Feb 7, 2012
Operator
Good morning, and welcome to the Omega Healthcare Investors’ Fourth Quarter Earnings Call and Webcast for 2011. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Michele Reber. Please go ahead.
Michele Reber
Thank you, and good morning. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial and FFO projections, dividend policy, portfolio restructurings, rent payments, financial condition or prospects of our operators, contemplated acquisitions, and our business and portfolio outlook generally.
Michele Reber
These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially. Please see our press releases and our filings with the Securities and Exchange Commission including, without limitation, our most recent report on Form 10-K which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.
Michele Reber
During the call today, we will refer to some non-GAAP financial measures such as FFO, adjusted FFO and EBITDA, and expenses excluding owned and operated properties. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the financial information section of our website at www.omegahealthcare.com, and in the case of FFO and adjusted FFO, in our press release issued today.
Michele Reber
I will now turn the call over to our CEO, Taylor Pickett.
C. Pickett
Thanks, Michele. Good morning and thank you for joining our fourth quarter 2011 earnings conference call.
Adjusted FFO for the fourth quarter is $0.50 per share. For the 12 months ended December 31, 2011, adjusted FFO is $1.89 per share.
Our strong performance reflects the impact of closing $334 million in transactions during the quarter. We increased our quarterly dividend to $0.41 per share.
C. Pickett
The dividend pay-out ratio is 82% of adjusted FFO. Our 2012 adjusted FFO guidance is a range of $2.06 to $2.12 per share.
This guidance assumes $150 million in acquisitions during 2012. In addition, the guidance range could change based on capital market transactions, including new equity and debt issuances.
C. Pickett
During the fourth quarter, we closed on $334 million in facility acquisitions and mortgages. A blended cash return on investment is 10.2%.
These transactions involved negotiations and approvals over a 6 to 12 month timeframe, much longer than typical Omega transactions. Dan Booth will provide detail for each transaction later in our prepared comments.
C. Pickett
In addition to our acquisition activity, we completed the transition of 10 facilities to subsidiaries of Genesis Healthcare. The new 12-year master lease includes a Genesis guaranty.
Two Vermont facilities remain to be transitioned. However, the economic opportunities and risks all reside with Genesis and the master lease rent is fixed.
We have increased our unfunded capital expenditure commitments to $128 million, which includes a new $36 million commitment to renovate 13 CommuniCare facilities.
C. Pickett
Turning to the CMS RUG-IV final rule; as we reported in our third quarter call, we expected the RUG-IV final rule to reduce our EBITDAR coverage from 1.88x to 1.52x. Based on October and November data received to-date, it appears that operator coverages may be slightly better than projected.
This is primarily related to expense mitigation efforts and effective Medicare assessments.
C. Pickett
Finally, for 8 years, we've positioned our balance sheet to achieve an investment grade bond rating. In December, Standard & Poor's upgraded our unsecured bond debt to investment grade BBB-minus and upgrade our corporate credit rating to BB-plus.
C. Pickett
Bob Stephenson, our Chief Financial Officer, will now review our fourth quarter financial results.
Robert Stephenson
Thank you, Taylor and good morning. Our reportable FFO on a diluted basis was $46.3 million or $0.45 per share for the quarter, as compared to $28.4 million or $0.29 per share in the fourth quarter of 2010.
Robert Stephenson
Our adjusted FFO was $51.3 million or $0.50 per share for the quarter, and excludes a $2.3 million provision for uncollectible notes receivable, $1.5 million of noncash stock-based compensation expense, $1.2 million of expense related to the closing of the $334 million of new investments, and it also excludes a $50,000 net loss associated with the run-off expenses from our former owned and operated assets.
Robert Stephenson
Further information regarding the calculation of FFO is included in our earnings release and on our website. Operating revenue for the quarter was $76.3 million versus $71.1 million for the fourth quarter of 2010.
Robert Stephenson
The increase was primarily a result of $2.3 million of incremental lease revenue from a combination of acquisitions completed in the fourth quarter, capital improvements made to our facilities throughout 2010, and lease amendments made during that same time period, and $3 million of mortgage interest from new mortgages originated in December 2010 and throughout 2011.
Robert Stephenson
These were partially offset by the decrease in other investment income resulting from reduced working capital investment balances. The $76.3 million of revenue for the quarter includes $4 million of noncash revenue.
Operating expense for the fourth quarter of 2011, when excluding nursing home expenses and stock-based compensation expense, increased by $5 million, as compared to the fourth quarter of 2010.
Robert Stephenson
The increase was primarily a result of a $2.3 million provision for uncollectible notes receivable, $1.4 million in real estate impairments to reduce 2 facilities to their estimated sales price, and $1.2 million in expenses related to the closing of the $334 million of new investments.
Robert Stephenson
In addition, we had an increase in G&A resulting from increased cost related to acquisitions completed in 2010. We project our 2012 G&A should be approximately $14.5 million, assuming no extraordinary transactions or unusual events, with the growth over 2011 primarily related to the 2011 new investments.
Robert Stephenson
Interest expense for the quarter, when excluding refinancing costs and noncash deferred financing costs, was $21 million versus $20 million for the same period in 2010. The $1 million increase in interest expense resulted from financings related to the $334 million of new investments completed during the quarter.
Robert Stephenson
Turning to the balance sheet, in March 2011, we redeemed all of our 8.375% Series D preferred stock valued at $108.5 million. In August, we entered into a new $475 million unsecured revolving credit facility, which matures in August 2015.
The 2011 credit facility is priced at LIBOR plus an applicable percentage, based on our consolidated leverage.
Robert Stephenson
In the fourth quarter, we completed a 7-facility transaction for approximately $86 million. Consideration consisted of $56 million in cash and $30 million of assumed HUD debt that bears a blended interest rate of 4.87%.
In addition, we acquired 17 facilities for approximately $128 million. Consideration consisted of $56.7 million in cash and $71.3 million of assumed HUD debt that bears a blended interest rate of 5.7%.
Robert Stephenson
In November, we entered into a $92 million first mortgage. In December, we entered into a $28 million term loan.
And during the 12-month period ended December 31, 2011 under our equity shelf program, or ATM program, we sold 1.4 million shares of new common stock, generating net cash proceeds of $31.5 million at an average price of $22.16 per share.
Robert Stephenson
Under our Dividend Reinvestment and Common Stock Purchase Plan, we issued 2.9 million shares of our common stock, generating net cash proceeds of $59.3 million at an average price of $20.78 per share. At December 31, 2011, we had approximately $2.8 billion of gross real estate assets.
On the liability side of the balance sheet, we had $1.6 billion of debt and we had $202 million available on our $475 million unsecured revolving credit facility.
Robert Stephenson
For the 3 months ended December 31, 2011, our funded debt-to-total asset value ratio, which is our principal bank covenant was 51% and was well within the maximum of 60%. Our funded debt-to-adjusted pro forma annualized EBITDA was 4.8x.
And our adjusted fixed-charge coverage ratio was 3.4x.
Robert Stephenson
I'll now turn the call over to Dan Booth, our Chief Operating Officer.
Daniel Booth
Thanks, Bob and good morning, everyone. As of December 31, Omega had a core asset portfolio of 432 facilities, distributed among 51 third-party operators, located within 34 states.
Operator coverage ratios remained stable during the third quarter of 2011. Trailing 12-month operator EBITDARM coverage was 2.3x for the period ended September 30, compared to 2.3x for the period ended June 30.
Daniel Booth
Trailing 12-month operator EBITDAR coverage for the period ended September 30 was 1.8x, compared to 1.8x for the period ended June 30. The trailing 12-month period results ended September 30 represents the full 12-month period under which RUG-IV was in effect, and thus has resulted in higher overall operator coverage ratios, when compared to prior years.
Daniel Booth
As previously announced on October 1, 2011, the Medicare rate for skilled nursing facilities was cut by an average of 11.1%. Adjusting trailing 12-months coverages to account for this cut results in overall coverages being reduced by approximately 0.36x.
