National Health Investors Inc. (NYSE:NHI) Q4 2014 Results Earnings Conference Call February 17, 2015 1:00 PM ET
Executives
Colleen Sullivan - Director of Investor Relations
Justin Hutchens - CEO, President and Director
Roger Hopkins - Principal Financial Officer and Chief Accounting Officer
Analysts
Juan Sanabria - Bank of America
Daniel Bernstein - Stifel Nicolaus
Todd Stender - Wells Fargo
Richard Anderson - Mizuho Securities
Karin Ford - KeyBanc Capital Markets
Colleen Sullivan
Good afternoon. My name is Colleen Sullivan, Director of Investor Relations, and I welcome you to the National Health Investors Conference Call to review the Company's Results for the Fourth Quarter of 2014.
On the call today will be Justin Hutchens, President and Chief Executive Officer and Roger Hopkins, Chief Accounting Officer. The results, as well as notice of the accessibility of this conference call, on a listen-only basis over the Internet were released this morning in a press release that's been covered by the financial media.
As we start, let me remind you the statements in this conference call that are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission, including the Risk Factors and other information disclosed in NHI's Form 10-K for the year ended December 31, 2014.
Copies of these filings are available on the SEC's website at www.sec.gov or at NHI's website at www.nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables and schedules, which has been filed in Form 8-K with the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release, together with all other information provided in that release.
I will now turn the call over to Justin Hutchens.
Justin Hutchens
Thank you, Colleen. Good afternoon, everyone, and thank you for joining us. I'm pleased to report outstanding year end results. We reported a 15.4% increase in normalized FFO per share, and a 9.3% increase in normalized AFFO per share year-over-year. 2014 was a successful year with over 571 million of investment activity.
Roger will provide some color on the quarterly and year end results.
Roger Hopkins
Thanks, Justin. Good afternoon, everyone. I'm very pleased to report strong financial results for the fourth quarter and the full year of 2014.
Normalized FFO for the fourth quarter was $36,341,000 or $1.06 per diluted share, compared with $27,414,000 or $0.92 per diluted share for the same period in 2013, an increase of 15.2%.
Normalized AFFO for the fourth quarter was $32,451,000 or $0.94 per diluted share, compared with $25,399,000 or $0.85 per diluted share for the same period in 2013, an increase of 10.6%, and includes adjustments to exclude our straight line rental income and amortization of bond discount and debt issuance cost.
Normalized FAD for the fourth quarter was $32,674,000 or $0.95 per diluted share compared with $25,652,000 or $0.86 per diluted share for the same period in 2013, an increase of 10.5% and includes an adjustment for our non-cash stock-based compensation expense.
Our results for the fourth quarter of 2014 are reflective of the volume and timing of our new investments made in late 2013 and throughout 2014.
Net income attributable to common stockholders for the fourth quarter of 2014 was $27,530,000 or $0.80 per diluted share, compared with net income of $27,776,000 or $0.93 per diluted share for the same period in 2013, as the prior year included investment gains of $3,256,000 and other income from discontinued operations of $3,659,000.
Our revenues for the fourth quarter were up $12,933,000 or 39% compared to the same period in 2013 due to the volume of our new investments during 2014 but also due to the timing of our acquisition of the Holiday portfolio in late December 2013.
Our lease of 25 independent living facilities to Holiday generated $10,954,000 of rental income in the fourth quarter or 24% of our total revenues from continuing operations, of which $7,979,000 was billed rent and $2,975,000 was straight-line rent for accounting purposes.
The revenues from our RIDEA structure joint venture with an affiliate of Bickford Senior Living amounted to $5,672,000 in the fourth quarter and represented 12% of our total revenues from continuing operations. Our RIDEA joint venture currently owns 31 assisted living and memory care facilities, of which two opened in late 2013 and one in late 2014 and are not yet stabilized.
On October 31, the RIDEA joint venture acquired one facility in Ohio from a third party for cash and assumption of HUD debt of $9,535,000 with an interest rate of 2.9% and final maturity in 2047.
