LTC Properties, Inc. (LTC) Q4 2014 Earnings Report, Transcript and Summary

Good day. And welcome to the LTC Properties Incorporated 4Q 2014 Analyst and Investor Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Before management begins its presentation, please note that today’s comments including the question-and-answer session may include forward-looking statements, subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in the LTC Properties filings with the Securities and Exchange Commission from time-to-time including the company’s most recent 10-K dated December 31, 2014. Please also note, this event is being recorded. I would now like to turn the conference over to Ms. Wendy Simpson, Chairman, CEO and President. Please go ahead.

Thank you, Denise. Good morning, everyone, and thank you for joining us today. This morning, Pam Kessler, our CFO, will start our presentation with comments on our financial results for 2014 fourth quarter and the year-end. After Pam’s comments, Clint Malin, our Chief Investment Officer, will talk about transactions that closed in and subsequent to the fourth quarter as well as our current outlook for 2015 investments. At this time, I’ll turn it over to Pam. Pam?

Thank you, Wendy. Normalized FFO increased 4% for the quarter in the fourth quarter of 2014 to $22.8 million, or $0.64 per share on a fully diluted basis, from $21.9 million, or $0.62 per fully diluted share a year-ago. Revenues for the quarter increased nearly 8% or $2.2 million year-over-year, primarily reflecting investments made in the second half of 2013 along with completed development and capital improvement projects in 2014. Fourth quarter interest expense was $3.7 million, an increase of $831,000 over the comparable 2013 quarter, due primarily to the sale of senior unsecured notes to fund acquisitions and developments. The reduction in the provision for doubtful accounts this year reflects loan payoffs in 2014, resulting in a recovery of prior bad debt provision and the on-time non-cash provision for loan loss reserve related to a mortgage loan origination and straight-line rent write-off last year. General and administrative expenses were $3.3 million, or $628,000 higher this quarter, compared with a year-ago, due to increased staffing levels, higher transaction and legal costs and the timing of certain other expenditures. Currently, we are anticipating a G&A run rate of approximately $3.2 million per quarter for 2015. As previously disclosed, during the fourth quarter of 2014 we recognized a $3.8 million gain related to the sale of 16 assisted living properties with 615 units located in Arizona, Idaho, Oregon, and Washington, which were sold through Enlivant for $26.5 million. Turning to the balance sheet, during the quarter we invested a $11.8 million in properties under development and capital improvement projects at a weighted average yield of 8.9%. Capitalized interest for the quarter was $290,000. As previously announced in November, we purchased a parcel of land in Illinois for $1.4 million which we added to a master lease with an affiliate of Anthem. Simultaneous with the purchase, we entered into a commitment to develop a 66 unit memory care property for $10.8 million excluding the land price. Additionally, we purchased 48 unit private pay memory care community in Castle Rock, Colorado for $9.8 million. We added this property to an existing 12-year master lease within affiliate of Senior Lifestyle Corporation. Clint will discuss our growing relationship with Senior Lifestyle and our 2015 investment activity momentarily. In conjunction with the acquisition we agreed to pay a $4 million earn-out based on certain performance targets. Accordingly, we reported a $3.2 million earn-out liability, which represents the estimated net present value of the future payment we expect to make. During the 2014 fourth quarter, we funded $1.8 million under a construction loan and received $7.5 million in mortgage loan receivable payoffs in principal amortization. As previously disclosed, we amended our unsecured credit agreement increasing commitments to $400 million from $240 million with the ability to increase total commitments to $600 million. The amendment also lowered the pricing grid by 25 basis points based on certain leverage ratios. Current pricing under the agreement is 125 basis points over LIBOR with an unused commitment fee of 30 basis points. Additionally, we added Credit Agricole and Union Bank to our bank group and extended the maturity of the credit agreement to October 2018 with a one year extension at our discretion. Currently, we have borrowings of $18 million outstanding and $382 million available under our line of credit. Additionally, we prepaid $1.4 million of bonds secured by five assisted-living properties in Washington. Thus we no longer have any secured debt outstanding on our balance sheet. In the fourth quarter of 2014, we’ve received $24.6 million in net proceeds from the sale of 600,000 shares of common stock in a registered direct placement. We granted 7,500 shares of restricted stock, and received approximately 800,000 in proceeds from the exercise of 33,334 stock options. At the end of the quarter LTC’s investment grade credit metrics remain one of the best in the healthcare REIT universe, with debt to trailing 12 months normalized EBITDA of 2.6 times and normalized trailing 12 months fixed charge coverage ratio of 6 times and a debt to enterprise value of 15.4%. I’ll now turn the call over to Clint.

