Welltower Inc (WELL) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Health Care REIT, Inc. fourth-quarter and 2003 earnings conference call.

At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the floor over Ms. Leslie Loyet of Financial Relations Board.

Ma'am, the floor is yours.

Thank you.

Good morning, and thank you, everyone, for joining us today for Health Care REIT's fourth-quarter and year-end conference call.

You should have received a copy of the press release, but in the event you have not, you may access it via the company's web site at www.HCReit.com.

I would like to remind everyone that we are holding a live webcast of today's call which may be accessed through www.fulldisclosure.com or again at the company's web site.

At this time, management would like me to inform you that certain statements made during this conference call which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Health Care REIT believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained.

Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's filings for the SEC.

Having said all that, I would now like to turn the call over to George Chapman, Chairman and CEO of Health Care REIT for his opening remarks.

Please go ahead, George.

Thanks very much, Leslie.

I will briefly take you through our 2003 year, and then turn the program over to Ray Braun, our President and CFO, for a more in-depth discussion of financial results, portfolio performance, and 2004 outlook.

And then I'll make a few concluding remarks.

I think it should be emphasized that from our standpoint 2003 was a tremendous year -- a record year of performance as well as results in all respects, both portfolio and financially.

Let me take you through several of the most important points.

Record net investments of approximately 500 million -- we accessed over 600 million in debt and equity capital.

We received our long sought-after investment-grade rating from Moody's, as well as an improved outlook from Fitch.

And frankly, being investment-grade rated across the board certainly enhanced the access and pricing of our capital during 2004.

As Ray will note, and will discuss a bit, our line of credit has now been expanded.

It is up to $310 million.

And covenants in both the lines of credit and the unsecured public notes were modernized with investment-grade covenants.

Financial results were strong, as FFO reached $2.83 for the year, prior to any impairments or preferred stock redemption charges.

We paid our 130th consecutive dividend, and approved our 131st consecutive dividend, both at 58.5 cents per share.

Adjusted FFO for the fourth quarter was 72 cents per share, driving the FFO payout ratio for the quarter down to 81 percent.

We should note that our very successful $250 million debt deal in the fourth quarter, which is priced at 6 percent, did cause some temporary dilution in the fourth quarter.

And it's anticipated to continue to do so in the first, and possibly the second, quarter of 2004.

However, as a management group that management with a longer-term perspective, we believe that the benefits of doing this very well-executed debt deal overwhelm any short-term dilution issues.

This overall performance permitted us to raise our dividend going forward.

As noted in our earnings release, the quarterly rate for the next four dividends commencing May 2004 will be 60 cents per quarter per share.

And of course, the quarterly dividend remains subject to the review and discretion of the Board of Directors.

And at this time, I'll turn the presentation over to Ray Braun and (indiscernible) then make some concluding remarks.

Ray?

Thanks, George.

Please note that our fourth-quarter earnings release is posted on the web site under the heading "Press Releases," and that web site is www.HCReit.com.

I'll review the fourth-quarter and year-end results, and then provide you with our guidance for 2004.

Our financial performance was consistent with our guidance.

We recognized net income available to common shareholders of 34 cents per share, FFO of 66 cents per share, and adjusted FFO of 72 cents per diluted share for the quarter, and 2 83 (ph) for the year, representing a 6.7 percent increase over the prior year.

Please see exhibit 14 in the earnings release for a reconciliation of net income and FFO.

Gross revenues for the quarter, including revenues from discontinued operations, were 61.2 million.

Revenues were 92 percent from real property and 62 percent from the assisted living sector.

On the expense side, our quarterly depreciation, including discontinued operations, increased to 16.1 million from 11.8 million in the prior year as a result of the increase in real property owned.

Due to increased collectibility concerns relating to portions of our loan portfolio, we added 2,120,000 to the loan loss reserve and our allowance now stands at 7.8 million.

Moving onto the balance sheet, we ended the quarter with net real estate investments of approximately 2 billion.

At December 31, 2003, the company had investments in 328 health-care facilities in 33 states with 47 operators.

