Oct 29, 2009
Executives
David Smith - IR Debra Cafaro - Chairman, President and CEO Ray Lewis - EVP and CIO Rick Schweinhart - EVP and CFO
Analysts
David Toti - Citi Michael Bilerman - Citi Dustin Pizzo - UBS Ross Curran - UBS Jerry Doctrow - Stifel Nicolaus Karin Ford - KeyBanc Rich Anderson - BMO Capital Markets Mark Biffert - Oppenheimer Brian Satino - Barclays Capital Michelle Ko - Banc of America-Merrill Lynch Rob Mains - Morgan Keegan
Operator
Welcome to the quarter three 2009 Ventas conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr.
David Smith.
David Smith
Welcome to the Ventas conference call to review the company's announcement today regarding its results for the quarter ended September 30, 2009. As we start, let me express that all projections and predictions and certain other statements to be made during this conference call maybe considered forward-looking statements within the meaning of the Federal Securities laws.
These projections, predictions and statements are based on Management's current beliefs, as well as on a number of assumptions concerning future events. The forward-looking statements are subject to many risks, uncertainties, and contingencies, and stockholders and others should recognize that actual results may differ materially from the company's expectations, whether expressed or implied.
We refer you to the company's reports filed with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2008 and the company's other reports filed periodically with the SEC for a discussion of these forward-looking statements and other factors that called affect these forward-looking statements. Many of these factors are beyond the control of the company and its Management.
The information being provided today is as of this date only and Ventas expressly disclaims any obligation to release publicly, any updates or revisions to any forward-looking statements to reflect any changes in expectations. Please note that quantitative reconciliations between each non-GAAP financial measure contained in this presentation and its most directly comparable GAAP measure, as well as the company's supplemental disclosure schedule are available in the Investor Relations section of our website at www.ventasreit.com.
I will now turn the call over to Debra A. Cafaro, Chairman, President and CEO of the company.
Debra Cafaro
Thanks, David. Good morning to all of our shareholders and other participants.
Welcome to the Ventas third quarter 2009 earnings call. My colleagues and I are pleased to be joining you today from our Louisville office.
Today, I'll provide company and quarterly overviews, Ray Lewis will discuss our portfolio performance and investment outlook, and Rick Schweinhart will address financial results in detail. After that, we will be happy to answer your questions.
Ventas continued to perform exceptionally well in the third quarter. Our earnings and cash flow were excellent at $0.66 of normalized FFO per share.
Our balance sheet and liquidity are among the best in the REIT sector and our need driven healthcare and senior housing assets continue to exhibit good fundamentals. In particular, sequential occupancy in our 79, high quality, private paid, senior housing communities, managed by Sunrise Senior Living improved by 90 basis points to average 88.1% in the third quarter.
Because of our continuing strong performance year-to-date, and because NOI from our Sunrise portfolio is trending towards the high end of our previously announced guidance range, we are increasing our full year 2009 normalized FFO guidance to $2.62 to $2.65 per share. It is worth noting that in the third quarter of 2009, we had 11% more shares outstanding, while our FFO per share was down only by 3%, in each case versus the comparable period in 2008.
This excellent result is due to the resiliency of our business and our cash flow, coupled with the immediate targeted use of proceeds from our spring 2009 equity offering. Also during the quarter, we prevailed in our tortious interference case against HCP.
Following a three-week trial, the jury and Federal District Court unanimously rendered a $101.6 million verdict in favor of Ventas. This amount represents 100% of the damages the jury was instructed by the Court to consider.
HCP and Ventas had both filed post trial motions that are currently pending before the trial court. We will continue to represent our shareholders' interests in this matter professionally and to the very best of our ability.
That said, with the jury verdict in hand and post trial briefing complete, we expect a huge diminution in both internal and external resource allocations in this case. We are in a terrific position from a balance sheet and liquidity standpoint.
At quarter end our net debt to EBITDA was just over four times. We have less than $200 million of debt maturities through 2010.
Over $200 million cash on hand, and essentially all of our revolving credit capacity available. We also had two new positive liquidity developments during the last few weeks.
First we've obtained indications from two financial institutions that they plan to commit $125 million to our 2012 maturities under our revolver, if completed, these commitments will increase our total revolving credit capacity to $965 million, and increase our 2012 maturities to $715 million from $590 million currently. We hope to continue to build capacity in our revolver with additional lenders.
Second, we recently closed on $58 million of mortgage debt financing, secured by two seniors housing assets, at a blended interest rate of 5.5% and a weighted average maturity of 6.5 years. Appetite from the GSEs for secured financing on high quality, well occupied seniors housing remains strong.