Thank you, Pam. Good morning everyone and thank you joining us today. We are very pleased to have expanded our relationship with Senior Lifestyle, our fifth largest operator as measured by revenue, with the addition of the recently acquired memory care community in Castle Rock that Pam mentioned. The property which was acquired is an off market transaction from a single property, owner-operator, complements both LTC and Senior Lifestyle’s existing Colorado footprints. Property which was built in 2012, demonstrates successful execution of LTC strategy to invest in newer and more modern assets. We’ve enjoyed a tremendous start to 2015, by closing on transactions and entering into new development commitments, relating to four properties and two parcels of land. These transactions totaled $74 million. First, we are very excited to establish a new relationship with Thrive Senior Living based in Atlanta. Thrive is a growth-oriented senior living provider with a proven development track record, operating primarily in the Southeastern and South Central U.S. Details of our $29 million dollar commitment to develop two seniors housing communities with Thrive are included in our earnings release. The properties are subject to a master lease that grants LTC a right to provide similar financing for certain future development projects. Next, we expanded our relationship with Prestige Healthcare, our second largest operator as measured by revenue by executing on two transactions. First, we originated a thirty year $11 million mortgage loan, secured by 157 bed skilled nursing center in Michigan. Second, we have committed $20 million in additional loan proceeds under our existing 15 property mortgage loan with an affiliate of Prestige. For the redevelopment of two post-acute care centers located in Richmond and Rochester Hills, Michigan. As consideration for this commitment Prestige forfeited its option to prepay up to 50%, of the then outstanding loan balance. As a result of the forfeiture of this prepayment option, we expect to record $1.3 million of effective interest income related to this loan during in 2015. Additional details regarding these two transitions can be found on our earnings release. Finally, we expanded our relationship with Fundamental exercising LTC’s right under $10.6 million mortgage and construction loan to purchase a 106 bed post-acute care centre located near Wisconsin for a total investment of $14 million. This property along with four others in our portfolio currently leased to Fundamental has been consolidated into a single master lease, further strengthening the security of our investment with Fundamental. This recent investment activity demonstrates LTC’s ability to execute follow-on transactions with our existing partners, while continually focusing and cultivating new relationships. Turning to our pipeline, we currently have approximately $100 million of active deals with fully executed letters of intent comprising six development projects and one preferred equity investment. We continue to see development financing playing a key role in the facilitation of our near-term investment in private pay seniors housing properties, especially given the unprecedented low cap rate environment for acquisitions. In addition to the low cap rate environment, we are seeing more transactions. Sellers are requiring buyers to utilize the RIDEA structure on private pay assets that are fully valued. Given the valuations seen on acquisitions in private pay assets, we continue to believe that the risk adjusted returns afford development projects in today’s market provided better relative long-term return proposition for our shareholders. Three of the development projects in our pipeline have been sourced through our exclusive development pipeline agreement with Anthem Memory Care, to construct additional private pay memory care communities. Two of the projects will be located in the greater Chicago area, enhances Anthem’s strategic presence and growth in this key metropolitan market. The third project will be Anthem first entrants into Southern California. These projects as mentioned will bring to eight the total number of new development projects with Anthem, since 2012. And further diversifying our operator base LTC has sourced another new operator relationship with the company focus on developing an operating private pay memory care communities primarily in the Southeast and the certain parts of the Midwest. The letter of intent provides for LTC to enter into a purchase agreement as a forward commitment for takeout financing at a predetermined price on issuance of a certificate of occupancy state healthcare licensure. The two projects subject to the letter of intent are currently under construction and will be master leased to the operating company upon LTCs acquisition of each property. The sixth development project in our pipeline, is an existing - is with an existing customer to finance construction of a new 90-bed post-acute care center in Virginia. This transaction will be structured as a construction loan, granting LTC a right to purchase a property at a predetermined price or a period of time following the issuance of a certificate occupancy and state healthcare licensure. If we elect exercise our purchase option, the property will be added to an existing master lease. Lastly, we have entered into a letter of intent with existing partners to fund up to $26 million and a preferred equity investment to facilitate their acquisition of the seniors housing campus and a combination of assisted living memory care community, both located in Arizona, which they manage on behalf of the current owner. As part of this transaction LTC will be given a purchase option to acquire this property in the future. Although these letters of intent have been fully executed, I must caution that these transactions remain subject to due diligence and therefore may not be converted into closed investments. Should we be successful in executing on these transactions, however, our combined investments and development commitments to-date for 2015 will be approaching the $175 million. Turning to the portfolio, lease coverage for the trailing 12 month period ended in the third quarter 2014 remains consistent and strong. I will caveat these following coverage metrics are derived from unaudited financial statements provided to us by our operators and are reported one quarter in arrears. EBITDARM coverage for our skilled nursing portfolio is 2.23 times, assisted living 1.62 times and range of care 1.73 times. EBITDAR coverage, after an allocated management fee of 5% of revenues, is 1.65 times for skilled nursing, 1.39 times for assisted living, and 1.24 times for range of care. Compared with the previous quarter occupancy has remained consistent across all property types, occupancy for the trailing 12 month period ended in the third quarter is as follows, assisted living 85.6%, skilled nursing 79.7% and range of care 85.1%. Our quality mix remains strong with 55% of our underlying rental revenues coming from private pay sources. During the quarter we had three development projects come online. Anthem memory care open to 48 unit private pay memory care community in Aurora, Colorado. Carespring opened a 143 bed post-acute care center in Northern Kentucky situated in the Cincinnati Metropolitan area. And Mustang Creek Estates, a senior living provider operating in the Dallas/Fort Worth Metroplex opened a 80 unit assisted living and memory care community in Frisco, Texas. Additionally, this week Anthem opened our fourth project with them, a 60 unit private pay memory care community located in Westminster, Colorado. Development financing has proven to be a successful investment strategy for LTC, bringing new assets into our portfolio like committing approximately $135 million to our development over the past three years. With development commitments already entered into in 2015 combined with the opportunities in our pipeline, the total allocated capital for development would reach approximately $260 million since 2012, when we began our financing program. Given the operator partnerships we’ve established since 2012 in our development financing program, strategically expanding our revenue derived from private pay sources and decreasing the average age of our portfolio. Now, I’ll turn the call over to Wendy for her comments.

Thank you, Clint and Pam. LTC have a rich history of being very disciplined in making accretive investments, and disciplined in structuring a company that is conservatively capitalized with low debt to enterprise level, and well-structured debt maturity. At the end of 2014, LTC had approximately $350 million of debt capacity to make strategic investments, before we reached a 30% leverage to total enterprise value. And that calculation is leaving enterprise value at a static number, assuming the $350 million investments does not expand the enterprise value. This supports us significant flexibility to execute our growth strategy of expanding and diversifying our portfolio by operator, property type and geography. Pam discussed our current bank line that was undrawn at year-end and currently has only $18 million outstanding. We are in discussions with some insurance companies to possibly establish new shelf products with them, whereby we can draw down on amount as needed to fund investments over a long maturity, longer than our bank line maturity. This significant liquidity will also support our 2015 growth plan. As Clint mentioned so far in 2015 we have closed transactions or entered into development commitments totaling $74 million. On our call last time, I said that our first quarter 2015 would be active and it has been to-date. Currently, we continue to favor their leaseback opportunities, however, as Clint mentioned we are seeing an increase in larger transactions that require a RIDEA structure. While I can appreciate the strategy of the operators wanting to get historical top dollar for the real estate and the operations, I wonder why the operators, who are closer to the actual operating business, think this is a good time to sell the upside. Whatever the reason for the increase, LTC is unlikely to make an investment that would include a RIDEA structure at this time. And as Clint discussed, we believe that the disciplined building of new healthcare related assets with certain operators is now proven a solid way to grow LTC. So far in 2015, we have welcomed one operator to our development platform and are advanced in discussions and negotiations with one other operator. When we begin discussing our development initiative in 2012, we were rightfully cautious. We continue to be disciplined in our approach and are very satisfied with the success of the program in terms of construction cost, construction timeline, and operational lease up. We can take credit for having the money available and selecting the right partners. But the actual transformation from plan through successful building and operation is totally due to fantastic operating companies, with which we have been able to partner. Additionally in 2015, we executed LOIs to make a preferred equity investment. This would be our first such investment. And we may do other financing structures to participate in certain transactions and generate additional capital for our company in the future. We are bullish on LTCs opportunities in 2015 and look forward to reporting our successes as they happen in our quarterly call. Incorporating into 2015 transactions closed in the fourth quarter of 2014 and transactions that have closed in the first quarter of 2015. Guidance for FFO is between $2.57 and $2.59. 2014 FFO was $2.55 and we have successfully eliminated the impact of the repositioning and sales of assets done in the fourth quarter of 2014. Guidance does not include additional transactions in 2015 and we look forward to increasing guidance as we make accretive transactions in 2015. Thank you for dialing in. And I’ll now open the call for questions. Denise?