Operator results in the months of October and November, while not necessarily indicative of the overall fourth quarter, do show results slightly better than our simple pro forma calculation.
Daniel Booth
While still early, we believe that operator performance has been enhanced due to a concerted mitigation effort by our operators, the continuation of appropriate Medicare assessments and the slow but steady operating improvements stemming from Omega's capital expenditure program.
Daniel Booth
Turning to new investments. In the fourth quarter of 2011, Omega completed new investments of $334 million in the form of sale leasebacks and mortgages.
The $334 million consisted of cash investments of $233 million and the assumption of existing HUD debt in the amount of $101 million. The investments essentially involved 4 transactions, whereby Omega invested in 37 skilled nursing facilities with 4,179 beds, located in 7 states involving 4 separate operators.
Daniel Booth
Details of the investments include the following. On December 23, the company purchased 17 skilled nursing facilities from affiliates of Capital Funding Group, a new relationship to the company, for an aggregate purchase price of $128 million.
The acquisition consisted of the assumption of $71 million of indebtedness guaranteed by HUD and $57 million of cash.
Daniel Booth
The $71 million of assumed HUD debt is comprised of 15 HUD mortgage loans with a blended interest rate of 5.7%. The 17 SNFs, representing 1,820 available beds, are located in Arkansas, Colorado, Florida, Michigan and Wisconsin.
The transaction involved 2 separate master lease agreements covering all 17 SNFs with an initial yield of 9.9%.
Daniel Booth
In a separate transaction, on November 14, the company entered into a $92 million first mortgage loan with affiliates of Ciena Healthcare Management. The loan encompasses 13 SNFs, totaling 1,421 beds, all located in Michigan.
The term of the mortgage is 10 years and bears an initial interest rate of 11%, with fixed escalators in years 4 and 7. The mortgage is cross defaulted with other Ciena investments.
Daniel Booth
During the fourth quarter of 2011, the company also completed $86 million of combined new investments with affiliates of Persimmon Ventures and White Pine Holdings, both new operators to the company. The investments involved a purchase leaseback transaction, as well as a mortgage transaction.
The purchase leaseback transaction involved the company purchasing 4 SNFs located in Maryland and West Virginia, totaling 586 beds for a total investment of $61 million. The investment consisted of $31 million in cash and the assumption of $30 million of HUD indebtedness with an average rate of 4.76%.
Daniel Booth
The mortgage transaction involved the company providing a first mortgage loan to affiliates of White Pine in the amount of $25 million, secured by a lien on 3 SNFs, totaling 352 beds, all located in Maryland. The overall combined transaction totaled $86 million, consisting of $56 million in cash and $30 million in assumed HUD indebtedness.
The combined initial annual yield was approximately 10% and included 7 facilities located in 2 states with 938 beds.
Daniel Booth
Lastly, on December 30, the company entered into a 5-year $28 million amortizing term loan with affiliate of Signature Holdings II. The company received leasehold mortgages on 32 existing Omega facilities and has cross defaulted with the company's existing master lease with Signature.
The loan is for 5 years and bears interest at 10%.
Daniel Booth
In addition to the new investments closed during the fourth quarter of 2011, the company continued its commitment to provide its operators with capital expenditure funds necessary to update fiscal plans and reposition their facilities for the future. During the fourth quarter, the company expended over $10 million on capital improvements and issued new commitments totaling $36 million.
As of December 30, 2011, the company has outstanding commitments of $128 million for the purpose of funding capital expenditures.
C. Pickett
Thanks, Dan. We will now open the call up for questions.
Operator
[Operator Instructions] Our first question comes from the Jeff Theiler of Green Street Advisors.
Jeff Theiler
I have a question on your EBITDAR coverage. I would have expected that with this last quarter of RUGs, the coverage would have approached the 1.9x level, similar to the 1.88x that you show in your presentation for 3 quarters of RUGs.
Can you talk about why that didn't happen?
Robert Stephenson
Well actually we started to round on the coverage ratio. So we didn't carry it out to the next decimal point, if you will.
So it's really -- the difference is very muted.
Jeff Theiler
Right. So you're just kind of at more like a 1.84x versus the 1.88x that you were talking about for 3 quarters of RUGs.
Is that…
Robert Stephenson
That's correct.
Jeff Theiler
Okay. And then, so you said that you expect that the reduction, based on the cuts will be a little bit better than the 0.36x you had reported in the presentation.
How much better? What are you thinking?
Robert Stephenson
Well, the 0.36x, just very simple arithmetic, right. We're just taking the 11.1 and knocking it off Medicare rate.
So it's not very sophisticated, right. It's pretty -- So in reality, that would mean our operators did absolutely nothing to offset those cuts.
Robert Stephenson
So we do expect some improvement upon that. The specifics of the months of October and November, we don't really want to get into monthly of reporting, but we have seen better results than those, that simple math, if you will, would indicate.
Jeff Theiler
Is it consistent with kind of the 50% mitigation that other people are talking about, can you -- would you say?
Robert Stephenson
I don't want to comment on specifics for the month of October and November. It's just too early to say.
Jeff Theiler
Sure. No problem.
Lastly, on your new acquisition with the Capital Funding Group, what kind of coverages were you underwriting there?
Robert Stephenson
In most of our deals now, we underwrite to a 1.4x coverage. Taking into account the cuts, quite frankly, and to some degree some mitigation efforts, but these were not heavy Medicare facilities.
So that was consistent with how we underwrite most of our deals at 1.4x coverage.
Jeff Theiler
1.4x coverage, and is that assuming a 4% management fee or a 5%?
Robert Stephenson
5%.
Operator
The next question comes from James Milam of Sandler O'Neill.
James Milam
Just a quick follow-up on that. When you say the 1.4x, that assumes a 13.1% Medicare cut or 11%?
Robert Stephenson
It includes a 11.1% cut. We're kind of taking the position that the operator mitigation efforts will offset that 2%.
James Milam
Okay, great. Can you guys just talk a little bit about -- I'll be the first to admit, I was surprised at your success in closing new investments.
It sounds like you've been working on that for a while, but can you just give us a little color in terms of how those discussions kind of matured through the summer, and then what you've seen in terms of deal conversations now? It just looks like a lot greater velocity than I had been expecting.
Daniel Booth
Well, it sort of just all came together in the fourth quarter. So as Taylor indicated, it was the result of many months of discussions.
A lot of that timeframe was due to the assumption of HUD debts. So that just has a long, long lead time.
And then, of course, in the middle of these discussions we had the CMS rate cuts. So it just really all narrowed down to all coming together in the fourth quarter.
We're still seeing a fair number of deals in the pipeline in the first quarter of 2012. I would say that the things have, I wouldn't say picked up, but they're still running pretty steady.
And so we're looking at a lot of deals and once again our deal flow was choppy. It's hard to predict when and if these deals will close, but we are looking at a good number of deals at this point.
James Milam
Okay. I guess just a couple of follow-ups on that.
It sounds like you guys don't want to project, but in terms of guidance, what is assumed for closing, the timing of closing for the $150 million of deals that are in the guidance?
Daniel Booth
I think from our perspective, it's unlikely you'll see anything significant in Q1. And you think about a normal lead time for deals for us is kind of a 3-month type timeframe.
So if we get into negotiation in this quarter that are fruitful you could see stuff starting in Q2, but as we've said all along, it's always choppy. Our guidance could end up being in fourth quarter.
James Milam
Right. Okay.
And then, I guess, just following up on that one more. I'm sorry.
I didn't get all the numbers in terms of what you said in terms of ATM issuance and DRIP equity issuance. But if you don't mind, just give those to me again, and then can you just talk about what your -- the sort of capital plans look like for 2012?
Robert Stephenson
You want the ATM and DRIP in the quarter or for the year?
James Milam
In the quarter.
Robert Stephenson
In the quarter we did no ATM at all. Yes, and then the DRIP was very, very modest.