This December we've obtained almost $300 million of long-term attractive fixed rate financing from the agency. This additional liquidity provides capital to fund growth opportunities and/or to satisfy our limited near term debt maturities.
Recently as the have markets improved and opportunities have increased we have become more constructive on making acquisitions. Given the lack of visibility in the commercial real estate markets, and mixed signals in the economy, we will tread carefully.
In fact, you should expect us to use our significant advantages to start growing again in a disciplined accretive way. Finally, I want to note that Sunrise has now resolved all the major corporate challenges facing it.
In just the last month, Sunrise has announced that it has extended its line of credit until December 2010, it has agreed to sell assets that will generate $60 million in net cash proceeds, and it has reached agreement with its counterparty on the Fountains Project and its German operations. Huge accolades go to Mark Ordan and his Sunrise team for the progress they have made to stabilize Sunrise and overcome significant obstacles.
Now, we believe they will turn their undivided attention to continuing to improve operations at our communities and working through the remaining, albeit smaller, legacy issues at Sunrise corporate. I'll turn the call over to Ray, who is going to walk you through our portfolio performance and the investment environment.
Ray Lewis
Thanks, Debbie, Ventas' triple-net lease portfolio, diversified healthcare and senior housing assets continue to perform well with strong cash flow coverage of 1.8 times, which has remained stable since 2007. 76% of our NOI comes from our pooled, multi-facility master leases with credit and structural support and contractual growth escalation.
The weighted average remaining lease term for our triple-net lease asset is approximately seven years, and only 1% of our total triple-net portfolio rolls over before 2013. Performance for our triple-net portfolio of seniors housing, which is recorded through the second quarter, remains solid at 1.3 times cash flow coverage.
For the third quarter we expect stable to improved occupancy and performance in this portion of our business. Overall, we continue to realize the benefits of our excellent triple-net leased healthcare and senior housing portfolio with its stable cash flow, increasing rents, high quality assets, strong master leases and excellent tenant operators.
Shifting to the operating, our operating portfolio, which consists of 79 high-end, mansion style, assisted living communities, managed by Sunrise Senior Living and 23 medical office buildings accounts for 22% of our portfolio NOI. These assets performed very well during the third quarter.
Focusing on our need driven Sunrise portfolio, average daily occupancy in our 78 stable communities trended positively during the third quarter and increased 90 basis points to 88.1% compared to the second quarter. Occupancy in the portfolio has been steadily climbing since its low point in May and this positive gain in the third quarter is consistent with what we foreshadowed during the call in July.
Our Sunrise communities generate total community NOI for the third quarter of $33.4 million, compared to $33.8 million in the second quarter. Revenues were up due primarily to the occupancy gains.
Expenses were, as forecasted, higher due to increases in budgeted items such as utilities, marketing, repairs and maintenance and labor costs. Looking forward to the fourth quarter our guidance assumes that occupancy will be relatively flat to the third quarter, ADR will be slightly lower and expenses will increase somewhat.
Using these assumptions, we expect our Sunrise full year NOI to fall in the high end of our guidance range of between $122 million and $129 million. Although Sunrise results have been affected by broader trends in the economy, we have been pleased with the resiliency and performance of the portfolio year-to-date.
With virtually no new supply of assisted living product coming online, we believe this Sunrise portfolio is positioned to return to growth as the broader economy improves. Our medical office building portfolio, which totals 1.5 million square feet, also did well this quarter.
Most of our MOBs are on the campuses of major health systems. The takeaway for MOB performance is the sequential NOI that's consistent on stabilized assets and the new pre-leased development assets are contributing additional NOI immediately as they come online.
We recently opened one new MOB in August, in Parker, Colorado, on the campus of the not for profit Adventist Hospital. Our new MOB is over 80% leased at completion and the project was delivered on time and on budget.
In sum, our operating portfolio continues to deliver good performance in the third quarter. Shifting to the acquisition side, we are in a great position to consider making new investments.
The market is beginning to thaw, the pipeline is building and we are beginning to see more actionable opportunities to deploy capital in the healthcare and senior housing space. Importantly, acquisitions and investment activity if completed can provide a powerful earnings growth driver for the company.
Public companies with access to capital have a distinct advantage in today's market. As always we expect to be measured in our approach.
Our goal is to be a disciplined investor, making accretive investments in good real estate, with quality operators that will add long-term value to the firm. With that, I'll turn the call over to Rick Schweinhart to discuss our financial results.
Rick Schweinhart
Thank you, Ray. On the operation side the results were fairly steady from the second to the third quarter.
On the liquidity and balance sheet side our position remained strong. At September 30, our cash balance was $127 million and we had only $9.7 million outstanding on our revolving credit facility, with over $850 million of undrawn availability.