[Operator Instructions] And our first question is from Paul Morgan from MLV. Please go ahead.

Hi. Good morning. Just real quick, sorry, I missed the punch line at the very end there. Could you give the guidance again for the full-year and then say - mention whether incorporates, so it incorporates your year-to-date commitments but nothing else is that right?

That is correct.

Okay. What was the number again?

$2.57 to $2.59.

Okay. So, we should just think of that as kind of a run rate based on Q4 along with the G&A guidance you provided plus the investments that you’ve announced in January and February?

Right, it wouldn’t include anything that we have under the - under an LOI, such as the preferred investment that would not have been included in that.

And so then it also wouldn’t incorporate any particular type of, I guess, equity, financing, because it’s not including any projects beyond what you’ve announced there right?

That’s correct.

Okay. On the preferred equity side, what was - what’s been the catalyst that you mentioned that you are looking to do more of these, that’s been deal specific issues, or kind of a specific intention on your part to use these to - as a mechanism to acquire newer assets, is there anything specific that you’ve done?

This is Clint. The preferred equity investment we are looking at right now is - really was born out of one of our relationships with our existing partners and it was an opportunity to help them grow their platform. So it’s a smaller investment for us, but it’s a unique opportunity to help out existing partners and get us familiar with the structure that we can look at possibly using it, unique cases here and there. So I don’t think it’s not going to be a strategy that we are going to start doing a tremendous amount of investment in. But I think there is room for us to look at that as an investment strategy.

Okay. And then on the development side, maybe you can provide a little on the recent openings how lease-up is going versus your expectation, and kind of your view on the supply situation in your markets, and how that’s influencing the geography when you’re looking for new deals over the course of the year?

Lease-up actually has been growing very well in our properties. In fact, the property that just opened this week in Westminster, they are opening 60-unit community area of 17 deposits and expected in the next week or two, that’s 17 residents move into that community. So in general, we’ve been very pleased with the lease-up. In our underwriting, we’ve been looking at 18 months to 24 months ramp up, but it’s generally been stronger than that, so we’ve been very happy so far where we are at with lease-up.

So there is no markets that you are - that where you’ve been developing recently Denver or other markets, where the new supply is enough of a concern to make you kind of look elsewhere for future deals?

Well, in the Denver market, we now have four communities in the Denver market. And I think at Denver, we are not looking at growing a lot more in development in that locale. So we strategically come in, finance that market, and now we are looking at other geographies within, as an example.

Okay, great. And then just lastly, you didn’t spend too much on talking about investment opportunities on the SNF side, how are you thinking about pricing and investment pipeline there and your appetite for acquisitions?

We’re still very bullish in looking at skilled opportunities and we have some in our pipeline that we are looking at. Pricing is probably somewhere in the 8.5% to 9% range for skilled assets of a certain quality. I think the larger transactions as we mentioned on the call last time could command cap rate probably south of 8.5%. And we’ve seen some larger SNF transactions that are on the market, so it’s something that we are still active looking at, and I think that the risk adjusted return on skilled is very positive.

And we are looking forward to possibly building another transitional skilled properties with our operator Carespring. We opened the one in Coldspring, Kentucky, and it’s way ahead of its projections of occupancy. And they have the CON to build another one in Boone Spring, and they are working on getting all of that entitled and everything. And so, we would be investing a significant amount of money in building another’s skilled nursing property, which we are very happy to be doing with them.

Also we’ve seen a number of portfolios too on the skilled side that they’re now older antiquated product, 1967 the vintage properties, and that type of skilled nursing asset is probably not we are looking at bring into the portfolio. So there is a range of skilled product that is on the market.

Great. Thanks.

And our next question comes from Michael Carroll from RBC Capital Markets.

