a net adjustment a little bit, but I think all in all, it will be more impactful for similarly large transactions. There aren't similarly large transactions, because this is one of the bigger portfolios, or there are very few. But larger transactions will try to nudge the buyer toward more expensive prices using this as a reference point.

We'll have to see how it shakes out. I think overall it's not going to have that big of an impact on some transactions, but that said, senior housing has just gotten more expensive. It never really repriced, cap rates never really rose that much throughout the whole process, and they've firmed up here a bit of late. Don will tell you he and his team have had a hard time finding good things. Sellers just are not selling yet. So that tells you things, among them maybe being that they think that better days are still ahead, maybe their view is consistent with us, that it's going to be a while before they're really operating on full throttle with all the pistons firing.

Okay. Thank you.

Thank you.

At this time, there are no other questions in the queue. I'd like to turn the call over to Mr. Pasquale for closing remarks.

That's it. Thanks very much. If you have any questions, we'll be here all day. Take care.

Ladies and gentleman, thank you all for your participation in today's conference call. This concludes the presentation and you may now disconnect.