Cash on hand currently is $209 million. The company's debt to total capitalization at quarter end was excellent at 30%.
Our credit stats were very good with net debt to pro forma EBITDA at 4.2 times, and our fixed charge coverage ratio on to three times. As of September 30, we had less than $15 million in total debt maturities remaining in 2009 and $170 million in total debt maturities in 2010, excluding normal periodic principle amortization payments, most of the debt maturing in 2010 is mortgage debt.
Turning to earnings in the quarter, third quarter normalized FFO was $103.4 million, or $0.66 per diluted share. Normalized FFO excludes merger-related expenses and deal costs of about $6 million.
Trend line from the second quarter to the third quarter of 2009 was stable. Excluding a $2.3 million lease termination fee we received in the second quarter, normalized FFO per diluter share was stable at $0.66 and normalized FFO was $103.4 million, up slightly from $102.8 million in the second quarter.
Interest expense improved to $43.7 million from $44.2 million in the second quarter of 2009, as a result of interest savings on senior notes and mortgages repaid in the second and third quarters, offset in part by additional interest expense from our $114 million agency mortgage financing that was made in the second quarter. D&A was $9.7 million, down slightly from the $10.4 million in the second quarter.
Weighted average shares outstanding increased to $156.5 million in the third quarter versus $154.5 million in the second. Third quarter FAD per diluted share was $0.63 compared to $0.64 in the second quarter when you exclude the lease termination fee.
Next, let me compare the third quarter 2009 normalized FFO per diluted share to the third quarter of 2008. Normalized FFO grew 7% to $103.4 million, from $96.2 million last year.
However, the third quarter FFO per diluted share was $0.66, compared to $0.68 last year due to an 11% increase in shares outstanding this quarter. Triple-net lease revenues grew to $116.9 million from $114 million, primarily due to contractual escalations, while Sunrise NOI was $33.4 million this quarter compared to $35.2 million last year.
The reduction was principally due to the decreases in occupancy, somewhat offset by increases in the average daily rate. Also, year-over-year, our medical office building NOI grew to $5.9 million from $4.8 million due primarily to acquisitions and leased up activity.
Interest income on loans and investments was $3.2 million, flat with last year. Interest expense decreased to $43.7 million, from $50.7 million last year, principally due to debt repayments and bond buybacks.
Our weighted average cost of debt is about 6.7%. Weighted average shares outstanding increased 11% in the third quarter of 2009, versus the comparable 2008 period to $156.5 million from $141.1 million.
The share count increased due to our April 2009 and our August 2008 equity offerings. Final words about guidance, based on our third quarter results, we expect our current year NOI for our senior housing operating portfolio managed by Sunrise to come in at the higher end of our current guidance range of between $122 million and $129 million.
We are also increasing our corporate guidance for 2009 normalized FFO per diluted share to $2.62 to $2.65 from $2.55 to $2.62.
Operator
(Operator Instructions) Your first question comes from the line of David Toti from Citi.
David Toti - Citi
Mike Bilerman is here with me as well. Couple of questions, first, can we start with some of the asset types within seniors housing, the assisted living, the independent living, can you just comment on some of this diverging performance if there is any among those different care levels within your portfolio?
Debra Cafaro
We can. I mean the conventional wisdom, David, is that the independent living assets, which is a smaller part of our senior living portfolio is a little bit softer than the more need driven, higher acuity assisted living business.
That's sort of the growth over generalization. I would say that we are seeing good stability in our IL, but I guess probably faster occupancy increases in our AL as the market has started improving.
David Toti - Citi
Then in reference to Alzheimer's are you seeing changes in those care levels?
Ray Lewis
Our Alzheimer's have performed consistently well, David. That's the most need driven product in our portfolio and the least correlated to changes in the general economy.
So we've seen pretty strong demand even in the downturn for that product.
David Toti - Citi
Then just going to leases, are you in negotiations with anybody relative to renewals, has anybody or has any of your tenants contacted you relative to renegotiating ahead of expiration? Any color on those discussion would be helpful.
Debra Cafaro
Well, there are no discussions, so there is no color. As Ray mentioned, we have about 1% of the triple-net rolling over before 2013.
so there is good coverage everywhere so operators are generally doing well.
David Toti - Citi
Then relative to transactions, I know you've mentioned that you've been cautious, but you are obviously looking at some acquisition opportunities, recent transaction data for senior housing suggests that cap rates are somewhere in the 8 to 9.5 range. Does that seem accurate relative to what's coming across your desk?
Ray Lewis
I mean that's generally right, David. I mean it's going to vary by product type, but we are seeing things ranging between 7.5 and 10, depending upon the acuity of the asset, the quality of the age and the location.