Thanks. I know you guys touched on this during the call a little bit, but can you kind of give us an overview of what you are seeing in the sale leaseback market today? And how many of those deals are actually in the investment pipeline you are attracting currently?

Sure. Well, I think if you look at it between sale leaseback on the private pay assets, as well as on the skilled nursing, as we talked about on private pay, assets in our prepared remarks, the valuations in those make it very challenging to put those into a triple-net lease structure. So I would say outside of unique opportunities with some of our existing customers on sale leasebacks where there is a - where our partners want to see coverage left in the deal that works. So we’ll probably see more of that on the skilled nursing side as far as the triple-net leases.

Then how much of that is in your pipeline right now?

As far as sale leasebacks…?

Sale leasebacks….

Yes.

….we are looking at it on sale leaseback side, I would say probably 30% to 40%.

Okay.

$30 million.

And I know Wendy, I think last time we talked, you were pretty, I’m encouraged about some SNF portfolios that are out there, can you get us an update on that and the likelihood of LTC able to get one of those deals?

Yes, there were a couple of deals that went to REITs that Care24 had claimed, they don’t like SNF assets. So the other bigger players have come into the market and are buying the portfolio type of assets.

Through those portfolios are you still tracking any portfolios that you may be interested in or is this aftermarket now?

They are aftermarket now.

Okay. And then can you kind of give us the timing of the redevelopment projects for the, I guess, for speech how - when will those projects kick off?

Brent Chappell, our Senior VP of Investment and Portfolio Management is here. Brent, do you want to talk about timing on those?

Yes, the first of which will probably kick off here in the next just a few months, that’s in the Richmond location. In Rochester Hills they just - due to the entitlement process in some of the other regulatory process that they will have to run through will probably be within the next nine months or so breaking ground.

Okay. And then finally, can you give us some color on the recent inducements that were paid, why did you have to provide inducements and is this a common practice?

As we are looking at it focusing on development and working with operating companies, we are trying to find ways to put these development projects together and create pipelines with customers. The recent inducement really is the function of looking at what otherwise would be viewed as a construction loan and including lease-up cost and working capital into the construction loan. So it’s really financing some of the working capital needs for the operating partners post CLO. So there is a couple of ways of doing that. One is doing the lease inducement, the other is doing deferred rent on the projects with these customers that are working with on these specific projects doing a lease inducement, and those transactions made more sense for those projects.

Okay, great. Thank you.

You are just including it basically and basis although that lease inducement gets recorded its encountered differently than if you were including actually in the property costs on our balance sheet.

Okay, great. Thanks.

And our next question is from John Roberts from Hilliard Lyons. Please go ahead.

Good morning, Wendy.

Good morning, John.

I’m sorry about this. Actually we had some distraction outside the window so my speaker phone kept cutting in and out, when I picked up it hung up on me. So I may - and I had to dial back in, so I may have missed some of this. But Pam, you mentioned the G&A being more expense, but the interest expense also seem to be up a little bit more now we would have anticipated given that you really didn’t have an increase in debt year-over-year, was that just a function of taking money on the line and putting it fixed rate, or was this something else there?

No, that said, it was trimming out the line with the $30 million of senior unsecured notes that we had under our shelf agreement with Prudential.

Super. And more big picture Wendy, it looks like you’ve really accelerated your acquisitions here in Q1, is that something that maybe will continue going forward, is that a function of maybe getting the Enlivant issue out of the way, which probably took some of your ability to look at these things, while you are working on that and we might see an increased level of acquisitions going forward because of that?

Yes.

Okay. And finally, it’s interesting, you mentioned about first of all the RIDEA issue, I agree with you 100%, I guess maybe the guys were doing, I still remember, but you and I went through in 2000/2001 with our conversations back in those days, certainly I think that’s, at least, from my perspective a much better strategy in what I’m seeing with all the other REITs getting into the operating side of things. But maybe I can have you comment a little bit about consolidation in this sector right now. You’ve got almost recently OHI and AVIV. what’s your thoughts on that, given what we’re seeing a somewhat of a consolidating issue in the industry right now and your discussions about maybe some of the big guys looking more at the SNF area than they had in the past.