We control the daily activities of the property company in our joint venture and record in our income statement the property company's leased revenue from the operating company. We recorded our income statement our 85% equity share of net income or loss of the joint venture operating company whose daily activities are controlled by Bickford.
For accounting purposes, the operating company is required to expense all startup expenses of new development and our operating losses during stabilization which all together amounted to approximately $1 million in 2014 and was expected by us.
Rental income from our owned assets represented nearly 94% of our fourth quarter revenue. Interest income on our notes represented 4% and investment income represented just over 2%.
Depreciation expense increased $3,808,000 in the fourth quarter of 2014 compared to the same period in 2013 as a result of the volume and timing of our new real estate investment since 2013.
Our interest expense and amortization of our note discount and issuance costs increased $2,434,000 during the fourth quarter compared to the same period in 2013, primarily as a result of additional borrowings during 2014 to fund our new real estate investments.
Interest expense for the fourth quarter included amortization of $520,000 related to debt issuance cost and $269,000 of bond discount.
Our general and administrative expenses for the fourth quarter of 2014 increased only $75,000 compared to the same period in 2013. In January 2015, we added a new member to our management team Eric Mendelsohn, as an Executive Vice-President of Corporate Finance
Our non-cash share-based compensation expense was $223,000 for the fourth quarter. We estimate the market value of our stock options granted each year using the Black-Scholes pricing model, expenses recorded for accounting purposes over the vesting schedule of the stock options granted.
As a reminder, approximately two-thirds of our annual non-cash share based compensation expense is recorded in the first quarter of the year.
Our financial results for the full-year 2014 are also reflective of our strong acquisition volumes since late 2013. Normalized FFO for 2014 was $140,196,000 or $4.20 per diluted share, compared with $103,293,000 or $3.64 per diluted share in 2013, an increase of 15.4%.
Normalized AFFO for 2014 was $125,452,000 or $3.75 per diluted share compared with $97,451,000 or $3.43 per diluted share in 2013, an increase of 9.3%.
Normalized FAD for 2014 was $127,472,000 or $3.81 per diluted share, compared with $99,790,000 or $3.51 per diluted share in 2013, an increase of 8.5%. Our revenues for 2014 increased 51% over 2013.
At December 31, we had ongoing construction commitments with seven tenants totaling $32,700,000. The total funds advanced so far on these projects for land and construction amounted to $25,293,000.
We ended the year with cash and investments and marketable securities of $18,790,000. On December 5, we completed offering of $4,427,500 shares of our common stock for the purpose of acquiring seven entrance fee communities and one senior living campus from senior living communities.
The net proceeds of the offering were approximately $270 million after deducting underwriting discounts and commissions and other offering expenses. We funded the remainder of this $476 million acquisition with borrowings on our revolving credit facility.
On December 31, we repaid Fannie Mae mortgage loans of approximately $77 million having a blended interest rate of 6.89% with borrowings on our revolving credit facility. As a result of these transactions in late 2014, we had borrowings of $374 million outstanding on our revolver at year end.
On January 2015, we paid down our revolver with the issuance of $225 million of unsecured fixed rate term debt in a private placement. We issued $125 million of eight year notes with a coupon of 3.99% and $100 million of 12 year notes with a coupon of 4.51%. The notes require quarterly payments of interest only until maturity.
As a result of this refinancing in our recent announcement, today we have $200 million outstanding on our revolver and available capacity of $250 million.
As shown in our supplemental data report, we calculate our adjusted EBITDA coverage of our fixed charges to be 6.8 to 1. We calculate our consolidated debt to adjusted EBITDA to be 4.1 to 1 after annualized and the impact of the SLC lease revenue because of its significance.
We believe these debt metrics are important to maintaining a low leverage profile for NHI. We have managed our debt capital in order to extend our debt maturities so that our revolving credit facility with extension does not mature until 2019 and our fixed rate debt does not mature until 2020 and beyond.
We structured the financing of the SLC transaction in December with new equity of 57% in order to maintain our low-leverage profile. We took the same approach one year ago when we raised approximately 60% of the acquisition price of the Holiday portfolio with new equity.