Michael Bilerman - Citi
It's Michael Bilerman. Ray, you mentioned that your pipeline is filling up nicely, I think were the words if I wrote it down right.
Can you just give a little bit more color in terms of how that pipeline has changed and size, and maybe total size and maybe largest deal or how should we think about it?
Ray Lewis
I think the pipeline is building. We are seeing more opportunities coming to the market now that the broader economy is looking a little bit better.
I would say that the pipeline is varied. The quality is mixed.
There are some attractive opportunities and there are other things that are not quite as attractive. The pipeline is spanning the healthcare real estate continuum.
So we are seeing deal flow from the seniors housing side, the medical office side, the skilled nursing side. I would say it's a balanced mix.
I think there are some actionable opportunities in the pipeline that we are pretty interested in working on.
Debra Cafaro
I would say one theme that you can see through a lot of the opportunities is really derived from the fact that the public companies who have access to capital have a distinct advantage in the market now and so a lot of the opportunities would be from a private to public kind of thing, where investors are looking at maturities and liquidity, and would like to transact so that they can get liquidity and make sure that they can pay off debt maturities when they come. So that is the theme that I think broadly would characterize a lot of the opportunities that we are seeing.
Michael Bilerman - Citi
Would you be comfortable issuing your stock at those cases or would it be all cash?
Debra Cafaro
Well, it depends. We have a tremendous amount of liquidity and so that's really good.
It really gives us total flexibility about how to structure a transaction if we do one.
Operator
Your next question comes from the line of Dustin Pizzo.
Dustin Pizzo - UBS
Ray, can you just comment further on the acquisition, following up on Michael's question. What dollar volume (inaudible) you guys have looked at or bid on in the past three months?
Ray Lewis
Dustin, I think what we want to try to impart on this call is that the pipeline is actually active now. It's been two to three quarters where the pipeline has been basically dry.
We are seeing deal flow coming in. We are working on it.
It's early in the process. So to talk about things that we are bidding on or specific opportunities or scale of actionable opportunities, what we are trying to communicate is that the pipeline is building.
Dustin Pizzo - UBS
Is it, I guess perhaps (inaudible) if it's more large portfolios as opposed to picking off assets here or there.
Ray Lewis
It's a mix of both. I think it's encouraging to note, though, that we have seen several larger portfolios that are interesting, which is a change as well from previous quarters.
Dustin Pizzo - UBS
Just finally on that point, I know you guys, obviously, can't comment on what Sunrise intends to do, but given some of the moves they've made recently with some of their other JV partners around the world, is acquiring their interest in the remaining 60 communities something that you would be interested in doing potentially?
Ray Lewis
Dustin, we are still interested in acquiring those minority interests to the extent that we can get them at an attractive price. I think the good news, bad news of the things that Sunrise has been doing is that it has really positioned them I think on much more stable footing and probably makes them to need money less.
Dustin Pizzo - UBS
I believe Ross has a follow up as well.
Ross Curran - UBS
Debbie or Ray, can you talk a little bit about HCA, how are they doing, how is your loan there doing and remind us when do that mature?
Debra Cafaro
HCA is doing generally well. Since they are a bond issuer they continue to be registrant.
I think bonds that we have are due in 2012, but I will confirm that. They are certainly talked about widely as a potential IPO candidate once we get a little clarity on healthcare reform, but clearly hospitals are one of the winners in the proposed healthcare reform environment.
Ross Curran - UBS
The other question I have is, on your senior housing and living portfolio how many of the properties there have EBITDAR less CapEx coverage that's less than 1.0? I mean I know the coverage overall looks fine, but I'm just trying to get a sense of the variance.
Debra Cafaro
Well, very few if any, and the reason we think about it that way is, think about this, Ross, if you do a master lease with Kindred say, and you do it in 1999, this is really just an allocation question. If we have a master lease that Kindred is making $2 or $2.1 for every $1 in rent that is paid to us, if in 1999 we allocated rent in a certain way and maybe asset one gets a little bit better and asset two gets a little bit worse, that's really just an allocation of rent issue, because all those assets are in the single master lease and all tied together.
So, unless you have single asset or very small, so called master leases, the economic unit of inquiry is really the master lease. That's why the master leases are so powerful and so important, because over time you will see variations in single assets that really don't matter, because they are just artificial due to original rent allocations.
So the key point, I do think that single lease coverage is important, and that's why we provide the Kindred by master lease coverage and by total, but our assets are doing well and they are cash flowing and our operators are doing well and support all that rent with them and credit as well.
Ross Curran - UBS
Can you remind me the cash flow coverage you are showing in your supplemental, are those before or after CapEx?
Debra Cafaro
Those are before CapEx.
Operator
Your next question comes from the line of Jerry Doctrow from Stifel Nicolaus. