Nationwide Health Properties, Inc. Q1 2008 Earnings Call Transcript

Nationwide Health Properties Inc. (NHP)

Q1 FY08 Earnings Call

May 9, 2008, 11:30 AM ET

Executives

Ron Hubbard - VP IR & Capital Markets

Douglas M. Pasquale - President and CEO

Abdo H. Khoury - Sr. VP, Chief Financial and Portfolio Officer

Brent Chappell - VP Portfolio Management

Donald D. Bradley - Sr. VP and Chief Investment Officer

Analysts

Jerry Doctrow - Stifel Nicolaus

Robert Mains - Morgan Keegan

Rich Anderson - BMO Capital Market

Michael Mueller - JP Morgan

Philip Martin - Cantor Fitzgerald

Omotayo Okusanya - UBS

Steve Swett - Keefe, Bruyette & Woods

Kristin Brown - Deutsche Bank

Presentation

Operator

Good morning. At this time I would like to welcome everyone to the Nationwide Health Properties First Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Mr. Ron Hubbard, Vice President of Capital Markets and Investor Relations. Mr. Hubbard, you may begin your conference

Ron Hubbard - Vice President Investor Relations & Capital Markets

Good morning and thank you for joining our conference call to discuss Nationwide Health Properties first quarter 2008 earnings. Certain statements made in this conference call 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 and/or contemplated by the forward-looking statements due to risks and uncertainties described from time to time in the SEC reports filed by the company.

As this call 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 May 9, 2008. The company believes that funds from operations and funds available for distribution are an important supplemental measure 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 its earnings release dated May 8, 2008.

As a reminder, NHP's complete first quarter 2008 earnings release package was filed on May 8, 2008 on separate Form 8-Ks and are 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, President and CEO of NHP.

Douglas M. Pasquale - President and Chief Executive Officer

Thank you, Ron. Good morning and thank you for your interest in Nationwide Health Properties. Joining me for today's call is NHP's senior management team. After reviewing the highlights of our detailed earnings release and comprehensive supplemental information, I will open the call for your questions.

Compared to last year's first quarter revenues are up $17 million or 24%. Diluted FFO increased by $10 million or 21%. And FFO per share increased by $0.06 or 12% to $0.56 per share. During the quarter, we issued 930,000 shares through our controlled equity offering program at an average price of $34 per share, resulting in net proceeds of approximately $31 million. On April 2nd we closed on the previously announced sale of 23 facilities to Emeritus for $305 million resulting in net proceeds of approximately $220 million.

The proceeds from the sale repay the outstanding balance on our $700 million credit facility, leaving us with a 100% availability on it, and about $120 million of cash. Our leverage is a conservative 46% on a un-depreciative [ph] book basis. Interest and fixed charge coverage's are 3.2 times and 3 times respectively. In short, our balance sheet is strong with ample liquidity to make quality investments, as they present themselves without accessing the capital markets.

Investment volume for the first quarter was $24 million of which $22 million was in senior housing having an initial yield of 9.3%. Since March 31st, we closed on the first series of acquisition from Pacific Medical Buildings, consisting a 7 MOB assets for $159 million.

On page 23 of our supplemental package please note that we have added a schedule summarizing forward capital commitments. Forward capital commitments include acquisition obligations for transaction previously disclosed and take out commitments related to future development projects. In addition, you will find a summary of expansion, renovation and capital expenditure commitments we have made to our tenants.

Finally, we are increasing the floor and ceiling of our full year 2008, FFO guidance range by $0.01 per share to a range of $2.18 to $2.23 per share. And FAD guidance by $0.02 per share to range of $2.10 to $2.14 per share. Our guidance incorporates no results from acquisitions except those completed or previously announced. Nor does it incorporate the impact of any future impairments or capital transactions. We are now pleased to answer your questions. Ron, if you please, open the lines.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of Jerry Doctrow, with Stifel Nicolaus.

Jerry Doctrow - Stifel Nicolaus

Good morning, I guess to you guy in the West Coast. The... just one thing, I just wanted to explore and I apologize because I am on the road, may not have all the supplements in front of me. But it's kind of a second round, the next years round of purchases from Pacific Medical because I think, the way I think of that at least, you got a commitment for a decent chunk of acquisitions at, I think you received a slightly lower cap rate in the first years and I am just trying to understand, how that funding would be arranged?

Douglas M. Pasquale - President and Chief Executive Officer

We do have a schedule, Jerry that shows that, again so when you get back you will be able to look at it. And for those of you that have in front look pages around 23, when I was referring to. There is a chunk of acquisitions Jerry that are going to occur, about another 8 assets I think it is, in 2008 and the cap rates on those range sixes all [ph] sixes. It's in 2009 and 2010 where the cap rates drop a little bit is my recollection, is that correct Abdo and Don? And so, that's basically how they shake out with respect to initial cap rate.