As previously reported, our gross investment activity for the quarter totaled 51.6 million.

Investment activity during the quarter was 8 -- 84 (ph) percent real property and 16 percent loans.

Facility-based investments were 31 percent assisted living, 46 percent skilled nursing, and 23 percent specialty-care facilities.

Funding was provided to 19 operators in 17 states.

The company also completed one disposition during the quarter of 468,000 related to 1-L (ph).

The disposition was a lease with an average yield of 10.2 percent.

Our credit profile remains solid.

Our leverage remains low at 34 percent debt to total market cap at the end of the quarter.

Our interest coverage for the year to date is solid at 3.5 times.

As George mentioned, we expanded our unsecured revolving line of credit from 225 to 310 million.

The existing bank group in conjunction with two new participants, First Tennessee Bank National Association and LaSalle Bank National Association, provided the additional capacity.

We also have a $30 million working capital line for total line capacity of 340 million.

We have a $60 million secured line of credit that expires this month.

We are undrawn on this line, and do not plan to renew or replace this facility.

At December 31, 2003, we were -- we had no outstanding drawings on the lines in capacity of 340 million.

Our debt maturity schedule is in good shape.

We have approximately $46 million of debt maturing in 2004, excluding the $30 million annual revolver and the $60 million secured line.

As George mentioned, we did receive an upgrade from Moody's to Baa3 with a stable outlook last year.

We will continue to manage the company to maintain our investment grade status.

We had a successful quarter in the capital markets.

In October, we issued in additional 480,000 shares per the over-allotment exercise related to our September public issuance, generating an additional $13.8 million.

Our enhanced direct plan also continues to do well.

We issued 740,000 shares in the fourth quarter, generating $24 million.

At this point, I'd like to shift over and discuss the portfolio.

Please note that our coverage statistics reflect the last 12 months' activity through the third quarter '03, whereas balances, facilities, and bed counts reflect amounts as of December 31.

Our overall payment coverage is at approximately 1.53 times.

Our portfolio has 94 percent stable assets. 87 percent of our properties are owned, and 80 percent of our owned assets are in master leases.

At quarter end, our assisted living portfolio was comprised of 219 facilities with 14,193 units and an investment balance of approximately 1.2 billion.

The stabilized portfolio was comprised of 203 facilities with 12,552 units, an investment balance of 1.1 billion, and payment coverage of 1.31 times.

Our fill-up and construction properties remained within our stated goal of having 10 to 15 percent of the portfolio in construction and fill-up.

We currently have 13 assisted living facilities remaining in fill-up, representing approximately 6 percent of revenues.

We had five property stabilize during the quarter, and acquired the one in fill-up.

Lastly, we have 3 assisted living facilities in construction.

For the outlook, we anticipate an improved operating environment for assisted living facilities in 2004.

According to NIC, the national mean occupancy increased in the past two quarters to 85 percent.

The improvement is due in part to reduced construction.

OSHA reports that roughly 6,100 assisted living units were under construction in 2003.

Total construction in the past two years is less than half of the average amount during the mid and late '90s.

Pricing power is also improved.

Same-store monthly rates and our portfolio increased 5 percent versus the same period one year ago.

These results are consistent with a national study by MetLife which indicated a 10 percent increase in rates in 2003.

Because staffing often represents 60 to 70 percent of total operating costs, the industry has also benefited from an improved staffing environment.

American Health Care Association reported that nursing turnover and vacancy both declined since 2001.

We believe these dynamics will result in coverage ratios that are slightly above our results for 2003.

Moving on to the skilled nursing portfolio -- we had 101 facilities with 14,256 beds and an investment balance of 648 million at year end.

Average occupancies have risen from a low of 81 percent in third quarter 2000 to 86 percent in fourth quarter '03.

Our payment coverage remains strong at 1.75 times.

HCN recognized revenues of 19.9 million in the fourth quarter from the skilled nursing portfolio, which represents 32 percent of revenues.

Moving on to the outlook for the portfolio -- national median occupancy increased to 87 percent in the third quarter.

National occupancy has improved 4.5 percent since the beginning of 2002.