Well, the big guys, even though they seem to be able to do $2 billion of transactions at any time, still need fodder to feed the machine. And their $2 billion transactions are fairly expensive in terms of what they pay and what yield they can get. So since the skilled nursing industry has seriously evolved over the last 10 years, and there are lot of good assets out there, newer assets. Then if you can get yield on something like that we always knew that they turn their attention back to the larger transactions. There’s still a ton of assets our there owned by the smaller operators who would not be of interest maybe to the bigger players. In terms of transactions that are merging transactions. I think each one of them, the companies had a strategic reason for doing those transactions, Aviv and Omega, and NHP and Ventas. Right now, our strategic direction is to grow the company as we’re growing it, adding new assets, adding some accretive investments through the sale leaseback transactions, and just continuing to grow the company.

Right. Thanks, Wendy.

You’re welcome, John.

The next question is from Daniel Bernstein from Stifel. Please go ahead.

Hey, good afternoon. I guess, it’s good morning, sorry. Not quite afternoon yet. So going a little bit more on the skilled nursing transactions, what are you seeing out there, and what you want to invest in, are you looking to do deals with operators that are more on the higher acuity side on skilled nursing, or are you looking for more operators that have more of a balanced SNFs between Medicaid and Medicare. Just trying to think about it how you’re thinking about - we’re getting some proposals on site-neutral payments between hers [ph] and skilled nursing and how do you think you want to position your portfolio on investments for changes in that healthcare system?

Sure, Dan, it’s a good question. I would say higher acuity but our goal really is to focus on identifying and partnering with providers that have regional focus, have a core team that are really looking at what - where is this skilled nursing business going and trying to position themselves to take advantage of opportunities as we’re seeing in evolving environment as far as whether it’s managed Medicaid, Medicare Advantage, going into some type of ACO payment environment, bundling. So we’re really looking at the companies and where those companies are going and how they’re looking at the business. I think when you look at companies like that you find companies that focus - tend to focus more on higher acuity. As far as looking at buildings that would only provide service for transitional care that’s all Medicare or HMO, we’d have to try and look a little farther in about what markets those are in. So I think having a component of Medicaid is still a viable aspect for long term successful business in skilled nursing space but - and we’re looking for newer modernized assets as well. Not the older 60, 70 vintage.

So a lot of what you’re doing in the development side particularly is it put some more modernization in - modernization into those facilities versus those older ones you’re on?

Absolutely, or buying properties that maybe a little older but being able to buy them at the right price to deploy additional capital to renovate, modernize, redevelop, looking for unique opportunities that may come about with partners on opportunities like that.

Okay. And then can you talk a little bit more about the average age of the portfolio and how that’s changed over the last few years and where you wanted to head? I just want to think about some actual numbers on those comments that you made earlier in the call.

I’m not sure we have our current average age after taking out the assets that we sold at the end, but we’ll figure that out Dan and let you know.

Yes, we can always get back, yes. Just curious as to where it’s gone and maybe even by difference, where it is on by asset classes, skilled nursing and assisted living then where it is?

Well, generally, some of the loans that are paid off in the portfolio, those were kind of older assets. And then really the skilled nursing product we’ve invested in the last three to four years has a been newer vintage as we’ve discussed in our earnings call plus development. So in general that’s - we are decreasing overall the average rate of the portfolio.

Okay. And then also just going back to those RIDEA comments, those are - writing down, they’re pretty strongly were at a negative vibe against doing RIDEA transactions. But also it sounded like, if I was going to take this correctly that in order to understand - and again in order to understand why the operator would do that deal, so I was just trying to put on the operator had, are the sellers of those portfolios, are they large regional, is that a private equity back, or even the smaller operator wanting to do RIDEA by day, they are just trying to get top price regardless of whether they give away some of the upside or not?

Well, the ones that we heard about are some of them have equity backing that want to get out and others are just big packages that come to market. So and I fully understand why the operator wants to cash out today, and have no risk of the future. And it’s just, as a philosophy, I don’t understand putting your future in the hands of somebody who has now got all of his money off the table and has a small upside, but he has to work really hard to get it.

One thing we are seeing on the RIDEA structure deals is typically the operating partners in the deal. They have some participation in a liquidity event on sale, but a lot of times that participation is not being reinvested. So the RIDEA structure could work depending on how much of that liquidity event remains deal that aligns interest with us and that operating partner, but we are not seeing a lot of transactions under RIDEA, but those dollars are being left.

A lot of the RIDEA deals you see that the operators simply doesn’t want to keep an equity stake?

Correct.

Right.

In the TRS?