In terms of funding of them, Jerry we are going to continue to do, what we done in terms of trying to keep as much availability on the credit facility. Although frankly with it being zero, we first got to burn through the $120 million or thereabouts of cash we've and then we restart to use some of cash. There is a fair amount of secured debt assumed with respect to Pacific Medical Buildings and as you will recall our net, we are seeing operating use as well so the financing really is in place as we described in January for the PMB acquisitions.

Jerry Doctrow - Stifel Nicolaus

Okay. And then the primary side of the debt would just be the credit line, because you got enough liquidity at this point to do that even through the early 2009 stuff?

Douglas M. Pasquale - President and Chief Executive Officer

Yes, that's correct, but it depends of course on what other acquisitions we do and we will use the credit facility as we have in the past where we effectively were house [ph] investments or do funding for investments until we find a more suitable permanent capital source. But assuming that the investment volume was low, we will just do it on it on the credit facility.

Jerry Doctrow - Stifel Nicolaus

Okay. And let me just ask two other questions, if I could. I wonder if could just give us little color on acquisition environment. Because I think what we heard now from pretty much all of your peers that everybody seems pretty excited about acquisition opportunities. And we haven't seen huge volumes in the first quarter and I was just wondering if you can give us the sense of what you are seeing out there maybe in terms of cap rates and volumes?

Douglas M. Pasquale - President and Chief Executive Officer

Well, it's divided a little bit I guess into liquidity camps. We and some of our competitors are in very liquid positions, some are in a little less liquid positions. And I think we are optimistic sorts in general. And there is transaction or investment opportunities out there. But that said, we're having some challenges in getting comfortable with the pricing on certain activities or certain investments opportunities. There are few large transactions and I am sure we and most others are looking at or have looked at. We probably have different perspectives on those.

And I am confident that a fair share of those will fall our way, at least if history is any indication of how this shake out. But I guess maybe...I will be in a little less optimistic camp in terms of overall volume. I think we are all seeing more or less the same transactions.

Jerry Doctrow - Stifel Nicolaus

Okay, That was my thought too which is why I was asking the question. And in terms of where you are seeing the large deals, senior housing, skilled MOB's I mean, any just sense of where we might be seeing some?

Douglas M. Pasquale - President and Chief Executive Officer

I think there is some opportunities on all of those, in all of those asset classes. There has been more activity or more, what we would classify as desirable opportunities in medical office building still and there is at least one large potential transaction looming out there.

We are seeing some in senior housing and skilled nursing, but that's not nearly as significant a pipeline or were just assets available for sale as we've seen in the last couple of years and as we've talked about, I think in prior calls. When you think about the transaction volume, that's taken place over the last handful of years and the fact that they are either strategic buyers who bought them for long term holds or financial buyers that were looking to maybe flip down for a profit. It's difficult to flip them for a profit, if you bought an asset two or three years ago and if you bought them for strategic purpose you don't want to sell. So there is just a certain amount of inventory that's not available for sale. And I think that's going to be one of the challenges for everybody in this space is to find enough inventory to sustain, the kind of investment borrowings as we have seen over the last couple of years.

Jerry Doctrow - Stifel Nicolaus

Okay, and then just one more and I will jump off. We are... I think getting closer today having housing legislation passed that may include the REIT... changes in the REIT law, relative to healthcare REITs being able to essentially control operating assets or capture the operating income from healthcare assets. Any thoughts on that and how you would play it, I mean do you see this as a significant opportunity of other type of transactions you do, again with...I mean some of that people have already figure out a way to do obviously in the Sunrise REIT deal.

Douglas M. Pasquale - President and Chief Executive Officer

Right.

Jerry Doctrow - Stifel Nicolaus

But does that change your thinking going forward?

Douglas M. Pasquale - President and Chief Executive Officer

We always viewed as an opportunity. We were looking for some more clarity as to what was going to be acceptable and through the private letter rulings and the legislation [ph] that houses, we are seeing that, whether the legislation gets past with political environment, it's hard to say. But hopefully it will and we think that does provide additional opportunity for us and others in this space. I wouldn't classify it as an immediate significant opportunity for us. We like having as many different avenues for investment and as many different capital sources available to us as possible and of course that would just be another one. And I think we could put it to good use. But in terms of having a dramatic impact to us, particularly in the short run, I would say, probably not.

Jerry Doctrow - Stifel Nicolaus

All right, thank you.

Douglas M. Pasquale - President and Chief Executive Officer

You are very welcome. Thank you, travel safely.

Operator

Your next question comes from the line of Michael Bilerman with Citi.

Unidentified Analyst

Good morning, this is David... here with Michael and [indiscernible] on the phone as well, I think you may have said this in your prepared remarks. But I just want to clarify. Since the transactions took place, since the end of first quarter, what's your amount of cash outstanding and the amount of credit facility available?

Douglas M. Pasquale - President and Chief Executive Officer

100% of the credit facilities is available or $700 million and we've cash balances of around $120 million.

Unidentified Analyst

Okay. And in the first quarter the $159 million acquired, it looks like about a quarter that was funded by units. So is that a good assumption going forward for the remaining acquisitions?

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

This is Abdo Khoury, it will depend on a variety of things, which the selection of the investors and EMD will decide if they want take units or cash. But at this point it is a good assumption to use.

Unidentified Analyst

Okay. And the occupancies that are owned, assisted and independent living facilities was 84.9% this quarter, which was down 160 basis points from the fourth quarter. Can you just provide a little bit color on what happened and when this space could be re-leased?

Brent Chappell - Vice President Portfolio Management

Dave, this is Brent Chappell. It's not terribly inconsistent with what we heard and learned from some of our publicly traded operators. The first quarter seems to be particularly hard hit by the number of debts and some increased securities which has really pushed the occupancy down. It is not terribly dissimilar [ph], I think from a conversation we probably last quarter at this time. But that seemed to be the driving force behind the decrease in occupancy.

Unidentified Analyst

Got you. And just one more question. How is the lease [ph] going on the PMB assets and are there any changes to expected timing of when you will be buying those assets.

Douglas M. Pasquale - President and Chief Executive Officer

Not at this point, what's driving really is obtaining the consent and loan assumption approval is driving the timing more than just leasing right now.

Unidentified Analyst

Okay. Thank you.

Operator

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

Robert Mains - Morgan Keegan

Good morning.

Douglas M. Pasquale - President and Chief Executive Officer

Good morning.

Robert Mains - Morgan Keegan

One follow up to the question on the acquisition environment, I am hearing you right, that there is some portfolio's out there that kind of consist of [indiscernible]...sort of getting bid up. Can you...NHP has done in prior quarters, a lot of, for lack of a better term, one off type transactions and there is kind of lull in the action the first quarter. Is there anything going on specifically with kind of the individual property level type deals. Where you will be folding them into an existing master lease, is there a supply issue or just you not find stuff you like, how do you characterize that?

Donald D. Bradley - Senior Vice President and Chief Investment Officer

Hi Rob, its Don Bradley. Actually the stuff, we did this week, I mean this quarter was exactly that. We are still finding stuff out there, just not as many. And we will continue to try to add much of those as we can to our portfolio. That is our cup of tea. And if we see some more out there, we will definitely be adding them in, we are also looking at the bigger stuff while we are at it.

Robert Mains - Morgan Keegan

Okay, with the smaller transaction the levels will be lower than in the past, you say that just a product what the market is offering you.

Douglas M. Pasquale - President and Chief Executive Officer

For now, although my guys tell me. That they are starting to see more and more opportunities, more and more people come into grips with the fact the world has changed. So second half of the year may present more opportunities than we've seen so far this year in that categories, we just have to wait and see.

Robert Mains - Morgan Keegan

Okay, fair enough. And then I had just one question for Abdo on the numbers and the guidance. The CapEx and TI guidance suggest there is going to be a significant ramp-up in the rest of the year, I assume that's going to kind of track, when new building are coming on line...

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

Yeah, some of it has to do also with the...in the first quarter some of what was slated for the first quarter didn't get done. So we moved some of it to the rest of the year.

Robert Mains - Morgan Keegan

Yes so no...

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

That's why our FAD was little higher than $0.02, we increased FAD $0.02 versus $0.01 in the first quarter, we've had net CapEx, TI and leasing commission and reach [ph] some of it, will spill over to the remaining quarters.

Robert Mains - Morgan Keegan

And so this quarter, kind of anomaly return to a more normal in the subsequent quarters?

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

Yeah we think so.

Robert Mains - Morgan Keegan

Alright, that's all I have. Thanks a lot.

Douglas M. Pasquale - President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line Rich Anderson with BMO Capital Market.

Rich Anderson - BMO Capital Market

Thank you and good morning everybody.

Douglas M. Pasquale - President and Chief Executive Officer

Good morning.

Rich Anderson - BMO Capital Market

Hey, I think its interesting that you are finding, Doug, you said you are sort of less optimistic about volumes in the acquisition environment whereas many of your peers in and out of the healthcare space are seeing more opportunities because of the lack of the leveraged buyer. So why would you say that, I mean are you... maybe you can sort of comment on how the market, the acquisition market is sort of making a different turn for you than it is for your peers?

Douglas M. Pasquale - President and Chief Executive Officer

Let me try and explain it Rich, I think that some of the commentary you are probably hearing from some of our competitors, and some...there are a handful of large transactions out there that we have looked out and they are looking at, some of them, that we stepped away from because we either don't like the pricing or we don't feel, that serves strategic objectives at this point in time. And so I think that those that are starting to lock up those transaction, if in fact that's what's occurring are viewing the world little more optimistically because they think they are going be announcing some large transactions in the foreseeable future.

But I doubt frankly, that the depth of what they are seeing is much different than we are and had we decided to be a bid more aggressively on some of these things then maybe we would be telegraphing the message that they are giving. We just chose not to aggressively pursue some of the transactions that I think that they maybe referring to.

Rich Anderson - BMO Capital Market

You think you had to sort of give up your aggressive trump card when you bought PMB?

Douglas M. Pasquale - President and Chief Executive Officer

No, not at all. It was... we are sitting $820 million of cash. And the fact that we issued equity this quarter, I think speaks to the fact that we are still optimistic, it's just that I think the people are just telegraphing that they have transactions that may be...they may be announcing imminently.

Rich Anderson - BMO Capital Market

I don't know if I gave a great answer or the question was even asked on cap rate. So are you...were...with some of your peers, as you said bidding on the same things, looking at the same things, how would you characterize cap rates if you were just to go across some of the major property segments, movements and cap rates?

Douglas M. Pasquale - President and Chief Executive Officer

I will let Don address that, because he is closer to the firing line, then I am. But I will tell you our general philosophy has been recently that we are going to pricings a bit more advantageous for us then we have historically, thinking that we will still end up getting our fair share of investment opportunities. We are letting them get a little closer to us so we can see the whites in their eyes a little more clearly, and so let me...let Don answer the question with respect to cap rates a little bit more definitively.

Donald D. Bradley - Senior Vice President and Chief Investment Officer

Hey, Rich. And I would also just comment that as far as the acquisition environment it's... what was Doug particularly referring to is the senior housing and long-term care sector. We were seeing more opportunities on the MOB front that seems to continue to be very active area. And cap rates there are pretty much flat. The last real capital analytics report actually showed a slight downtick but for all intents and purpose we are staying basically flat.

In the other areas you are seeing, as best one could tell and there aren't very many points of reference as I think others have commented. The pressure does seem to be upward there is a appraiser [ph] in our sectors that recently indicated that they were seeing 50 basis points bumps in Class A assets in senior housing long-term care, which we put independent living somewhere into 7% to 8.5%. These are cap rates now and they actually do on a forward-looking NOI and I think you are seeing more now. While there were pricing deals on forward NOI a year or two ago, we are now looking more historical NOI. But they seem 7% to 8.5% on NLs [ph] 7.5% to 9% on AL and scaled 12.5% to 14%, those are cap rates again.

Rich Anderson - BMO Capital Market

Okay, have you guys gotten your own private letter ruling vis-à-vis your [indiscernible] private letter ruling or do you plan to?

Douglas M. Pasquale - President and Chief Executive Officer

We have not and nor do we plan to. First of all, we don't have a specific transaction in mind that would be... give us enough information to request determination based on facts. And second we hope the legislation gets passed. So that would render that exercise not necessary,

Rich Anderson - BMO Capital Market

Okay, in terms of your 50% ownership in the management company that you acquired through PMB. Are there any sort of unique hurdles to do non PMB, MOB transaction whereby you would be able to sort of fold in management function in your 50% interests. Is it a formality or is it because that you not...you don't fully own it, that makes it a little bit more complex?

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

This is Abdo. We basically have an obligation to have PMB real estate services managed. Any MOB acquisition we do in the ten western states, western states, so --

Rich Anderson - BMO Capital Market

What are last thing you said, in what area?

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

It's in western state,

Rich Anderson - BMO Capital Market

Oh, western state, okay, I remember now.

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

So anything we acquired in those states PMB areas will be managing outside the western, and western states. We are free to do any... hire any manager we like.

Rich Anderson - BMO Capital Market

But you could use the PMB management team.

Abdo H. Khoury - Senior Vice President, Chief Financial and Portfolio Officer

We could use them. But their footprint is more in the western state, and if they have the ability to manage something outside, we will definitely be discussing that with them.

Rich Anderson - BMO Capital Market

Okay,

Douglas M. Pasquale - President and Chief Executive Officer

I would also way Rich, this is a minor point. The restrictions, we have with respect to the ten western states is exactly as Abdo describe, that being said however, given that the PMB investors or our investors in NHP, should we ever find ourselves in a situation where an opportunity presented itself, where the only way we could access it was to have somebody else manage it. I think we could have a meaningful business discussion with PMB and depending on the facts and circumstances we could see them graciously waiving that restriction. What we have in mutual obligation and desire to grow the management company.

But the intent really is not to preclude us from other business in the ten western states and again, it's something we left open to just good business judgment down the road, if and when an opportunity like that would present itself.

Rich Anderson - BMO Capital Market

Doug you said that lot of your peers are chasing the same opportunities beside the PMB pipeline that's yours. Are you seeing any sort of more off market opportunities, or more quieter in terms of the process?

Douglas M. Pasquale - President and Chief Executive Officer

We are seeing some of those and that's kind of been our bread and butter in the past. And we are still seeing a number of those and hopefully, we will be able to bring those to closure, where at the same success rate or better that we had over the last few years. So there are those, the bigger transactions are always going to attract most of the players in our sectors just because they are going to be more broadly marketed. And that's been the case and if you look at them, usually the winner has had some unique motivation or unique advantage, they have attempted to exploit for those larger transactions.

But I think the one...the bread and butter for us is not going to change. And that's what we are continuing to work on and Don and his team of investment officers are working on those each and every day.

Rich Anderson - BMO Capital Market

Okay. And last question is are you able to secure Fannie or Freddie financing for the very low end of the liquidity scale in healthcare, like IRS.

Douglas M. Pasquale - President and Chief Executive Officer

We don't do secure debt, But I operators of assisted living can access Fannie Mae

Rich Anderson - BMO Capital Market

Okay, Thank you.

Douglas M. Pasquale - President and Chief Executive Officer

You are welcome.

Operator

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

Douglas M. Pasquale - President and Chief Executive Officer

Where's Mike?

Michael Mueller - JP Morgan

Hey, I said my question was answered. Thank you.

Douglas M. Pasquale - President and Chief Executive Officer

Thank you Mike.

Operator

Your next question comes from the line of Philip Martin with Cantor Fitzgerald.

Philip Martin - Cantor Fitzgerald

Good morning.

Douglas M. Pasquale - President and Chief Executive Officer

Morning.

Philip Martin - Cantor Fitzgerald

Doug and/or Don you can probably answer this. But in terms of your existing portfolio and the relationship, I know you have always been a good relationship manager. But certainly over last couple of years you've really stressed building these relationships, building pipeline or potential pipeline of these relationships. How much can your existing portfolio deliver for you, in terms of growth in 2008 and 2009, just I mean what is their demand. And are you turning down some of those demands? I just want to get a sense of what's this existing portfolio and relationship business that has grown of the couple of years can produce, because it certainly sounds like from some of your commentary that the acquisition environment for new acquisition or new relationship might not be as robust. And certainly runs in cycle, so I am just trying to get sense of your internal growth potential.

Douglas M. Pasquale - President and Chief Executive Officer

I will take a crack at it first to open and then Don and the guys can answer it. I think the... with our existing [Audio Break], particularly the ones that we target for this in any many cases have commitments from them that any future business would come our way. I think that remains strong. But the timing as to when it actually, manifests is which subject to some questions, some customers, thinking about doing things more aggressively then others and some are. I think that a little bit there is some fatigue in the system too. I mean it's been a wild [ph] few years.

And when the party came to an end at least in the capital market front, it gets pretty hard, and I think that we are just seeing a little ebb right now. And that's a very natural thing to occur. And periodically you are going to see bursts of activity and at times you are going to see less activity. And I don't think that means a whole lot other than that's just brief part of a very natural and to a certain degree predictable. So I think that there is definitely meaningful business from existing customers out there. When it manifests, I can't tell you, may be Don can be more specific then that. I don't mean to overplay at all things.

But I do think the markets have slowdown a bit. And to the degree others are telecasting that things are good, I think it's more a function of, there is just a few large transactions that people will get more excited about so...

Philip Martin - Cantor Fitzgerald

Well, I think...I mean it's really... your philosophy has always been the smaller one off under the radar screen type transactions. And you have done quite well there, where some of your larger competitors...totally different platforms and more focus on some of the larger deals, so segment [ph] flows differently.

Donald D. Bradley - Senior Vice President and Chief Investment Officer

I would just add into that a lot of the transactions, where we had commitments involved capital restructuring of the entire portfolios. So, not all of them but a lot of them, so a lot of the follow on business is going to come from newer acquisitions by them or development, expansion, that sort of thing.

As to acquisitions they are seeing the same thing in the marketplace we are, it's...there is a few opportunities but not a lot. The kind of stuff that they want to operate and then on development, that of course takes time. So, the evidence of that is definite, we definitely have in our pipeline opportunities, that we think will come on board with existing clients. So that is has been and will continue to be a source of business for us, timing is impossible to guess.

Philip Martin - Cantor Fitzgerald

Have you turned down any of your operators that have come to you with proposals, and I guess maybe you have, I mean is that anything of significance where you are just... you are turning down some of their proposals for whatever reason.

Donald D. Bradley - Senior Vice President and Chief Investment Officer

Not that I think of, certainly not that we both would have agreed, this is something we shouldn't pursue.

Philip Martin - Cantor Fitzgerald

Okay, my last question is. Can give us some feel for the size of the one off or one B2, [ph] the market out there. I have to imagine it's huge and I know it is. But have you done any work, I know you have done some work on getting a size of different markets.... different segments, but this kind of small 1Z, 2Z, [ph] market. How big do you estimate that to be?

Donald D. Bradley - Senior Vice President and Chief Investment Officer

Well, I can't tell you precisely Phil, but what I've seen and what I believe to be the case is. If you look at the healthcare REITs in the United States and you total up the percentage of business they have in the public companies, operating companies. Just their total business, based on what we believe, there is inventory in the United States, it's a very small number. And if you look at....what the public operating company likes Brookfield and Emeritus and Sunrise. Companies of that built and yet that again it's a very small percentage of the total inventory that Nick [ph] others that publish information on.

So we know that it's no other things and so that suggests that the whole lot of about that. But it's inefficient; it's difficult and inefficient to access those over just because of that. I mean they are all over the United States. There are often times in secondary and tertiary rate market and they tend to think independently. And so again they are out, there it's just a lot of work to find them, identify them and sometimes the process from identification and initial discussion to something happening usually be three years. I mean, it doesn't' happen quickly. So in terms of that, we...inventory it exists. The amount of inventory that out there in that category, it's actually likely to have a transaction in the next 12 months it's probably relatively small. And it is just a matter of matching up, finding them and the ones that are likely to do something relatively soon, that's difficult to do. And at the same time we are trying to cultivate ones you don't know when they will hit. So if you want to take look at the recent issue of Assisted Living Executive that ranked top 50 Assisted Living operators. And I think number 50 had maybe, four...five buildings. So that gives you an idea. And the size drops off considerably once you get out the top ten.

Philip Martin - Cantor Fitzgerald

Okay. And I have one last question, I mean when you look at the transactions that you have completed over last year or two. And a lot of those transactions were the smaller deals, smaller deal transactions et cetera. What percentage of those were you competing with other REITs?

Douglas M. Pasquale - President and Chief Executive Officer

If I were guessing, I would say a great majority of those. I don't think anybody in this market place, I won't see anybody, but very few people in this marketplace, especially when it was hot and heavy like it was over the past two years. We just go to one person they tend to shop around a little bit to get a ...

Philip Martin - Cantor Fitzgerald

Did you view that REIT competition as serious or...

Donald D. Bradley - Senior Vice President and Chief Investment Officer

It was all different kind of money, then by the way. But it really came down to as we lot of times were selling focus on the idea that now is the good time to monetize your real estate. But you have to... if you get an opportunity to have two bites of the apple. And you can stay in and also continue the operations and benefit from your operations. That was the theme we played in many different settings and it worked quite well. And it was very receptive and I liked to believe... we do believe that our operating backgrounds help contribute to people feeling a little bit more comfortable with us doing those transactions then perhaps others.

Philip Martin - Cantor Fitzgerald

Okay.

Douglas M. Pasquale - President and Chief Executive Officer

I think Don stated it really well Phil, I mean we... what we did was, try to identify those that were interested in hearing a different and better alternative. And then explained to them how it can work and why it was better for them. And then we were able to isolate them then it became a negotiated transaction. And we have done that repeatedly and hopefully we can continue to do that.

Philip Martin - Cantor Fitzgerald

Okay perfect. Thank you very much.

Douglas M. Pasquale - President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Omotayo Okusanya with UBS.

Omotayo Okusanya - UBS

Good morning everyone. Congratulations on another good quarter.

Douglas M. Pasquale - President and Chief Executive Officer

Thank you very much.

Omotayo Okusanya - UBS

Couple of follow up questions. First of all, with the joint venture platform, could you talk a little about what's going on, on that front at this point?

Douglas M. Pasquale - President and Chief Executive Officer

We... as you know, Omotayo, we have invested about $532 million into the joint venture. And the joint venture's operating well. And obviously as we find suitable acquisition, we will continue because the additional funds have been approved. And so now we've up to $975 million, so another 400... roughly $40 million available to us under the JV. So when we find something suitable to go into the joint venture, we would acquiring another JV.

Omotayo Okusanya - UBS

Great, then secondly I mean, just a bunch of operators over this reporting cycle had lower occupancies. They have kind of given different reasons for it whether it's more to... higher than expected debts or something of that nature. But I mean when you kind of look across your entire portfolio, kind of thematically what are you seeing. Are you expecting that these expenses could bounce back in the second quarter or is there is some type of secular issue at hand that will result in occupancies pretty well decline in the rest of the year or staying lower versus last year?

Douglas M. Pasquale - President and Chief Executive Officer

We basically what we staying from some of our operators is the same thing that the major public operators have indicated, lot of the operators are experiencing higher debt and higher activity, people needing higher levels of care moving out and going into skilled nursing or other cares through it. So at that's what risk we are hearing. We now we will see what happens in the second quarter if that hopefully we'll see a rebound in their occupancy.

Donald D. Bradley - Senior Vice President and Chief Investment Officer

Let me add to it and I think I believe it just may be his memory tends to be better than mine. But when we were operating... my experience is when you have new events that result in a drop in occupancy and it is hard to pinpoint exactly what's causing it particularly when it's if you are looking at many markets or when we have a little bit of drop off, it's difficult for a quick recovery to occur in occupancy particularly on a broader base scale. And the reason for that is... let's just say you have a 100 unit assisted living facility and in the average tenancy is about two years and separate abilities stays about two years, so that mean you get 50 people moving out every year and so that's a lot of work to generate 50 new residents just to replace what you have had and obviously the increased occupancy you got to accelerate the pace and that frequently doesn't happen in one swoops. So usually when you have a little drop off in the drop offs still becomes more quickly and dramatically although that's... that may just be your tenants are less and it takes a little while to ramp back up. So I personally wouldn't be surprised if it takes a little bit of time to see occupancies move up in a meaningful and consistent way.