In the near term, we plan to selectively issue our common shares by entering into and at the market equity program. An ATM program offers us an effective way to match-fund our smaller acquisitions by exercising control over the timing and size of an equity transaction at a favorable cost. For large acquisitions, we would again expect to enter the equity market with the follow-on offering.
In 2015 we believe making measured increments of debt and equity will maintain our low-leverage balance sheet will continue to support our record of annual dividend growth and will increase overall shareholder value.
I'd now like to turn the call back over to Justin with comments about our investment portfolio and our 2015 guidance.
Justin Hutchens
Thanks, Roger. I'll start with our portfolio of our performance.
Our total portfolio lease service coverage ratio is 2.15x. Our skilled nursing coverage remains very strong at 2.94x, while our senior housing portfolio is 1.31x. The Bickford joint venture, which accounts for 12% of NHI's revenue, continues to deliver strong performance and growth opportunities.
EBITDARM in Q4 was up 9.1% sequentially, while occupancy grew to 90.5% versus 88.2% in the prior quarter. Same-store EBITDARM is up 4.8% when comparing the trailing 12-month performance to the prior trailing 12-months. The three development properties continue to lease up as planned and the two focused properties are stable.
As a reminder, our RIDEA structure is designed to follow the fundamental elements of the triple-net lease. With the RIDEA , we continue to foresee organic growth potential from improving operations, but our agreements with Bickford also enforce growth to a hybrid feature providing preferred payment stream subject to 3% escalation in payable first to NHI.
The NHI Bickford joint venture has the right to purchase six properties from an affiliate of Bickford for $97 million. NHI extended the loan to Bickford to help finance their original purchase of these properties.
The loan is an interest only $9 million with a 12% coupon. The performance of these properties remains strong and it is summarized in the supplemental. NHI has agreed to extend the purchase option window which gives us three more years to consider purchasing these properties. We have no imminent plans to exercise the purchase option.
Our relationship with Holiday Retirement Corporation accounts for 16.5% of our revenue. The Holiday retirement portfolio of independent living communities continues to improve occupancy ending the year with 90.8%. The Holiday portfolio has the lease service coverage ratio of 1.24x.
National HealthCare Corporation, which represents 18.9% of our revenue and over half of our skilled nursing revenue, continues to perform consistently and enjoys the 4 times corporate cash coverage.
Senior living community accounts for 16.1% of our revenue with relationships started in mid December, when we closed the $476 million acquisition and extended a $15 million line of credit to finance, the expansions on our existing campuses.
The portfolio is performing as expected in the early going. In light of the Brookdale senior living merger integration, I would like to highlight that NHI leases nine assisted living properties to Brookdale. Our Brookdale communities are performing very well with 92% occupancy and a lease service coverage ratio of 1.4x.
Moving on to new investments. We had a successful year in 2014 with $571 million of investments. Thus far in 2015, we have announced $209 and a half million of investments all involving the development of senior housing properties. I will walk through our year-to-date announced investments starting with the previously disclosed, $154.5 million lending agreement to recapitalize and finance the expansion of Timber Ridge at Talus, a continuing care retirement community serving the Greater Seattle area and located in Issaquah, Washington.
As a reminder, NHI would have the option to purchase the community upon the achievement of certain occupancy requirements which would indicate stabilized performance and support a purchase price of $115 million or greater. The purchase option window will begin after earlier of February 2019 or two consecutive quarters of Phase 2, which is the construction phase, averaging 90% or higher occupancy and ends 15 months later.
The NHI Bickford Senior Living joint venture will develop five senior housing communities in Illinois and Virginia. Construction is slated to start in early 2015 with openings plan for 2016. The total estimated project cost is $55 million.
Each community will consist of 60 private pay assisted living and memory care units managed by discrete Bickford Senior Living. The communities are expected to yield double digit returns at stabilization.
These five communities are part of the previously announced agreement between NHI and Bickford Senior Living to construct eight communities. The first three, all in Indiana, opened in 2014. Once completed, the NHI-Bickford joint venture will be comprised of 36 communities in eight states. Construction will be funded with borrowings and NHI’s revolving credit facility.
Our pipeline is very active with knee driven and discretionary senior housing properties in addition to medical properties. We remained very interested in growing the company with high quality properties and relationships.
Turning to guidance, the normalized FFO range is $4.52 to $4.58 per share and a normalized AFFO range is $4 to $4.04 per share.
The strong operating result that I have discussed don't occur without the collective efforts of our very talented management team. For example, Roger is starting his ninth year with the company. I'm starting my sixth year. Seven of our 12employees have a master's degree and the average tenure is 6 years.
Kristin Gaines, our Chief Credit Officer is our longest tenured employee with 17 years at NHI. Kevin Pascoe has recently been promoted to Executive Vice President of Investments in recognitions of his contribution to the company over the past five years. Eric Mendelsohn recently joined our team as the Executive Vice President of Corporate Finance.
Eric is a very experienced attorney specializing in real estate finance. He spent eight years working for one of the nation's largest senior housing operators. His background adds to NHI's long history of approaching the business from the perspective of an operator.
We will continue to have resources as needed to support financial planning, accounting, asset management and business development. I am proud of the accomplishments of this small team, coupled with the fact that I’m expecting the company to achieve G&A expense as a percentage of revenue below 5% this year for the first time.
I am very pleased to report a 10.4% increase in our quarterly dividend to $0.85 per share. I'm extremely excited about the prospects for value creation in 2015 and beyond.
And with that we will take questions. Operator, we are ready for questions.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from the line of Juan Sanabria of Bank of America. Please proceed with your question.
Juan Sanabria
Good afternoon, guys. Justin, I was hoping you could comment strategically on the investment pipeline going forward and what you'd like to add. You have seemingly a better mix between the private pay and some of the assets with a more reimbursed risk. Are you looking to add any skilled nursing exposure? And if you wouldn't mind just commenting on cap rates for the different asset classes you're seeing in today's market?
Justin Hutchens
I'm going to start with the strategic part of the question and then I’ll end with our outlook and the cap rates. I want to repeat something I have talked about on the previous call and that is, the investment strategy as it relates to diversification.
And if you look at our supplemental and our 10-K, you’ll see a lot of description around the three groupings of assets. One is need-driven senior housing, which includes assistant living and senior living campuses.
The other is discretionary senior housing, which includes independent living and intrinsic communities. Then the other is medical, which will include skilled nursing, and hospitals and MOBs.
We like each of these asset classes. They all serve an important role in healthcare and senior housing. Each of them has their own set of risks and weaknesses as well as strength.
And the fact that they diversify the way they are, so we have need driven senior housing in 25% of our portfolio, discretionary senior housing 33%, those two categories are both primarily private-pay driven and then 40% is in the medical category.
So if you look at the pie graph of our portfolio, we have very - we’ve achieved - the point of your question I think the diversification that we've been seeking over the past several years through our investment strategy.
So considering that we do feel comfortable in obtaining investments in each category whether it’s the need-driven category or discretionary, or medical.
To the cap rate question, the independent living asset class tends to attract a lower cap rate. I would put that on a portfolio basis around 6 to 6.5, on a one-off basis 6.5 to 7, assistant living would be next inline. I would say at a portfolio basis that that's roughly 6.5 to 7 and then on a one-off basis I would say 7 to 8.
And then skilled nursing has a little bit more of a wide range depending on the quality mix of the asset. Certainly the market has supported as low as 7.5 our portfolio. There is – I would say high quality one-off asset might be in a low-to-mid-8 and then something that might be older and more of traditional skill nursing property would be - would start at 9 and be a little higher.
But the return on each asset class we think are pretty good considering our cost of capital and we’re comfortable underwriting each of them and get a diversification we have run to add any of those types moving forward.
So, I would say that were well positioned to growth in any of those categories.
Juan Sanabria
Great, thanks. And just a quick modeling question with regards to the G&A. Do you mind giving a cash number that is incorporated in the 2015 guidance? Maybe for Roger?
Roger Hopkins
I don't have a cash number. I did mention the growth in G&A, because of the addition to our management team and then what would be a normal G&A increases. So there will be an increase next year.
Juan Sanabria
Okay. Is there like a ballpark? Is it like a 3% to 5% number or what should we be generally thinking?
Roger Hopkins
I would say based upon the addition and based upon the number this year, it would probably be in the 5% range.
Juan Sanabria
Great. Thanks. I'll yield the floor, thank you.
Operator
Our next question comes from the line of Daniel Bernstein of Stifel. Please proceed with your question.
Daniel Bernstein
Hi, good afternoon. I wanted to just review the focus properties, the occupancy, and it was a little less. I just wanted to see, is there any -- and you put new properties in there recently, so just wanted to see if some of the focus properties are doing better than others? And how should I think about the progress you expect to see in 2015?
Justin Hutchens
Sure you look at the schedule on our supplemental the highlights the big joint venture properties but focus properties category which focuses on sequential quarter includes the four developments that are up and running and then you've got a couple focus properties that were Kansas City based properties included in that as well.
We have - you can’t really see it here. Its not highlighted in detail, but in that quarter, that sequential quarter category the focus properties were basically flat and then there was a little bit of expense associated with the development properties and that's where you see a clear to clear performance.
But the occupancies in the development properties continue to grow. So I would say that, and it points back to the remarks I made that were prepared that focus properties are stable or in another words flat. And the development properties are growing.
Daniel Bernstein
Okay. And then you just announced new five-year developments here in early 2015 and so if you could talk a little bit about the buy versus build opportunities you see? Given where cap rates have gone, are you a little bit more inclined to start funding more development of assets or are you still seeing a lot of opportunities on the acquisition side as well?
Justin Hutchens
We've always been interested in both. We've been more cautious when it comes to financing development, I’ll give you a couple of metrics just to keep in mind.
If you look at from the start of our growth plan, we started in middle of '09 to today, just over 12% of our total volume has been dedicated to new development. If you want to take the recent activity that we announced, if you take the last 12 months investment volume about 25% is focused on development.
So, we do have a little bit an uptick, most of that is need-driven, it's not necessarily an indication of our comfort level with stabilized cash flow versus development.
But we do see opportunities obviously in the markets that we selected, the finance development, to be able to enter market with the products that will not necessarily be the price leader, but will most certainly be the best physical plant. And with an operator that has 20 years of experience opening building, and managing them successfully with Bickford, we feel comfortable entering markets.
The market in Seattle where we're financing – we'll refinance the existing campus and then we’re financing the expansion of the entry fee campus that's 80% pretty sold.
So relatively easy underwriting when you already have the demand at the doorstep. So I would say we’re always going to be very particular when it comes to development and focused on - the operating partner, the local market dynamics and be mindful of how much development risk there is relative to our overall investment volume.
Daniel Bernstein
I take it then that you don't feel there's a lot of development risk out there, at least in the geographies that you're building in? Is that the way I should think about it?
Justin Hutchens
I think that's fair. There certainly some markets that it probably – we've preferred all the way from a new development standpoint those would be Huston, Dallas, Kansas City various parts of Florida, all have, a lot of the development volumes, there is - certainly that's a consideration when we’re entering a market.
Daniel Bernstein
Okay, and then one last question. I think you mentioned on the call that at this time you're not really interested in exercising the purchase options on those facilities with Bickford for $97 million. If you can, if you are at liberty to talk about it, could you discuss a little bit the rationale for not buying those assets now? They look stable, at least from when I see in the supplement.
Roger Hopkins
Sure, I’m happy to talk about that. So if you look at - the purchase that we will be buying, the joint venture will be buying it somewhere around low eight cap which given the quality and performance of the assets be considered that be a very fair price.
We are financing $97 million purchase price. The $9 million of it is effectively financed already with a $9 million loan that we’re collecting 12% coupon. We would put debt in place probably at 75% loan to value. There is an interest expense associated with that probably around 4% or so, cost of equity lease from a - on a cash basis is probably in the high 4.
And then you have the income loss of the loan being used to finance the purchase and so the net cash flow - pre look because your net cash flow is around 3 million but you’re replacing $1 million of existing income.
So with the way I look at it, as we have 9% of the purchase price deployed currently and we're collecting 35% of the net cash flow that we would collect if we in fact purchase the properties and brought them on balance sheet.
So when you look at the risk reward scenario, I feel very comfortable with our existing investment. The other side of this is we have a joint venture partner that is relying on the cash flow stream from those assets, its great to have a healthy joint venture partner.
They are not in any hurry to pull them into the joint venture either. So we mutually agreed to extend the window. I think like I said, I think we're in a good place with the asset, I think our joint venture partner in Bickford is also in a good place with the assets, so we'll just let them sit for a while.
Daniel Bernstein
Okay, just wanted to hear the explanation. I'll hop off. Thank you.
Operator
Our next question comes from the line of Todd Stender of Wells Fargo. Please proceed.
Todd Stender
Morning. Just to stick on the Bickford theme, are all five projects breaking ground in early 2015 with openings in 2016? Did I get that right?
Roger Hopkins
Some of them will be early '15, they will be sprinkled throughout the year. And as we get more certainty on the ground breaking dates, we’ll make sure that we disclose that. But I would picture that the five of them will all open ground in '15 and they all open in ‘16 but they will be spread out throughout both years.
Todd Stender
Okay. Were you guys able to quantify what the drag is on FFO this year? Is that included in your guidance and kind of your timing expectations for next year?
Roger Hopkins
No, we've really not considered this, as part of our guidance, given the uncertainty with when the projects will start. We do collect rent on the development projects and we disclosed that in the past.
So we would not expect a drag on income or FFO during the construction this year.
Todd Stender
Okay, that's helpful. And then, Justin, I think you gave some return targets for the development. How long does it take to get to a stabilized occupancy? How many leasing periods or how do you look at that?
Justin Hutchens
Well, I can tell you that we perform two years of the existing, the three that are already up in running, one is going to take close to two years, one took 12 months and the other is going to be right in between the two.
So I'd say safely around 18 months, is going to be a typical average and usually that's what the industry uses as a standard when they under write new developments.
Todd Stender
Thanks, Justin. And then just looking on funding side, you guys were able to tap the unsecured debt market from an insurance company recently. Can you just comment in general on debt availability outside of banks, especially for unsecured paper? Just what's the comfort level, I guess, with healthcare lenders right now?
Justin Hutchens
Todd, I think this is a very interesting industry to be in a growth industry. The indications that we have from capital providers is that capital is available to us. We have several options which we will be looking at in 2015.
In our own case, we look to continually term out borrowings on our revolver. We will continue to look to unsecured term loans both bank and non-bank, we will also look to term out revolver with Fannie. We have previously disclosed that, as part of our equity offering in December and we’re in discussions with Fannie about that.
So we believe that there is still a very good market for NHI to access capital this year.
Todd Stender
And then, Roger, just sticking on that theme finally, you mentioned tapping an ATM this year. Have you guys obtained the program yet or that hasn't been approved?
Roger Hopkins
We expect to shortly enter the program, as I said in my prepared remarks, we’ll be selective, we will be looking primarily to match fund our smaller acquisitions, and continually keeping an eye on our debt metrics which are very important to us.
So as we fund these construction projects and the large loan that we disclosed and Justin talked about, I think that in 2015 there will be a mixture certainly of debt and equity and that will be important to our leverage metrics.
Todd Stender
Great. Thank you.
Operator
Our next question comes from the line of Rich Anderson of Mizuho Securities. Please proceed.
Richard Anderson
Hi, thanks. How you doing? So on the dividend, if I'm doing this right, the increase gets you to about an 85% payout on AFFO, is that what you see?
Roger Hopkins
Sounds about right on AFFO, sure.
Richard Anderson
Okay, so that's not as wildly attractive as it is now without the increase, of course, but I'm curious what drove the decision? Is 85% your kind of payout target or do you think you'll kind of grow into a better payout over the course of the year?
Roger Hopkins
Actually the way we're seeing it, is the - if you pull forward all of the pro forma performance like fully baking in our Q4 numbers, we think the payout ratios are actually pretty flat and if both FFO and AFFO, you should have AFFO by the low 80s, 83, 84 so and then FFO will be mid to mid high 70s.
And we think don't forget also our AFFO metric is equivalent to most other companies FAD, so it's truly our cash flow and so from that standpoint, we think that we’re striking a pretty good balance of leaving enough cushion to support any unexpected events that would impact our income and, meanwhile passing along our shareholders the benefit of the value that's been created through our growth.
Richard Anderson
Okay. Regarding Bickford, understanding the preferred payment setup, is there -- right now, because of that zero CapEx that you're responsible for? And then the second part of that question is when do you think you start to cross over into the operating world of that RIDEA joint venture in terms of what you'll book into income?
Justin Hutchens
Let me start with the CapEx fees, there is -- actually let me do this, I am going to have Roger explain the portion that hit our books from AFCO and then I’ll follow-up with kind of my view on that kind of the risk associated with that.
Roger Hopkins
Rich as Justin has pointed out, as we show in our supplemental data report, on a same-store basis we had good growth this year in 25 same-store operations.
We have the focus properties and as I mentioned in my remarks, when we look at those new developments and the fact that they have to expense their startup cost and expense their operating losses after opening that cost about a $1 million in 2014 on the entire Op Co of 31 building. So that was expected and so the good news is the Op Co has been able to support the development of new facilities.
And so we’re pleased about that. So whereas it’s not showing income on a GAAP basis, the operations are supporting the new developments, which we’re very pleased about.
Rich Anderson
Okay. And Justin were you going to add something to that.
Justin Hutchens
Yes I would -- I think that captures -- and that is that, the except cash flow that NHI may otherwise be same from this -- from the Op Co portion of the joint venture as we reinvested the finance development working capital of the development.
So in a sense we’re realizing the benefit as just you’re not seeing it, because it's been expensed and financing a development.
Rich Anderson
When do you think we’ll see it that’s I guess my question?
Justin Hutchens
Well you'll see the best benefit probably middle or next year when we start to -- probably the middle of 2017 when all of the developments reach stabilization you’ll see -- you should see hopefully substantial excess cash flow above and beyond the rep payment and the preferred payment and the escalator that we otherwise count on?
Rich Anderson
Got you. Okay. Is the start for 2015 guidance is the normalized FFO equal to NAREIT FFO?
Justin Hutchens
Could be our FFO, we believe matches NAREIT’s FFO.
Rich Anderson
Okay. Okay. At this point you might have some normalizing factors over the course of the year, but for now, the way your guidance is set up, it's the same thing?
Justin Hutchens
Yes we believe so.
Rich Anderson
Okay, and then last question to Justin or whomever. You started 2014 with guidance of $3.92 to $4, and you ended the year with $4.20, so that's a 6% increase from the midpoint, so that's good.
I'm curious, is that all just investment activity impacting that or were there -- I don't remember where you were leverage-wise, if there was some other inputs and outputs that created that upside to your initial guidance.
Justin Hutchens
It is primarily driven by investment activity. We actually termed out a little more debt than we probably need to last year, because growth was strong. So that’s why we were able to term our debt out and get revolver balanced down lower, but still enjoy the growth that you mentioned.
And then when we -- the way we look at guidance, we don’t factor any investment activity into our guidance range. As you know we’ll go at kind of baseline outlook and then reasonably give the range is because of refinancing.
So want to leave a little room on the lower end if there is a refinancing we pursue that’s little more expensive than expected or there is a long path that may be wasn’t expected, then we left some room with that range.
Rich Anderson
Okay, I'm sorry, can you say how much you ate out of the 2014 performance from terming out debt? Do you think you could have done how many cents better or is that too tough of a calculation on the spot like this?
Justin Hutchens
I don’t recall at this point in time exactly how much we left on the table terming out. But..
Rich Anderson
Okay, with something. Okay. Thank you.
Operator
And we do have a question from the line of Karin Ford of KeyBanc Capital Markets. Please proceed.
Karin Ford
Good afternoon. Just a question on the decision to extend the Bickford option and not exercise it currently. So if I'm doing my math right, if you assume about 500 basis points of negative spread on the reinvestment of the loan investment, looks like it hits the yield about 50 basis points or so?