Yes, and they are full. So the upside is rate increase, cost controls, possibly some. I mean, when RIDEA came into existence four, five years ago, I think, the earlier transactions had some upside like, buying assets that were 70%, 80% occupied. So as occupancy went up, it was a good debt, a good investment. But the ones that we are seeing are full or effectively full and the upside doesn’t seem to be that achievable.

Okay. Would I take that to mean that you are not, you don’t think the - you think the fundamentals of scenery housing have come to closer to a peak, or is it simply, we come off the bottom and the upside for you, it’s just not great enough, even the fundamentals are still good, the upside is off the bottom is not great enough for you anymore?

It’s not great enough for us.

Okay, okay. I appreciate the color. Thank you.

Thank you, Dan.

[Operator Instructions] Our next question is from Jordan Sadler from KeyBanc Capital Markets. Please go ahead.

Good morning. Looking for a little bit of clarification on the guidance, maybe you could help me bridge from the fourth quarter that $0.64 of FFO to the $2.58 midpoint, I’m sure there is some puts and takes that I feel like I’m missing, one of which specifically is the prestige payment of the 1.3 million. Is that embedded in the guidance that payment that you are booking in 2015, and then maybe any other puts and takes that might way on that number, because I’m just - I guess I’m looking at the $83 million of commitments completed to-date, and I feel like it might be biased a little bit higher than that, so what am I missing?

Well, starting out the 1.3 million isn’t a payment, it’s a - it’s the recognition of effective interest now that the purchase option has gone. So that 1.3 million is that hitting all at once?

That’s over - that’s in 2015.

Okay. So that…

So it’s similar to….

….amortized over the years.

Yes, it’s similar to straight line rent. So it’s going to be amortized over the four quarters. And additionally because all the developments that’s come online in the new leases, we have an uptick in straight line rents and that’s all in the supplemental at page 15. But it’s essentially about $4 million more of straight line rents. So you are seeing FFO growth, as you would anytime you enter into a new lease, the FFO is larger than the FAD because of the way straight line rent work.

Right. So - I guess the $0.64 that you did in the quarter of FFO, is $2.56 annualized. And the $1.3 million is going to an FFO as well, amortized, but it’s going to be a FFO an extra $0.035, correct? So that puts you at $2.595, assuming nothing happened as opposed to 12/31. And so…

We have just rate reduction from the sale of the unlighted assets, that’s probably that…

That’s the biggest - that’s the biggest drag stuff?

Yes.

Okay. And then, as it relates to the pipeline, any incremental insight you can lend into the - it sounds like there is plus $90 million plus or minus that’s under letter of intent in terms of the likelihood or expected timing?

I think, I described those. This is Clint, I described those as active deals we have letters of intent. I mean, I think these are all very valuable transaction that we’ve been actively engaged with these parties. So our pipeline is larger than that. We have other deal activity, but these are the portion of the pipeline that is actively being negotiated and we’re moving towards execution on this. An example, three of the projects are with Anthem, which is partner for us and we have - we’re working on that under our exclusive pipeline agreement, so those are very real, very real deals. So we feel good about where we’re at on the approximately $100 million of the active pipeline. Again, things could change, it’s always happen. So we try to give you as much insight and color to what we’re working on and there are other deals behind that that they were working on as well. But we feel pretty comfortable about where these are at, and we’re working as quickly as possible to get these transactions closed. So if anything changes, we will update you on next quarter by the caveat, when we talk about this in more detail that things could change, but as of right now they seem likely.

Okay. That’s helpful. And lastly, I guess, Wendy, maybe coming back to that RIDEA comment or discussion, do these valuations compel you in any other way regarding your own existing portfolio. So may be unlikely to buy one of these RIDEA deals, but is there an opportunity, is pricing getting to a point where there may be incremental opportunity to pay any assets?

We are constantly looking at our portfolio in terms of sale of assets and over the years we’ve sold some assets almost every year. Right now, we are not actively looking at selling any of these assets, but we’re certainly open to looking at that. We can probably sell all of our memory care assets for three times what we got into them, but that’s not our current strategy.

Okay. Thank you.

You’re welcome.

I’m showing no further questions. This will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, Denise, and thank you all for joining us today. As we said, we are very active in the year. We expect to be active all year long, and look forward to talking to you at our first quarter and giving you some more color on what we see for 2015. Again, thank you, and have a great day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.