It was 245,000 shares.
James Milam
Perfect. Sorry I saw that in the release.
I misheard what you said in your comments. I apologize for that.
So can you just talk about where the line of credit is now and your anticipation to close more deals in the quarter? Do you guys think you will be able to go to the unsecured market?
Are you looking at to turn the ATM back on? Do you think there is a secondary, just how are you looking at funding options for 2012?
Daniel Booth
It's likely that we'll fund about 50% of any future acquisitions with stock and it's just going to -- the decision is at what price and what multiple, but in our budget that's how we've looked at the world. The unsecured bond market has become incredibly attractive over the last 3, 4 weeks.
So that's something that we've talked about. But with $200 million on the line and nothing -- no clear deal in the pipeline that's imminent, I think we're just going to kind of wait and weigh out all those different alternatives over the next month or 2.
James Milam
Okay. And can you guys -- how have the conversation with Moody's has been going regarding getting them to give you guys the investment grade rating as well?
Daniel Booth
We'll -- we're meeting with them in the first quarter.
C. Pickett
But you have to remember they are 2 notches below. So we're not just split rated.
We're 2 notch split rated. So even if Moody's were to move, I'd be -- I just don't see them moving 2 notches.
So I don't know if there's anything imminent on that side.
Operator
The next question comes from Tayo Okusanya of Jefferies.
Omotayo Okusanya
A couple of questions. Just -- when I got to think about fund -- acquisitions going forward, this year you guys just guided to -- at 2011 you guided to $150 million and almost doubled that.
You are guiding to $150 million again next year. Just kind of curious, why that number, why not higher, what are you kind of seeing in the market right now in regards to just acquisition activity?
Daniel Booth
I think the issue is just the lumpiness of it. In the sense of when we think about guidance, in terms of earnings and what we think we can put out there that's prudent, we look at $150 million and watching the pipeline and that's prudent, but that -- we certainly are going to position ourselves that if there's more than that available to us that we can close under our parameters, we'll go do that.
And it really just ties. It's just comes down to lumpiness.
We could do one deal and have that done, or we could wait until December and cobble together 10 deals.
C. Pickett
The other thing that's hard to predict is just what happens to cap rates and prices, for the first half of 2011, we had to be patient because there really wasn't a lot out there that we could do sort of in our niche and our returnee. So I think that could happen at any time.
That's just hard to predict.
Omotayo Okusanya
Got it, okay. And then in the improvements you have seen in operator fundamentals, would you say it's really more of a cost cutting side of things?
That's looking a little bit better or is it them really managing on the revenue side, where there is a patient mix issue or what have you?
C. Pickett
Most -- I would say that the feedback -- most of our feedbacks have been anecdotal, but it's been more cost cutting. You see now therapy on an individual basis almost exclusively.
There's almost no group therapy happening today. So that modification has been made and very quickly.
And then a slight change in patient mix, where you're seeing a little bit more clinically complex type patients in the mix.
Omotayo Okusanya
Okay. And then just last question, the capital expenditure program, you have $128 million of commitments.
Do you expect to do all of that in 2012 or this an amount you're going to do in 2012 and what returns are you expecting on that?
Robert Stephenson
Imbedded in that $128 million are some brand-new construction processes, so they take actually a couple of years. So no, if I were to guess, I would say it'd probably be about 50% of that would roll out in 2012.
Omotayo Okusanya
Okay. At what returns?
Robert Stephenson
They are all 10%, give or take.
Operator
The next question comes from John Roberts of Hilliard Lyons.
John Roberts
Looking big picture, obviously, we had 3 real good years here of growth and expecting real good growth again in 2012. But looking beyond that, what is it going to take to continue the current growth rate you see, and what do you feel comfortable with on a long-term growth rate going forward for an analyst who is looking at projecting beyond your current window?
C. Pickett
Yes, our model has been the same since 2004, and frankly our balance sheet has stayed small enough that $300 million in transactions a year still moves the dial. So as we look at it, the opportunities, we've expanded our tenant base and they feed the pipeline as much as anything.