So the yield on the exercise would go from, you said it was in the low to mid 8%s down into the mid to high 7%s. So should we read into that, that you think you have alternative investment options at better returns than that?
Justin Hutchens
I’d not I would partially differ on it okay. So the way I approach it is this way. There’s a balance sheet impact as well and it's a fairly significant pickup in leverage to bring on this portfolio where right now we have nine million invested getting 12%.
We could have $97 million invested and getting 8%. The difference in cash flow between the two is only $2 million because we're getting million. Currently we get about $3 million net on the $97 million. So the return on our existing investment and the risk associated with it from a balance sheet perspective is better than purchasing the properties.
And I think since in this part adoption has been open for over a year and I think since then, open we’ve deployed about $500 million or $600 million of capital and so we have chosen alternative investments over time.
And the reason I highlight it on this call is that I just want to eliminate in anybody’s mind the idea that we might exercise this purchase option in the near future. We’re just going to push it off and revisit another time and if and when we do that, we’ll certainly have disclosures about that.
Karin Ford
Okay, thanks for the color. My next question is just on Timber Ridge. It looked like there was a bit of a delay in the funding on that. I think you'd originally thought it would close in November and I think it just recently closed. Can you just talk about what the delay was in that?
Justin Hutchens
Sure there was competing priorities on both sides. There are three parties involved. There’s our self, there is the Operator Life Care Services and then their partner Westminster.
NHI, we announced the Timber Ridge loan and then we started work on our $476 million acquisition, closed that and then ended up closing Timber Ridge after that. So that was our competing priority. Life Care Services had some competing priorities as well.
So we just ended up landing on -- later couple of months later closing date but now we're up and running.
Karin Ford
Okay that's helpful. And then my last question is just on the acquisition pipeline. I know in past few years, you sort of talked about having $100 million to $200 million kind of regular business with additional portfolios that have come pretty regularly at the end of the year.
Should we continue to think about that as the playbook or as the Company's now almost doubled in size here over the last few years, should we be thinking about a larger level of sort of regular investment activity from NHI?
Justin Hutchens
Good question. Our investment thesis is to invest and diversified assets, which I’ve discussed earlier.
We’re doing so with what we call high-quality relationships, which our operators to have track records in the business and established balance sheets and the properties themselves are involved in the markets and are high-quality in general from a physical plant standpoint or at minimum we'll have relevance for years to come.
To the extent, all of that lines up, we don't really have a limit at the top end in terms of how much we will do. We’ve already announced this year $200 million, last year we did $570 million, the year before that we did $752 million, having said that, there is no goal or desire to grow for growth sake or to become bigger. It’s really going to be opportunity driven.
We’ve had years before that, before those, these past three years I just mentioned, our investment volume ranges anywhere from $87 million all the way up to around $190 million per year. And again that was all opportunity driven.
I will say this though, if you look at where NHI is positioned in today's market, I’ve never felt more comfortable with our ability to grow and compete in the marketplace and that's because we've established many new customers that have priorities to grow, so there’s more of an organic potential organic pipeline.
We’re certainly more on the radar externally, we're seeing more volume coming through our pipeline than we've ever seen in our history. And then the team is more experienced and the team is growing as I mentioned earlier, we've been adding resources.
So I love how we’re positioned to grow and we’re going to continue to focus on growth so long as it meets our quality standards.
Karin Ford
Thanks for the color. Do you care to comment on the dollar volume of opportunities that you guys are currently looking at today?
Justin Hutchens
I'd say the smallest that I can think of - I’d put it this way, there is one-off opportunities in our portfolio then it always been part of our growth plan, that's in part why the ATM that Roger mentioned will be a good fit as part of our capital planning.
But there continues to be large portfolio being presented to us as well. So we have - the range is quite wide and we’re happy to entertain both large and small opportunities and we’re going to underwrite them and make considerations based on all of the factors I mentioned a minute ago.
Karin Ford
Thanks very much.
Operator
Okay. And there are no further questions at this time.
Justin Hutchens
Okay, well, we certainly appreciate everyone's interest in NHI and we look forward to talking to you again on our next call.
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