We believe the increase is due primarily to a 3.7 percent decline in supply of nursing beds since 1999.

Regarding reimbursement, the per diem Medicare rate increased by roughly 6.3 percent in October 2003 due to inflation adjustments approved by CMS and Congress.

Please note that the coverages shown in the supplement through the third quarter do not reflect these increases.

Medicare reimbursement will also benefit from the extension of the therapy caps moratorium through December 2005.

Despite budget shortfalls, the only state in our portfolio that cut the per diem Medicaid rate last year was Texas.

Several other states threatened rate cuts or rate freezes for the fiscal year that started in July 2003.

Most recently, Florida has proposed a reimbursement change that would essentially freeze rates from January through June.

However, most states ultimately use other means of balancing their budgets to including (ph) provider taxes, tobacco securitizations, and rainy day funds.

Consequently, the average projected 2004 per diem Medicaid increase in our portfolio is 4.4 percent.

The improved economy may further improve state revenues and mitigate the risk of Medicaid cuts at the end of this fiscal year.

I'd like now to discuss management's expectations for 2004.

Of course, these comments are management's expectations only, and are subject to the Safe Harbor statement read at the beginning of the call.

We anticipate new investments of 225 to 275 million and dispositions of 25 to 75 million, resulting in net new investments of approximately 200 million.

We expect the investments for the year to be split approximately 75 percent nursing and 25 percent assisted living with some hospitals, and have average cash yield of 9 percent to 10.5 percent on 10- to (ph) -- 15-year leases with straight-line yields from 10.5 to 12-and-a-quarter percent.

We plan to manage the company to maintain our investment-grade status with the capital construction consistent with our current profile.

We have $40 million of senior unsecured notes that mature in April, and we have adequate liquidity to extinguish these notes.

We have no other significant public note maturities until 2007.

We are revising our 2004 guidance, and expect to report net income available to common shareholders in the range of the $1.68 to $1.73 per diluted share and FFO the range of $2.99 to $3.04 per diluted share.

The adjustment to our previous guidance reflects the anticipated temporary dilution from the excess cash generated by the $250 million senior note issue in the fourth quarter.

The guidance assumes no change in our forecast for net investments of 200 million.

Please see exhibit 15 for a reconciliation of the outlook for net income and FFO.

As announced, the Board of Directors approved a new quarterly dividend rate of 60 cents per share per quarter, or $2.40 annually, commencing with the May 2004 dividend, up from 58.5 cents during 2003.

Our dividend policy is reviewed annually during the Board of Directors' January planning session.

The declaration and payment of quarterly dividends remain subject to the review and approval of our Board.

That completes my reports, and I'll flip it back to you, George.

Thanks very much, Ray.

I'm going to emphasize a few points that Ray mentioned in passing.

And then we'll open it for questions.

First, I'd like to reemphasize the positive trends in the long-term care sector.

As Ray mentioned, the development (ph) in the assisted living arena has dropped off significantly during the last several years.

And moreover, the stock of nursing beds in the country has actually decreased.

Putting that together with the fact that Medicare has returned to reasonable levels, and in spite of the fact that Medicaid may be under pressure until state budgets gain some strength, we think that all of these reimbursement issues should be very manageable by our operators.

As we turn to our portfolio, in the last two years, our new investments contributed significantly to our facility coverages, and will continue to do so going forward.

In addition, these facilities have generally been very strong real property assets that enhance the quality of our portfolio overall.

A word on our guidance.

Our guidance, as Ray indicated, is 200 million of net new investments, but let's put this in a somewhat larger perspective.

In the last two years, our gross investments exceeded $1 billion, generally in new, high-quality investments.

During that time, we raised 970 million of capital comprised of 470 million equity, 500 million of debt.

And although we are witnessing more investment competition, we continue to hope that this guidance continues to be conservative.

However, with over a cumulative (ph) total return of 17 percent during HCN's 33-year history, we do take a long-term perspective in providing value to our shareholders.

And accordingly, we will limit HCN's investments to those that fit our profile and constitute high-quality assets that promise good, long-term returns to our shareholders.