So that's helpful when you think about needing to do a little bit more in acquisitions to keep the kind of consistent growth rate. So I don't see any dynamic out there, other than, as Dan mentioned earlier, the market is finicky, and we don't -- assuming cap rate stay in sort of our world and capital costs remain reasonable, we can continue to execute on this plan for another 3 or 4 years.
There's plenty of product out there.
John Roberts
Okay. What do you see from a competition-wise?
There is a lot of press out there saying institutional investors are now hopping into the market with you. Are you seeing much of that?
And are they being more picky than you are, or are they being more aggressive than you are?
C. Pickett
The institutional investors have historically stayed away from skilled nursing facilities and have focused more on independent and assisted living, because it’s just -- it's a simpler model to underwrite. And so, I -- Dan, you can comment, but I don't think we've seen any institutional investors competing with us.
Daniel Booth
I have not.
John Roberts
Do you think you may see that in the future as cap rates go down in the other areas?
C. Pickett
Maybe, but because of the nature of the business, it's a little bit more difficult to underwrite. So I think you'd have to have an institutional investor that's committed to -- a management team that comes out of this industry.
Operator
[Operator Instructions] Our next question comes from Dan Bernstein of Stifel, Nicolaus.
Dan Bernstein
A lot of questions been answered. I just wanted to get a sense on the flavor of the acquisitions in the quarter and the acquisition pipeline.
Are you seeing people come out of the woodwork because they're distressed and they need to sell, or are they want cash out of the business or are you're seeing -- are your investments basically based upon people coming to you and going, we see opportunities we need the money. So is it distressed sellers or is it opportunistic buyers who need your funding, how should I view your pipeline and the source there?
C. Pickett
Well, the transactions that we did in the fourth quarter are really with all what I would call household names. There was no distressed sellers at all.
It was just good business arrangements between 2 different parties. You're seeing a little bit of mom-and-pops deciding it might be time to sell.
We -- but that's consistent. We see that year-over-year.
That's just as -- when the time is right that's -- people decide it's time to sell. I haven't seen any real distress out there at all and I'm not sure that I'm going to see any in the near future.
Dan Bernstein
Okay. So the cuts just aren't -- the Medicare cuts just aren't prompting people to make transactions in any kind of way?
C. Pickett
Well, not yet. It's very early, but at this point, no, I'm not seeing distressed sellers.
Dan Bernstein
Okay. I'm sorry.
On the CapEx, I just wanted to understand a little bit better on the guidance. So your guidance incorporates about $150 million of acquisition and then about $50 million or $60 million of additional CapEx.
Would that be the right way to think about it?
Robert Stephenson
Now we want the CapEx in with our acquisition. It's really allocated capital.
So $150 million of capital allocated into our portfolio, whether it's CapEx or deals. And frankly, CapEx, you never know for sure how that's going to time out.
Maybe it's $35 million, maybe it's $60 million, we'll have to see how that all paces itself out, but that's included within the $150 million.
Dan Bernstein
Okay. And then one last question here.
On the mitigation, are you seeing any difference between your larger operators and your smaller operators and their ability to mitigate the Medicare cuts, in any way?
C. Pickett
Dan, we have the results for 2 months. So I think it's a little early to say.
I think everybody is kind of looking at the same, there is only so many areas to be cut, right, and -- but I don't think at this point, given the 2 months data that we have, we're not seeing a big distinction between big, small, medium or otherwise.
Operator
Our next question is from Todd Stender of Wells Fargo.
Todd Stender
Can you just talk about the volume and the activity around your mortgage investments and maybe just what the operators are using the proceeds for right now?
Robert Stephenson
Yes, we don't make a huge distinction between sale leasebacks and mortgages. A lot of times the mortgages are just put in place for a myriad of different reasons, most coming from the sellers or operators themselves and their needs.
So we don't really look at that as a big distinction but we do -- mortgages are generally done with other combinations, so it's really not our main stack. Beyond that, the use of proceeds is usually the same, it's to pay off other debt or to impart the cash out.