Omotayo Okusanya - UBS

Okay, the last question from a Medicaid prospective, you kind of had some negative news come out of California and Florida with regards to attempt to reduce Medicaid payments, given the budget issues that they have, what are you hearing from other states at this point as they all preparing to put together their next fiscal year budget?

Brent Chappell - Vice President Portfolio Management

Yes, Dave this is Brent Chappell. In terms of some of our states, more prominently exposed to Medicaid taxes there's no budget cut expected at this point, Wisconsin, no budget cuts; Massachusetts, no budget cuts, and Washington, no budget cuts. So in terms of where we are those states in which we have larger exposure to Medicaid, that's what's transpiring there.

Omotayo Okusanya - UBS

So, it seem like it shouldn't be, it shouldn't have a big impact on your tenancy given your geographic spread.

Brent Chappell - Vice President Portfolio Management

That's correct.

Omotayo Okusanya - UBS

Okay, Thank you

Douglas M. Pasquale - President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Steve Swett with KBW.

Steve Swett - Keefe, Bruyette & Woods

Thanks, a couple of questions I think you addressed them, but I am not sure I got the answer or didn't hear clearly. The net proceeds from the Emeritus transaction?

Douglas M. Pasquale - President and Chief Executive Officer

Yes.

Steve Swett - Keefe, Bruyette & Woods

What, I am sorry what were they?

Douglas M. Pasquale - President and Chief Executive Officer

The net proceeds are $220 million.

Steve Swett - Keefe, Bruyette & Woods

All right and that's net of the debt repaid and the purchase money mortgage?

Douglas M. Pasquale - President and Chief Executive Officer

That is correct.

Steve Swett - Keefe, Bruyette & Woods

With reference to the short term purchase note, how long do you expect that to be outstanding and what is the rate on that out there?

Douglas M. Pasquale - President and Chief Executive Officer

The rate is 7 in the quarter and it's a 4 year note that can be pre-paid.

Steve Swett - Keefe, Bruyette & Woods

Okay and then the cash balance, Doug, I think actually you have said it twice, but I think I missed it both times?

Douglas M. Pasquale - President and Chief Executive Officer

That's alright, and hope I can say the same thing three times, $120 million.

Steve Swett - Keefe, Bruyette & Woods

$120 million?

Douglas M. Pasquale - President and Chief Executive Officer

Yes.

Steve Swett - Keefe, Bruyette & Woods

And is that essentially going to be used to close the PMB purchases as they come through or is there any other use.

Douglas M. Pasquale - President and Chief Executive Officer

We are hoping that there will be... we have some stuff in the pipeline that's working and it could be used for those acquisitions or for the PMB acquisition as we need to close that so, but we are also working on other investments.

Steve Swett - Keefe, Bruyette & Woods

Okay, I mean, is that the next tranche of closings is June, so it would safe to assume that those cash balances will likely be in place through June?

Donald D. Bradley - Senior Vice President and Chief Investment Officer

We hope not.

Steve Swett - Keefe, Bruyette & Woods

Okay.

Douglas M. Pasquale - President and Chief Executive Officer

Don and his team are working very hard to bring some things that they have been working on for a period of time to closure so, on one hand its very good to have the kind of liquidity we have on the other hand we'd rather deploy it in things that are more profitable. So hopefully we will be reporting smaller cash balances at the end of the second quarter.

Steve Swett - Keefe, Bruyette & Woods

Okay, and just last question for me on the transaction market do you get the sense that the sellers are motivated or there is something where there they may be testing the market and if they don't see the way to the pricing where that like transactions won't trade or do you think they'll just trade in and it's taking some time find the price?

Douglas M. Pasquale - President and Chief Executive Officer

Firstly of all I think it's a little of all those things and again I'll let Don comment because he is closer to the action than I am but I think what's happening is buyers to different degrees are starting to become more entrenched in their position where they... they are making a determination as to what the intrinsic value of the assets are and saying this is our price and whereas there was a very strong auction environment over last few years and particularly last couple of years. It doesn't exist as much people are saying at this price I not unhappy to wait for another investment opportunity and sometimes the buyers, particularly the ones or the sellers now that bought recently or they bought at a high price or adjusting their return expectations in some cases are getting close to being in a position where they make nothing or they may even have to recognize a small loss and that of course is a bitter pill to swallow and it's very hard psychologically to adjust to that. And in some cases buyers may step up and meet the seller's expectations and in some cases they won't. We hope that other buyers will be as disappointed as we are because I think patients will pay off and ultimately buyers will prevail if you take a steady course. But who knows if that's going to happen. Don, anything to add.

Donald D. Bradley - Senior Vice President and Chief Investment Officer

No.

Steve Swett - Keefe, Bruyette & Woods

Okay. Thanks.

Douglas M. Pasquale - President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Jim Sullivan with Green Street Advisors.

Unidentified Analyst

Good morning. Hi this is Rosemary Pute [ph] here with Jim Sullivan.

Unidentified Analyst

How are you today?

Donald D. Bradley - Senior Vice President and Chief Investment Officer

We are quite sure it wasn't Jim's voice.

