LTC Properties, Inc. (LTC) Q2 2012 Earnings Report, Transcript and Summary

Good afternoon and welcome to the LTC Properties Second Quarter 2012 Analyst and Investor Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity for you to ask questions. [Operator Instructions] I’d like to remind everyone that today’s comments including the question-and-answer session will include forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties Inc.’s filings with the Securities and Exchange Commission including the company’s 10-K dated December 31, 2011. Please note that today’s event is being recorded. I would now like to turn the conference call over to Ms. Wendy Simpson. Please go ahead.

Thank you. And thank you for joining us today. We’re very pleased to be able to report that since the end of our second quarter, we had a series of positive events that we have announced to our shareholders and other interested parties. We announced the issuance of $85.8 million of 5.03 long term debt. We announced the purchase of $60.5 million as skilled nursing properties and we’ve increased our monthly dividend beginning with this year’s August dividend by 6.9% over the prior month and it represents a 10.7% increase over the dividend paid in August 2011. And we are very happy that we have been able to report results for the second quarter in line with expectations and in line with our guidance. With me today are Pam Kessler, our EVP, CFO, Clint Malin, our EVP and CIO, and Andy Stokes, our Senior Vice President Marketing and Strategic Planning. Pam will comment on the quarter just ended and on the debt deal, Clint will then comment on acquisitions that we’ve completed and acquisitions that are in the pipeline as we see them today and Andy will comment on our continuing efforts in the marketing areas. I’ll have additional comments after these presentations, and then we’ll open it up for questions. Pam?

Thank you, Wendy. I’ll be discussing quarter-over-quarter results and I’ll refer you to the 10-Q that was filed earlier this morning for commentary on year-over-year results. For the income statement the second quarter of 2012 compared to the first quarter of 2012, revenues increased approximately $450,000 due to the following. Rental income increased $300,000 due primarily to acquisitions, mortgage interest income decreased $100,000 due to one loan payoff and the normal amortization of mortgage loans. Interest and other income increased approximately $250,000 due to the receipt of approximately $350,000 related to the Sunwest bankruptcy settlement, which is partially offset by a decrease in interest income resulting from the skilled healthcare group bond redemption. Interest expense is essentially flat quarter-over-quarter, acquisition costs increased $100,000, operating and other expenses were essentially flat quarter-over-quarter, expense from discontinued operations, which relates to an independent living property in Texas, GAAP requires that we reclassify it as income and expense to held for sale line item discontinued operations. Last year, I mean last quarter, we discussed that we had ordered an appraisal for this property. The appraised value is higher than the current net book of $5 million and the property remain held for sale. Net income available to common stockholders increased $158,000 due to acquisitions, normalized fully diluted FFO per share was $0.56 this quarter compared to normalized fully diluted FFO per share $0.50 – $0.56 last quarter. Normalized fully diluted FAD per share was $0.56 this quarter and $0.56 last quarter. Turning to the balance sheet; during the quarter, we purchased a vacant parcel of land in Colorado for approximately $1.9 million and entered into a lease and development commitment and the amount not to exceed $7.9 million to construct a 60-unit free-standing memory care property. This is disclosed as a subsequent event during last quarter’s earnings call. Subsequent to June 30, we acquired a 90 FAD skill skilled nursing property in Texas for $6.5 million. We added the property to an existing master lease at an incremental GAAP yield of 10.7%. On July 31, we purchased two 144-bed skilled nursing property in Ohio for $54 million and in a sale lease back transaction. The initial term of the lease is 15 years with two five-year renewal options and a GAAP yield of 10.1%. We invested $453 million in capital improvements at a weighted average yield of approximately 9.1%. During the quarter, we received approximately $2.4 million related to the payoff of two mortgage loans and $671 million in scheduled principal payments on mortgage loans receivable. Subsequent to June 30, we received $493,000 related to a mortgage loan payoff. During the quarter, we funded $985,000 under other notes receivable. During the quarter, we received $6.5 million related to the redemption of the skilled healthcare group bond; this was disclosed as a subsequent event in last quarter’s earnings call. During the quarter, we amended our unsecured credit agreement increasing the commitment to $240 million and the ability to increase commitment to up to $350 million. The amendment also decreased drawn pricing by 25 basis points to 125 basis points over LIBOR and decreased unused commitment fee by 10 basis points to 25 basis points based on current leverage levels. Additionally, the maturity of the facility was extended for one year to May, 2016 and we received a one year extension option. On July 19, we sold $85.8 million of senior unsecured notes in a private placement transaction. The notes bear interest at 5.03%, mature in 2024 and have annual scheduled principal payments of approximately $17.2 million in years eight through 12. The proceeds of this transaction were used to pay down our unsecured line of credits and for acquisitions. After the acquisition of the two skilled nursing properties in Ohio, we currently have $35.5 million drawn and $204.5 available under our line of credit. Additionally, we have $100 million available under our agreement – our shelf agreement with Prudential. We also have $65.5 million available on our aftermarket offering program and $168 million on our shelf registration statement. Subsequent to June 30, our Limited Partner redeemed a total of 3,294 shares in our Limited partnership. We elected to satisfy this redemption through the issuance of 3,294 shares of common stock. During the quarter, we received 595,000 related to stock option exercises. Also during the quarter, we granted 8,000 shares of restricted stock that vest ratably over three years. During the second quarter, we paid $14 million in preferred and common stock dividends. And turning to operator statistics, I’ll – in discussing operator statistics, I’ll give the general caveat that these numbers come from our operators, they’re unaudited and have not been independently verified by us. Additionally, the occupancy and lease coverage information is for the trailing 12 months first quarter of 2012 compared to the trailing 12 months fourth quarter of 2011. Occupancy in our same-property ALF portfolio decreased to 78%. Excluding properties leased to Assisted Living Concepts and extended care, occupancy in our ALF portfolio was 88.2%. EBITDAR lease coverage after a 5% fee was 1.4 times. Before management fee, or EBITDARM coverage was 1.6 times. Occupancy in our same-property SNF portfolio was 79%. EBITDAR lease coverage after a 5% fee was 1.9 times. Before management fee or EBITDARM, coverage for our SNF portfolio was 2.6 times. Occupancy in our same-property, portfolio of properties that provide independent living or combination of independent living, assisted living, and skilled nursing was 87%. EBITDAR lease coverage after a 5% fee was 1.4 times and before management fee, or EBITDARM coverage was 1.8 times. The quality mix for the three months ended March 31st, for our same-property portfolio, which includes skilled nursing, assisted living, independent living and properties with a combination thereof was 60% private pay, 14% Medicare and 26% Medicaid. Within our same-property SNF portfolio, the quality mix was 26% private pay, 25% Medicare and 49% Medicaid. Thank you, Wendy.

Thank you, Pam. Clint for you give your presentation.