Todd Stender
How much would you say, if your investment guidance is for $150 million this year, how much you think will go towards new mortgages?
Robert Stephenson
Right now, based on our pipeline, we don't have anything that's mortgage based. So that's based on what we see today.
But the other comment I make about mortgages is, not only are they an accommodation typically from-- to the operators. They are structured very, very much like leases in terms of lockouts, very difficult lockouts and prepays, very long terms, most have escalators just like a lease.
If we already have a lease relationship, the mortgages are crossed in. So I just want to be clear, when you think about kind of the economics of a mortgage versus a lease in our world, they're not that dramatically different, but mortgages really aren't our business, they are in a combination, and again, we don't have anything in the pipeline today that would be structured that way.
Todd Stender
Okay. And the stuff that you did in the fourth quarter, are these amortizing loans, are they typically interest-only?
Robert Stephenson
They are typically interest-only.
Todd Stender
Okay. Just going back to one of the original questions of kind of how we're thinking about your long-term capital plans to turn out the line, your debt-to-EBITDA is getting in that 5.5x range, and historically I think you like it inside 5x.
Where do you kind of look forward, is it still going to be having a 4 handle on it going forward?
Robert Stephenson
Well, if you actually do the pro forma of the EBITDA and take away the noncash stock-based compensation, exactly 4.8x for the quarter. And I actually have a reconciliation of that on the website.
So we're within our 4 to 5x, and as we've said before, as we hit 5, we're going to look -- if the equity market is available to bring down to stay in that range to do acquisitions.
Todd Stender
Okay. And just lastly, can you break out kind of what you're budgeting for, for your capital costs and what the debt and equity costs look like?
C. Pickett
Well, in terms of capital, we look at selling shares at north of 10x FFO. So if we're not in that world then we're probably not looking at selling stock.
And our line of credit is at LIBOR plus, what is it, 250?
Robert Stephenson
It's -- yes, 250.
C. Pickett
And then when you think about bonds, we would -- if we did a bond deal today we'll trade at sub-6. But as we think about all of that going forward, that decision is going to be made when it becomes apparent that we have needs based on the pipeline, and so that's a month away, 2 months away and we'll look at the market then, but we're really not a trader of stock at less than 10x FFO.
Todd Stender
Sure. Now that you've reeled in your preferred, is preferred on the table as well?
C. Pickett
It would have to be very attractively priced. I think we've never had a situation, from our perspective, where bonds weren't preferable to preferred, in terms of just rate.
Operator
And our next question is a follow-up from James Milam of Sandler O'Neill.
James Milam
Just really quickly, what's the spread on the new investments in terms of GAAP versus cash income?
Robert Stephenson
High.
James Milam
Is the GAAP going to be 100 basis points higher?
C. Pickett
Yes.
James Milam
Okay, perfect. And then I just wanted to ask kind of a bigger picture one and this is not even necessarily directly related to your portfolio.
But the American Healthcare Association has their proposal out to try to, on readmission rates and we've got the 'doc fix' coming up, the payroll tax holiday all that stuff. What are you guys hearing from your contacts in DC, just related to any potential changes to the reimbursement environment or do you feel pretty secure with the cuts that the skilled nursing industry has already received and you will kind of be spared at least for the next 12 months or so?
C. Pickett
I think the view is generally the industry will be spared. It doesn't eliminate the possibility of a reduction in bad debt reimbursement, which -- we can pro forma that into our coverages from where we sit, we feel okay about that.
But when you think broadly, we had operators who -- our operator coverages were excellent, and now I'd say they're good. There is a lot of other pieces of this industry where cash flows are not so good.
So I don't think you're going to see any major changes, maybe they tweak bad debt and the reimbursement of bad debt.
Operator
This concludes our question-and-answer session. And I would like to turn the conference back over to Taylor Pickett for any closing remarks.
C. Pickett
Thank you for joining the call today. Bob Stephenson will be available for any follow-up questions you may have.
Operator
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.