Unidentified Analyst

For the $22 million in assisted living that you purchased got a 9.3% yield. How do these properties compare to others in your portfolio, are they representative and were you to market this property more widely what do you think it will sell for in terms of yeild?

Douglas M. Pasquale - President and Chief Executive Officer

This property was up in Wisconsin so it's very consistent with our Wisconsin portfolio and we wouldn't remarket it, so not quite sure, I don't really want to speculate it.

Donald D. Bradley - Senior Vice President and Chief Investment Officer

But the obviously the intent is we bought it at a good price or at the worse case market price. So if you were forced to go through that academic exercise it should sell for at or higher than what we bought it at.

Unidentified Analyst

Okay, I was just to trying to understand why the yield was so high given where cap rates now for assisted living. Okay, second question, are you seeing any differences in occupancy performance by market.

Donald D. Bradley - Senior Vice President and Chief Investment Officer

I am sorry would you repeat that.

Unidentified Analyst

Are you seeing any difference in occupancy performance by market.

Brent Chappell - Vice President Portfolio Management

RoseMarie, this is Brent. Not on meaningful basis, I mean it seems to be pretty consistent across markets. You will see some slight variation from market to market, but generally speaking no.

Unidentified Analyst

Okay and then one comment I very much appreciate that you report occupancy as of February while you peers are reporting as of last quarter. So thank you for that.

Brent Chappell - Vice President Portfolio Management

You are very welcome.

Douglas M. Pasquale - President and Chief Executive Officer

You just said we are reporting.

Brent Chappell - Vice President Portfolio Management

This is Brent, yes that is.

Unidentified Analyst

Thank you.

Douglas M. Pasquale - President and Chief Executive Officer

You are welcome.

Operator

[Operator Instructions]. Your next question comes from the line of Rich Anderson with BMO Capital Markets.

Rich Anderson - BMO Capital Market

Thanks,sorry for the follow up, before I get to it I want to let you know that I downloaded my PMB DVD to my iPod and it's incredibly motivating. I will go for my room.

Douglas M. Pasquale - President and Chief Executive Officer

Keep it as your home page, you will never forget.

Rich Anderson - BMO Capital Market

I wanted to ask about the guidance. Do you have any like color in terms of like Emeritus was this amount of sense, dilutive in terms of the delaying, redeploying and the shares, do you have the sort of math that gets you one side up.

Douglas M. Pasquale - President and Chief Executive Officer

We can get through it, I don't have right now.

Rich Anderson - BMO Capital Market

It was like $0.03 and $0.02 it wasn't like $0.10 and $0.08.

Douglas M. Pasquale - President and Chief Executive Officer

No, no not at all.

Rich Anderson - BMO Capital Market

Little tiny numbers.

Douglas M. Pasquale - President and Chief Executive Officer

It's more like 3 and 2 or something like that.

Rich Anderson - BMO Capital Market

Okay, thank you

Douglas M. Pasquale - President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Kristin Brown with Deutsche Bank.

Kristin Brown - Deutsche Bank

Hi, good morning, I just had a couple of quick housekeeping questions, I just looking at operating expenses is that a percent of revenue of the operating or is that for the NOVs and think a little bit on low side, was there anything unusual on the quarter?

Douglas M. Pasquale - President and Chief Executive Officer

The operating?

Kristin Brown - Deutsche Bank

The operating portfolio.

Douglas M. Pasquale - President and Chief Executive Officer

Yes, when you see it's just up on the lower side compared to what?

Kristin Brown - Deutsche Bank

Operating expenses versus sort of your... minimums like 45% of revenue for it's usually over 50%, so I was just wondering if there was anything unusual?

Douglas M. Pasquale - President and Chief Executive Officer

It is 56% or 55% this quarter

Kristin Brown - Deutsche Bank

Okay.

Douglas M. Pasquale - President and Chief Executive Officer

And had actually improved, I believe over prior quarters, we have a the portfolios of the [indiscernible] one joint venture has improved quarter-over-quarter and over prior year and so overall our MOV is generating about 55%, 56% margin.

Kristin Brown - Deutsche Bank

Okay and then on just on your guidance, what's the share count assumptions that's factored in your guidance?

Douglas M. Pasquale - President and Chief Executive Officer

Let me... whatever our shares are currently because we do not include in the future capital transactions.

Kristin Brown - Deutsche Bank

You mean from the controlled equity plan?

Douglas M. Pasquale - President and Chief Executive Officer

I am sorry?

Kristin Brown - Deutsche Bank

From the controlled equity plan and it seems there is no future issuance?

Douglas M. Pasquale - President and Chief Executive Officer

We don't do any future capital transactions.

Kristin Brown - Deutsche Bank

Okay thank you.

Douglas M. Pasquale - President and Chief Executive Officer

Thank you.

Operator

At this time there are no further question are there any closing remarks?

Douglas M. Pasquale - President and Chief Executive Officer

That's it, thank you very much have a great day.

Operator

That concludes today Nationwide Health Properties first quarter earnings conference call. You may now disconnect.

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