Thank you, Wendy. Year-to-date, we have completed approximately $80 million of acquisitions with experienced regionally based operating companies for newer higher – high quality assets. Assets we acquired this year were constructed in 2002, 2009, 2010, and 2011. The property we acquired in Brownwood, Texas, which Pam mentioned in her comments, is the newest asset on portfolio which is just over one year old. We are excited to continue to expand our relationship with senior care centers based in Dallas by adding this property to an existing master lease increasing to five the number of facilities leased directly to senior care centers. Our recently announced $55 million acquisition with affiliates of Carespring Health Care Management, a regionally based company located in the Cincinnati Metropolitan area that owns operates facilities in Ohio and Northern Kentucky. Carespring currently owns and operates and/or operates 13 skilled nursing facilities and a combination [inaudible] facilities. 11 of which they constructed from – which they constructed from 1986 to 2010. Carespring owns most of its facilities, but is familiar with the sale leaseback structure given that they have an existing relationship with another REIT. The two properties we acquired are state of the art buildings and were constructed by affiliates of Carespring in, as I mentioned, 2009 and 2010. Among other attributes each property includes three therapy rooms, two dedicated for short-term stay rehab patients, four distinct dining areas with two dedicated for short-term rehab patients. 74 private rooms in Cincinnati facility and 34 private rooms in the Dayton facility. All semi-private rooms are designed with a unique permanent floor to ceiling wall providing significantly more privacy than typically found in a common – more common semi-private room setting. All rooms whether private or semi-private offer private bathrooms and private showers. The building in Cincinnati has a 30,000 square foot retail component located on the ground level focusing on leasing a space to healthcare and fitness related companies. We’re very excited to welcome such an experienced and innovative operating company to LTC’s portfolio. Last week we entered into lease amendments with Brookdale for a total of $14.6 million in commitments for expansions of and renovations to three facilities we leased to them in Colorado. One location currently consist over 50-unit assisted living facility and the 36-unit purpose build free standing memory care facility. Third facility, the 50-unit assisted living property located at a different site. Assisted living and memory care units will be added to the properties. The projects are anticipated to begin in the next 60 days with completion expected in late summer of 2013. During construction rent will be compounded into the investment amount from the funding of each advance at the greater of 580 basis points spread over the ten year treasury or 7.25% through quarter percent. On the earlier of completion of each project or the second anniversary of the lease amendment, rent will increase by the investment amount funded including compounded rent during construction based on the greater of the same rates just mentioned. We have approximately another $20 million of identified investment opportunities within our portfolio that we are working on the couple of LSCs [ph]. We strongly believe in reinvesting in our portfolio and continue to meet with our LSCs to identify new opportunities. Building permits have been issued and construction has commenced on both of our two ground-up development projects. A 120 bed skilled nursing replacement project in Amarillo, Texas and the 60 unit free standing private paid memory care facility in Littleton, Colorado are both on schedule and budget with completion expected in the fourth quarter of 2013. Since last quarter’s conference call, we have entered into two new letters of intent, each with the different operating company to construct combination assisted living and memory care facilities. The investment commitment in total for these two transactions will be approximately $16 million. We are in the process of conducting due diligence on these transactions and if successful closing of the land acquisitions and development commitments are expected to recover in the fourth quarter. Both of these potential development opportunities are with the companies that would be new to LTC’s portfolio. Our deal pipeline remained strong in the $150 million range, mainly consisting of memory care development opportunities and acquisition of existing operational facilities including both skilled nursing and assisted living facilities. A few of the projects in the pipeline are for development of new [inaudible] as either replacement facilities or for facilities that will be added as new supply into the marketplace. Wendy and I have been on the road frequently this year, meeting with numerous operating companies that focus on memory care and touring these facilities in various parts of the country as we continue to build out our development program for free standing private pay memory care facilities. As a result of these meetings, we are considering expanding our development program in certain situations subject to market demand to include combination assisted living, memory care facilities as is the case with the recently executed LOIs, I just mentioned. As Wendy indicated any transaction we close from this day forward in 2012 will close in the fourth quarter. Now, I’ll turn it back over to Wendy for her comments.

Thank you. Thank you, Clint. Before I finish my comments, we have Andy with us today who is off the road for I think two days and on the road, again tomorrow. And he will be giving you a presentation about our marketing efforts.

Thanks Wendy. LTC’s [inaudible] focus has shifted over the last few years. As you know, we have always concentrated on ways to identify potential customers and develop an understanding of them and ways to follow-up on what their needs might be. We’re participating meetings at the state and local level of trade associations, we follow-up with marketing meetings and site visits. Our kind of deal has been slower by the standards of the time. We have been able to charge a little bit higher rent because these deals have not been heavily shopped and the price of our kind of assets is tended to be more reasonable for the same reason. However, we believe that as senior care has grown and changed more attention from our potential customers is being paid to national and specialized organizations. LTC is shifting somewhat to follow this trend. A few new committees and groups have emerged in our target markets and at the regional level and we are actively participating. Memory care as a specialized type of community has attracted attention and investment and LTC participates in those specialized groups. All providers are increasingly political and LTC goes to these meetings, listens to customer needs and explains our products. Our kind of deal remains the smaller, but still multi-facility group of properties with tenants who want to grow and are committed to the business and our assets. It is my sense that deal potential or the LTC kind of deal is very strong for all the reasons I have talked about in the past, these could be summarized as the need for the middle market provider to recapitalize or restructure ownership or expand. These are continuing needs and I expect the high level of deals to continue. Thank you.