And with that, we'll open for questions.

(OPERATOR INSTRUCTIONS) Jim Sullivan, Prudential Equity.

First of all, can you help us with the straight-line rent number that was in the quarter?

7.9 million.

And there were no offsets in the quarter -- or were there?

There were no offsets.

Now that's a pretty high number as a percentage of the adjusted FFO -- I think it's about 21 percent.

Why was it so high this quarter?

Or is that unusual -- is there -- first of all, is it unusually high?

And why was it so high this quarter?

Well, it's higher than we've normally reported, because we didn't have offsets.

We also had huge investment activity earlier in the year, which -- when you look at that as a percentage of our assets, would increase the rentals.

Given the materiality of the number, can you give us some guidance on this for 2004?

I would say roughly 20 million, Jim.

20 million for the full year?

For the full year.

And that would be a number that presumably would be reduced by some offsets?

No, that would be the adjusted number.

Therefore, they would not be any -- sorry, to be clear then -- that would be a number that would be reduced by offsets?

Yes, it would.

And is that number -- is the high straight-line number being driven by rent concessions?

Or is it by being driven by extensions on underlying agreements --

No, not at all.

It's driven by how we structure our fixed increases in the leases.

Our typical lease is 10 to 15 years.

And our typical cash yield increases annually by 25 basis points.

And GAAP requires that we then take the average lease rate over the term of that investment and book that as our revenues.

Jim, when you really cut through it (ph), and since you know how we book things with our straight-line -- the issue is (ph) really the success of our investment program.

We added a (multiple speakers) tremendous volume of good assets.

And so that affected our straight-line.

So that as you look forward -- in terms of understanding this, I mean, this is a naturally recurring part of the business in the way you signed your leases, as I understand it.

And therefore, we should assume that this is a -- you know, that 20 percent number is a good kind of percentage run rate to use going forward?

Or would that come down as your guided acquisition activity reduces?

It should over time come down as our investment activity decreases.

But it's going to be awhile. (multiple speakers) It's going to be several years, because you know, the crossover -- generally, our deals tend to be more toward 15 years than 10, Jim (ph) -- so the crossover point is 7.5 years.

Now we have some already that are just beginning to cross over.

But it's going to be several years.

It'll be a fairly high number.

Okay, and then if you -- I don't know if you have this information at hand, but could you provide us a year-over-year comparison for the quarter to help us understand the quality of the cash flow growth?

I am not sure what you are asking.

What the straight-line rent number was for the fourth quarter of 2002?

Okay, straight-line rent for fourth quarter '02 -- we don't have it handy here.

We'll have to get back.

Okay, good.

And then the final question from me -- what is your guidance for G&A expense levels for '04?

I'm not sure if you've provided this before, but if you have some guidance on that line item?

And then kind of a subpart to that question -- have you changed your estimate of Sarbanes-Oxley cost going forward?

We have already been implementing the Sarbanes-Oxley, and don't anticipate it's going to have a material effect on our G&A.

And then in terms of overall G&A, assume a 10 to 15 percent increase.

Over this year's low?

Yes.

Jerry Doctrow, Legg Mason.

I have got a couple of things.

How about yield on investments this quarter with gap (ph) in cash?

Yes, let me pull that, Jerry -- the cash yield was 10.36 percent average and straight-line 11.84.

Thanks.

One of the things that I'm grappling with in terms of my estimates is just interest costs, because you're obviously -- they came up with the offering and taking all the -- everything off the line, and presumably will come down again as you redeploy that money, and also come down again when you pay off the $40 million -- which I think is like an 8 percent interest rate.

Can you give us any guidance as to sort of expectations as to how that number maybe moves?

I guess it's driven somewhat by when investments are going to occur.

You know, so what your average debt would be -- average debt cost --?

Yes, I think if you look at the quarter, Jerry, our weighted average debt cost was slightly over 7 percent.

And the whole rest of the answer depends on when we redeploy.

And you know, we have good first and second quarter, and you're going to see some pretty good results.

But you know, we're not prepared to project that.

Okay, and just one or two other things, if I could.

I wanted to get a little more color on the charges -- what's really being sort of -- what sort of concerns you, whether it's mezzanine or whether it's straight -- if we can get any color on what the issues are underlying sort of the operational problems?

And also, whether there's any impact on the income side of that going forward?

In other words, does the stuff you charged off -- is that going to reduce the income levels from what we saw in the fourth quarter?

We don't anticipate that it's going to affect the income levels.

We did not take any write-offs.

What we did was we increased our reserve out of caution -- which did go through the income statement -- so that we could be safe in case we don't collect some of these loans.

It's primarily sub-debt type investments to private operators.

And is the -- your concern about the charge, or decision, I should say, add to reserves -- is it because lease-up (ph) isn't going on as anticipated?

Or operating costs?

Or what's causing some of the issues that you generalized (ph) that the operators are seeing out there?

What happened that was different than what you anticipated?

That lease-up is part of it.

It's also having operational difficulties at certain facilities in certain markets that are tight and not driving the occupancies the way they should be.

It's execution all over the board right now with just a small number of operators.

And we've told you and the other analysts over time that we're going to be pretty aggressive that -- usually at the end of the year, scrubbing our portfolio.

And that's what we have done here.

And given the quality of the assets that have come on the last two years, and I think our aggressiveness in terms of scrubbing the portfolio in the fourth quarter, we feel very confident about our position going forward, Jerry.

Okay.

And then just last thing -- one of your competitors, whatever, that had a DRIP expressed some concern that they were actually getting essentially rapid trading -- (indiscernible) people multiple accounts and that sort of thing -- with, I think they were -- a 2 percent discount, they took it down (ph).

Any -- just given the volume of cash you're generating, is that an issue or something that you're looking at all?

Well, we continue to monitor that type of activity through our DRIP.

And we also reduced our discount recently.

So that should slow the activity.

We found some of the multiple accounts just like we had in the past.

And we also have another issue, and that is mouths to feed in terms of the investment banking world, because some of them -- all of you -- a lot of you have been great supporters.

So we have to balance everything.

But it's, frankly, been a great program for us.

Despite some of the issues you raise and some of our colleagues in other REITs raise, it's really been a great program.

And it gives us a steady source of dollars.

And I think it's terrific.

It's what REITs have been looking for forever, Jerry -- that strong floor of investment dollars.

And it makes us less vulnerable, in my judgment, to the vagaries of the capital markets, to some extent, and the risks that all of us take when we go out to raise dollars over even a one- or two-day offering period.

So I'd feel very good about (technical difficulty) offering short (ph).

Any sense based on the beginning of this year now what the good run rate for next year, given the discount may changed and stuff -- in terms of how much you might raise --?

DRIP shares -- I would say 1.5 to 2 million shares for the year.

Philip Martin, Stifel Nicolaus.

As much as I try, nobody will ever get that name correct.

They got Martin correct.

Just a couple of things, following up a little bit on Jerry's question -- with respect to the operators, where you're having some operational issues -- are they on property -- are they on kind of onesy, twosy (ph) properties here and there?

Are they with one or two specific operators?

Can you characterize that a little bit?

I don't think you can characterize it right now.

I think they're all over the board.

So it's a little bit -- you know, it's one property here -- so it's not one specific operator.

It's more or less tied to a specific market, or --

There are always four or five operators that we characterize as our problem children.

And they change from time to time.

And in most cases, Philip, as you know, we've had great success by coming in very early because of our monitoring capability and shape them up.

So frankly, it's a very small percentage.

And we're just a very conservative with our audit committee and our auditors about recognizing potential losses early and addressing them.

And I think that has put us in very good position going forward.

Okay.

Secondly, the acquisitions you made in the fourth quarter -- you know, the 51.6 -- can you let us know what operators those are with?

And can you give us a feel for operationally where these properties -- how they're performing from an operating margin standpoint, occupancy, etc.?

Obviously, we have seen some improvement operationally -- you know, generally speaking.

But I just wanted to hear what you're seeing?

The operators that we purchased new buildings with were portfolio operators and we expanded our master leases with.