Thank you, Andy. 2012 so far has been the reality we have been expecting and disclosing. Going back over my comments from our last calls, I believe everything that we’ve previously mentioned on our calls has happened in line with our expectation. Right now, our pipeline is active and as Clint said, I’m not expecting that much will be closed in the third quarter, we’ll be more active in closing acquisitions or opportunities I believe in the fourth quarter this year. All of our senior staff is active and looking at deals. So we have significant action around potential acquisitions for the rest of this year. We’re currently – we’re carefully pursuing and targeting purchases of newer assets again as Clint was pointing out, the years that our recent acquisitions had been built. We may strategically sell a few older skilled nursing properties most likely to the current operator. I’m not suggesting that we have a material sale of assets in the pipeline. There are just small things that we might do that would make sense to the LTC portfolio and to the particular operator. We’re continuing to pursue the building of assisted memory care properties and as Clint also indicated we’re looking at a potential of doing memory care, assisted living on the same campus. We’ve looked at a few memory care properties that are combination assisted and memory care and memory care only that are operating in for sale, but the prices have been too high for our underwriting standards, which close right into our theory as we started looking at these effecting for LTC’s future by helping the operator build these properties. On our last call I gave guidance, between $2.23 and $2.25 for this year. Our internal projections factoring in the acquisitions we’ve already had, the new 5.03% debt, the loss of interest income from the retirement of skilled health care bonds and the increase in our dividend for the second time this year and for the reminder of the year, our projections result in an FFO of between $2.26 and $2.28. This also does not take into consideration the sale of any revenue producing properties or the – any further acquisitions for the year. If you annualize our currently monthly dividend and pro forma all of our 2012 activity to a full year, our dividend payout ratio will still be at an 80% FAD range as we calculate FAD. So, it’s still a comfortable range for our conservative position in our payout ratio. We are very happy to increase the dividend for the second time this year. Before I ask thank you for listening and ask for questions. We did see the assisted living 8-K case this morning, we have no further information on it. We’ve been working with assisted living on our maintenance request, they’ve very responsive, they’ve indicated that they’ve hired additional maintenance people. We know that they’re putting money in the operations of the properties. We are – I am needing, Quint and I happen to be going to Wisconsin, we’re going to meet with Dr. Rodemann on the 24, that date was selected by me because it fit into my schedule, he was very responsive and open to a meeting at any time, so a fact that it’s not tomorrow is not because he didn’t want meet, it was just my schedule and the other commitments that we have for LTC business. So he’s been very responsive and accessible to us. They’re not into Bolton on any of their leases. So I have no other further comment about Assisted Living Concepts, certainly I’ll answer any questions you have, but that’s my total information about the situation as it stands. So, I thank you right now for you time and listening to our presentation and we’ll take any questions.

We’ll now begin the question-and-answer session. [Operator Instructions] And our first question comes from Karin Ford from KeyBanc Capital Markets. Please go ahead with your question. Karin Ford – KeyBanc Capital Markets: Hi, good morning. My first question, Wendy, is just going back to the – your comments about looking at potentially some properties to sell. Can you just talk about how big the universe of properties that could be and sort of what your plan on timing could be for some potential asset sales in the future?

It’s a small, about somewhere between $10 million and $12 million. It’s one group of assets in one state. They’re much older assets, the strategy of the operator is different than it was that – but we just disagree with his strategy. So we’re negotiating with him to buy these assets. They’re covering, they’re cash flowing nicely, but they’re very old assets. Karin Ford – KeyBanc Capital Markets: Okay. Thanks. Second question is just on Assisted Living Concepts, has there are been any new licensing issues at any of your properties since we last spoke and what would be, what’s going to be on the agenda for your meeting with the company on the 24th?

Lunch – we’re, we are going to – no there isn’t anything relative to the licensing. Karin Ford – KeyBanc Capital Markets: Okay.

We’ve got them on a particular file and there are all current unless something happen today and we haven’t been notified. I would just like to understand from Dr. Rodemann a little bit about what he sees in terms of the future of the company, where he would like to take the company. I haven’t talked to him other than just to setup these meeting meetings and I’ve listened to his calls and he seem to still believe that the private pay was the predominant way of going, but those were early days for him. I’d also hope we could talk about the future of these assets in there, whatever they’re projecting for the company, maybe we just can start an early transition of these assets just that they’re now part of the strategy. We’ve had independently other operators call and ask if they could get a look at these properties. So, we’re not too concerned right at the moment, the majority of these assets not finding a nice place to be housed, but I – my goal is to open up a communication with one of our major lessees, which we didn’t have at the prior executive suite at that company and to see if maybe he does have already an idea of how they would be looking at these assets when 2013 rolls around. Karin Ford – KeyBanc Capital Markets: That’s helpful. My last question is just on your sniff coverage, I was looking at your supplement on page 10, it look like in that chart there that now with two quarters of RUGS 4 in the cash flow, you’re not at 2.01 times on an EBITDAR basis and the last time, you were – two quarters you were 2.16 and I was just wondering if that difference made you rethink your sort of 1.9 target or your expectation for where you’re going to be once the entire rate cut has been factored into the cash flow?

Sure. Karin, this is Pam. Hi. I thought that this table here, this historical table would be helpful to show how RUGS 4 as it was implemented, how the increases came each quarter because they didn’t come ratably. So as you see starting at the bottom of the table, when you increase going from pre-RUGS 4 to one quarter of RUGS 4, it increased 0.13 times the EBITDAR coverage and then, going from one quarter to two quarters it increased 0.14 times. Then going from two quarters to three quarters, it only increased 0.04; and then going to a full four quarters, it only increases 0.07 times. So as we burn-off the RUGS 4 increase, it follows that you would expect the first two quarters of burn off to be the highest decreases. So in fact, we had going from four quarters of RUGS 4 to – three quarters of RUGS 4 decreased 0.11 times and then going from three quarters to two quarters, it increased 0.15 times. So if you were taking historical trend and seeing how it rolled on and saying it would follow that it would roll off the same way, you would expect about if you were – if it with historic – if everything else is constant, you’d expect a decrease going from two quarters of RUGS 4 to one quarter of RUGS 4 to decrease 0.04 and then to go down to no RUGS 4 you’d expect to 0.07 decrease. And that would get you to 1.9 times coverage. If you just took those increases and converted them to decreases and rolled it off and that’s what I was trying to show that we would… Karin Ford – KeyBanc Capital Markets: Got it.

We’re guessing about 1.9, it might be a little lower than that, it could be a little higher, because other things come into play, occupancy rates and quality mix, but if you held it constant that’s what we would expect. Karin Ford – KeyBanc Capital Markets: Okay. So, no change to the 1.9. Thanks very much.

You’re welcome.

[Operator Instructions] Our next question comes from Dan Bernstein from Stifel Nicolaus. Please go ahead with your question. Dan Bernstein – Stifel Nicolaus: Hi, good morning, I guess good afternoon, Wendy, Pam. I don’t want to go dwell on Assisted Living Concepts too much.

Okay. Dan Bernstein – Stifel Nicolaus: I still have to ask a question.

Thank you, Dan. Dan Bernstein – Stifel Nicolaus: I’ll end with a positive question though [inaudible]. Does ALC have a buyout option of those assets and just they have a propensity to want to put assets back on their balance sheet. They just bought those assets out from Ventas. So, do they have a buyout option on those facilities that you lease to them?

No, they do not. Dan Bernstein – Stifel Nicolaus: They do not. And then what is the timing for them to assuming that they don’t renegotiate the lease early with you, is there a date that they have to notify you that they’re renewing or not renewing those leases?