They are smaller, private, regional operators.

And generally, we picked up the assets with very good coverages.

Now these are -- can you talk about the coverages, or no?

The coverages before management fees exceeded 1 3 times.

1 3, okay.

And that is on the entire 51 6?

That's the average.

Okay, that is the average.

Can you break it out AL vs. skilled nursing?

No, I don't have that available.

Okay, but operationally -- on the assisted living properties -- you know, margins on those properties -- where are you seeing operating margins?

Between 25 and 30 percent would be our (ph) margins.

(OPERATOR INSTRUCTIONS) Steven Mead (ph), Anchor Capital Advisors.

I'm just curious what the investment environment kind of looks like in terms of the kinds of transactions that you're seeing and what they're price at?

And at what point you kind of make the decision to be more aggressive about making investments in '04 and '05 and in what areas?

Let me start -- Steve, how are you?

Where we're seeing a little bit of an uptick in terms of the purchase prices -- and maybe a slight reduction in yields -- is in the assisted living area, as Ray indicated.

And so we're going to be very careful in that particular area.

And we think that there may be more investments for us that fit our criteria and our profile in skilled nursing.

But having said that, so many of our investments come from portfolio operators and from people we have a long-standing relationship with.

You don't want -- we don't want to say too strongly that we're not going to be in AL or IL simply because other people may be paying a touch more than we would.

So our approach is very simply that -- you know, we're over $2 billion.

And we've been around for over 30 years.

And the reason we have been is that when the market begins to heat up, we don't feel like we have to play.

And that's as clear as I can make it.

Now there's always a temptation when there are a number of people in there and they're talking about volumes to change your criteria.

And we could tweak down our returns.

But we're not going to tweak down our underwriting in terms of what we need in coverages and what kind of management teams were going to support.

Rich Anderson, Maxcor Financial.

Higher asset prices notwithstanding in the assisted living sector, do you see anything fundamentally better in the skilled nursing area than assisted living that is also driving you to increase or weight more heavily that in terms of your future acquisition?

Sure, we think that, as I noted in my outlook, that both occupancy improvements and rate improvements on the Medicare and Medicaid side bode well as long as the fundamental reduction in beds in the country.

So we think there's some good fundamentals at play there.

Is it surprising to you that cap rates have gone down in the assisted living sector to a degree greater than the nursing homes, in your observation?

It's my opinion -- and maybe you agree or disagree -- that the nursing homes sector is sort of further along in the recovery than the assisted living sector.

Is that something that you agree with?

Well, last year, at the start of the year, we had a stable to slight downward outlook on the nursing sector.

And some good things happened last year with the reimbursement, which did help move it along in terms of recovery.

I think the other thing that happens is it's much harder to underwrite nursing investments than assisted living.

And there are groups of investors and lenders who don't go in that direction because of that.

Okay.

And my last question is how much is just an intention to better balance your portfolio between assisted living and nursing homes driving your investment decisions, if at all?

Well, we've indicated that we try to take the proper balance between skilled nursing, which is governmentally dependent to a large extent, and private pay assisted living.

But we have trouble saying were going to move to 50-50 in any particular year, because all Health Care REITs are very opportunistic in terms of what deals can come along.

I tried to indicate that in response to an earlier question, that having said that we're going to weight toward skilled nursing, we could still find a tremendous number of good assisted living projects because of our long-standing relationship with people in the sector.

So we try not to go there in terms of telling you that we're going to move toward 50-50.

But I guess right now the most we can say is that we're slightly overweighted toward skilled nursing at the time.

But how the year evolves is, frankly, anybody's guess.

Because we try to underwrite good projects, regardless of whether they're in the skilled nursing or assisted living, with the type of operators we want to support.

Would you say conversation to some degree is happening in terms of public-to-public M&A activity?

I think in the Health Care REIT sector and the rest of the REIT sector, there are ongoing conversations that have been going on for years and years.

The issue is whether or not there are any advantages from a financial ratio standpoint as well as other synergies from a management standpoint.

There certainly is more of a sense that we're in a consolidating sector.