December 31, 2013. Dan Bernstein – Stifel Nicolaus: Okay. I just wanted to make sure I – probably should have known that, but …

That’s all right. Dan Bernstein – Stifel Nicolaus: But I wanted to ask it anyhow. And then the other question is, do you see those assets just possibly a candidate for say like a TRS, they’re significantly below the occupancy of what you have now and I guess maybe a related question I had to that, if we went back three or four years ago, what would be the occupancy of those assets, what would be the least coverage of those assets? And if you don’t have them in front of you now maybe we can take that offline, but just trying to understand maybe what the upside of those assets would be with another operator?

Well, three or four years ago she was operating the company. So before she came in, the former COO [ph], became the CEO, they were covering reasonably and the occupancy was probably in the 80s. I think when they came out of bankruptcy they were in the 80s or 90s. That so – I’m not sure that we would look to put them all in another package to give to one operator. A TRS would probably be our last strategy, if we had to, we would do that. So I really do think just based on unsolicited interest in these assets because of the situation at assisted living concepts that we’ll be able to place them with operators who will be able to do more business in those properties. We also have quite a bit of land around quite a bit – quite a few of these properties. So we were very interested when Assisted living before Lawry had her strategy of working with them about building on to some of these properties. So, we would look forward to having that as possibly a strategic alternative too. But right now they’re paying their rent, they’re putting the money in. So that they’ll be in good shape, not that they’re not currently in good shape, but we want to be sure that things were happening a little faster. So, there we are. Dan Bernstein – Stifel Nicolaus: Okay. I’ll let you be on ALC and ask you something more pleasant.

Okay. Dan Bernstein – Stifel Nicolaus: Regarding the pipeline which seems to be a real positive for you. At least speaking on the development pipeline, what is – how would you describe the criteria for choosing operators to build with. I mean you have some new – it looks like from what you’ve talked about obviously the projects maybe for the second half of this year, there are some new possible – new tenants. Are those tenants experienced operators? Are they just short on capital? I mean how should we kind of think about the risk you’re taking of developing for new operators?

The operators that we are doing business with predominantly all have existing operations and they’re just expanding their business. They operator that we’re building the property for in Colorado has a property that’s probably going to open this fall in the Sacramento area of California. So, they don’t currently have a great operational company established, they’ve got everybody on board in terms of who they need to operate the company, but they don’t currently have operations. However, because of the site in Colorado we weren’t too concerned about not having another operator should not – should that not work. But in terms of every other development project we’re doing, they’re currently operating that type of facility or a campaignable type of facility whether it’s an assisted living that has a memory care unit and now they want to built a whole memory care facility or they have memory care facilities and they want to buy – build additional memory care facilities. The same with developing SNFs. I’m not sure that we would ever develop a SNF with somebody who had an operated the SNF before. So, all of the development opportunities we have at skilled nursing are with operators that have significant operations. Dan Bernstein – Stifel Nicolaus: Okay. That’s good. In terms of the – you are tending to buy a little bit more SNFs, you are starting to build the assisted living, but your mix now is by 54% SNF, 44% assisted living on maybe investment basis. Do you – how do you see that changing given your investment pipeline, should we think you have a little bit more SNF tilt going forward than assisted living or maybe that’s going to switch back at some point. Do you have any kind of set ideas of what we – how that range should work out the next few years or where you would wanted to be?

I still think we’re going to have more SNF opportunities than memory care purchase opportunities or assisted living purchase opportunities. There is a couple of deals that we’re currently looking at that are small one-half [ph] assisted living properties, but if we have a $10 million assisted living it’s not going to cut into this sort of imbalance right at the moment. I think that in order to get back to even a 50-50 it’s going to be in the future once we bring the memory care built properties online. I believe that we have a really good underwriting group, with good underwriting philosophy and criteria. So I’m still very happy to be buying the sniff assets that we are buying in this market. So I’m not trying to keep the balance sheet balanced in terms of the type of assets. We are actively looking for the private pay business, assisted living and memory care, but again, for whatever reason, no matter what happens or what would appear real estate values are going up again and we’re seeing significant competition in anything that is a private pay asset. Dan Bernstein – Stifel Nicolaus: Okay. I’ll jump off and just offer my congrats on all the – some of the positive developments out there…

Thank you, Dan. We appreciate it. Dan Bernstein – Stifel Nicolaus: LTC over the last couple of quarters.

Great.

Our next question comes from Rich Anderson from BMO Capital Markets. Rich Anderson – BMO Capital Markets: Thanks. Good morning.

Good morning. Rich Anderson – BMO Capital Markets: So, sorry if I could ask about the politic concepts. My question is, is this kind of a potentially a good thing in a sense that, and yeah, just to look at the silver lining, if this gives you the right to be a little bit more aggressive about making a change at those properties, if they are found to be doing similar things or I guess, accused to be doing similar things that they were doing at the [Inaudible] facility. And is there any evidence of like employee usage of units or anything like that at your property?

Not that we’re aware of. We’re not – we haven’t been advised in none of our inspectors or property inspectors has ever mentioned that, oh, by the way, somebody is living in one of the units and we do go in and look at every unit. So, that’s never been brought up in any of our surveys. I don’t agree with you, Rich and it’s a very good point in that. It might give us an opportunity to move a little faster on repositioning these assets because I would think that Dr. Rodemann has plenty of things to worry about with his owned asset, and maybe he would be very amenable to us taking 37 assets off of his hands relative to having to turn them around and that sort of thing. On the other hand, absent Assisted Living Concepts imploding totally, they are still paying their rent and we don’t have a reason to default them on their leases. But I’m – he seems like a very reasonable so far. And I think there is a real opportunity that we would be able to do something to maybe help him, which would also help us. Rich Anderson – BMO Capital Markets: Okay. Then I guess I’d just look at as well. It has a negative connotation to it and from your standpoint you may be looking for some angle to have a little bit of more leverage in the process and maybe this is – this could, if it materialize that way, it could to be just that royalties [inaudible]?

I think so. I take more to create a less FFO, but if it creates less uncertainty maybe that’s a little bit of a trade off. Rich Anderson – BMO Capital Markets: Okay. And then just curious what would be – would you be equally open to transitioning them or seeing new management change the way the properties are run and just kind of go ahead with kind of a new operating scheme, but the same operator. Would that – would those later be more attractive to you or would you rather see yourself just kind of significantly reduce your exposure to them regardless.

Yeah. I think the – but if assisted living – I’m not doing anything at this company, but I think if they brought in a really good respected name in the industry to run the company. And there was a real strategy relative to running this company, it’s always traumatic to have to move assets from one operator to another. Rich Anderson – BMO Capital Markets: Sure.

But I don’t see that happening as quickly as our lease comes up in 2013. So, absent that happening – as it is with Dr. Rodemann as a temporary CEO, it’s not the situation we would prefer so. Rich Anderson – BMO Capital Markets: Thanks.

I think, it would be better for us to – to put the packages somewhere else. Rich Anderson – BMO Capital Markets: Okay. That’s all right. I appreciate that. And what do you say is the broader attractiveness of the portfolio to outside operators?

I think there are some significant opportunities to convert some of these into memory care units. And also they’re in – they’re in smaller but fairly not wealthy but well to do communities that probably could do as much better business if it had a new owner and a new strategy. And their – they’re like in-fills for a couple of operators. Rich Anderson – BMO Capital Markets: Got you. Thanks, thank you very much. That’s all I have.

You’re welcome.

[Operator Instructions] And we do have a follow up question from Karin Ford from KeyBanc Capital Markets. Please go ahead with your question. Austin Wershman – Keybanc Capital Markets: Hey guys, its Austin Wershman here with Karin. I believe on the memory care side, you guys had previously said, you were targeting development yields around 9%. What are you targeting for the SNF developments?

Right now – this is Clint, Austin. Right now on the SNF developments, we are still evaluating that and going through the – or the process of evaluating. So until we get a little further along it would be hard to say but, we were doing lease rates in the 8.5% to 9% on existing operational properties. So we take that into consideration on how we price out the construction project to accommodate for the construction of lease up risk. And that’s also a function of whether it’s a true replacement project or you’re moving residents effectively from one building to the other and mitigating startup losses or if it’s a new facility that’s being build introducing incremental supply into the market. Austin Wershman – Keybanc Capital Markets: That’s helpful. And then just lastly on, I think you’d mentioned there was a loan prepayment or repayment post quarter end, are you guys expecting any additional loan repayments for the rest of the year?

We’re not expecting any, they happened but we’re – we haven’t been notified specifically that any are repaying. Austin Wershman – Keybanc Capital Markets: Okay. Thank you.

And we have one additional question from James Milam from Sandler O’Neill. James Milam – Sandler O’Neill: Hey, good morning guys. I had some questions that weren’t ALC related, so I wasn’t sure if [Inaudible] asked them on this call or not, I guess they have. I just wanted to ask it sounds like the pipeline has more assisted living than it has had in the past and then Wendy you kind of make some comments or maybe, I guess my question is the strategy is shifting to pursue those more aggressively or is that that you’re actually seeing some smaller assets and maybe aren’t so competitively bid that the pricing may make sense for you guys to pursue them a little further?

The latter. We’re not pursuing them any harder it’s just that the opportunities have come up. Andy has been pursuing everything and everybody in one state and has – one particular state, not just one state, but one particular state and has been able to develop a couple of opportunities to look at a property. Another property we looked at a couple of years ago and another company was selected to go forward and for whatever reason that the deal didn’t get completed. So, we’ve got another opportunity to go back and look at that and that’s an assisted living. So, there are various reasons that there are a few individual assisted living properties. We did go and look at a very nice group of properties in another state, but we were not the selected company to go forward. So, there has been a lot of activity, but the prices are pretty high and are underwriting. We’re not going to take our coverage down to 1.1 in order to add assisted living to our portfolio. James Milam – Sandler O’Neill: Okay. That makes sense. My second question is – is there any reason why, I guess thinking about you’re pursuing deals and it’s sound like they are closing to pushing out into the fourth quarter. Are there any deals kind of going in other way that are materializing and being pushed ahead out of first part of next year into this fourth quarter to try to get add of any potential tax loss changes or anything like that?

Not that we’ve seen. No.

We’re not going see. James Milam – Sandler O’Neill: Andy, any conversation with anybody about that type of behavior [Inaudible]?

Not that we’ve seen. No.

We’re not going see. James Milam – Sandler O’Neill: Andy, any conversation with anybody about that type of behavior [Inaudible]?

Only on a preliminary basis. We talked to people and we talked to a lot of folks and I – and there might be three or four circumstances where we’ve had preliminary discussions when they were talking about the tax law changes that comes up. People also ask us how fast can you close and we always say faster than you can. And but I don’t sense quite yet a sort of the panic acceleration of deals, although I wouldn’t be surprised if we saw some of that in September and October, now whether or not one can meet that is another story. James Milam – Sandler O’Neill: Okay. Perfect. That helps. And then, I guess this is my last one, but with all of the changes that are kind of occurring I guess, particularly on the skilled nursing space, there is a lot of conversation about how important scale is in terms of being efficient and meeting the demands of the reimbursement environment. What do you guys think about and I know you have some smaller operators and some kind of midsized regional operators, what do you guys see the efficiency is going in terms of – I guess how big you have to be to really build a successful business in that environment? Is it in two assets – the assets skilled nursing operators survive, they need to be grow into 20 just curious if I could get some thoughts on that.

Yeah. I’m trying to go through our list of operators and see – the ones that have won, we’re transitioning probably to operators who have multiple, but maybe, Clint has the better answer to that.

Yeah. I mean, you’re probably looking – in order to get a level of sophistication and you’re probably to bring on the talent and investment technology, I mean, you’re probably looking at companies that has somewhere in the 10 facilities to 20 facilities would be my guess. Andy, your response on.

I think we can probably do it for smaller than that and it depends on the market, but certainly two buildings is probably two small and 20 is certainly enough. James Milam – Sandler O’Neill: Okay. Thank you, guys. I appreciate it.

Thanks, James.

[Operator Instructions]. And at this time I am showing no additional questions. I would like to…

Excellent. Thank you, Jamie. Thank you all for joining us today and we look forward to talking to you at the end of the third quarter.