But whether you have those types of either financial or management or other types of synergies is a question that has to be addressed by the respective management teams.

But conversations always occur.

Paul Puryear, Raymond James.

Actually, our question had to do with your perspective on the investment outlook, so it's pretty well answered.

But I guess one other aspect -- George, just sort of your comments on the sensitivity to interest rate changes to cap rates -- as opposed to fundamentals -- it sounds like the movement you're talking about right now is really fundamentally driven.

And if you could just give us some perspective on what might happen as rates go up?

Well, as rates go up, we've generally found that spreads tend to narrow a little bit at first.

And that then the prices of nursing homes and assisted living facilities in sort of a lagging trend tend to move up to allow the types of investment and the (ph) returns we need.

So Paul, a lot of it's just timing.

I mean, we've found that the markets adjust pretty well.

It's just -- can you sit tight for a couple, three quarters as they tend to do that?

So that's been true over 30 years.

And I don't think it'll be any different this time.

So spreads over 600 points over treasuries -- 600-plus points -- is that the norm?

I don't know that we know that.

Are you talking about now Health Care REIT's cost of debt?

No, I am talking about acquisition prices.

(inaudible) I was a long-running average yield 5 to 600 sounds about right --

Did you hear that, Paul?

Yes.

5 to 600?

Right, order of magnitude -- and it just -- it'll take some time -- there will be a little bit of a lag, I guess, is --

There always is.

It takes a while for operators and, you know, purchase -- buyers and sellers to adjust to different environments.

People want to be delusional for a while.

Scott O'Shea, Deutsche Bank.

A couple of questions.

One, do you have any receivables from January that would be past due 30 days at this point?

Small, from a couple of operators.

Nothing material.

Okay.

Also, I know the lease role in 2004 is pretty small.

But could you just give us a sense of whether these leases are at market, above market, below market -- where they are?

Generally, they are at market.

Okay.

Could you just give us an update on the Alterra coverage currently?

Generally, as we have reported previously, coverages in the Alterra portfolio have deteriorated throughout the bankruptcy process.

And now they're somewhere in the 1-and-a-quarterish (ph) range.

But anecdotally, since they've emerged from bankruptcy, we are seeing some improvements in occupancy that should translate into coverages.

Okay.

So the 125 is before management fees?

Correct.

Okay.

The bank line that was expanded in terms of dollars amount -- were any of the other terms changed as to pricing or maturity or anything?

No.

Okay.

Could you give me the number for unfunded construction commitments at year end, if that's available?

Around 15.5 million.

Okay.

I guess the last question would be -- just looking at your operators' capital plans for 2004, what are they looking to do if cap availability is improving?

Are they looking to add units, add wings, or are they still kind of just holding steady at this point?

We had -- well, as you know, we work primarily with regional operators.

They're always looking to acquire within their regional markets.

And I think will continue to do so this year.

And as George alluded to, part of our 200 million of net new investments is based upon the existing portfolio operators doing some acquisition activity.

We've also had a number of operators do renovations and expansions of buildings as the markets have improved.

And we're very happy to be seeing that, because those are very profitable.

Okay.

Actually, one more question here on the assisted living coverages.

You mentioned that occupancy is kind of improving, and rates are showing some increase.

When do you think that's going to come into your coverage ratio?

They look to be kind of holding steady at 110, 111 area.

Do you think that's --

And again, those are third-quarter numbers.

So it's probably going to be a couple more quarters.

But you'll start seeing it in '04.

Jerry Doctrow, Legg Mason.

I think you actually said this before, but I don't know that I noted it.

Could I just get your expectations for kind of cash yields and gap (ph) yields on the alpha stiffs (ph) going forward?

What I indicated on the call, Jerry, was that we expect average cash yields of 9 to 10.5 percent on 10- to 15-year leases, with straight-line yields from 10.5 to 12-and-a-quarter.

I'm showing no further questions at this time.

I would like to turn the floor back to George Chapman.

We thank you for your attendance at the call.

And if there are further questions, modeling questions or whatever, we're available for them.

So thanks very much.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time, and have a wonderful day.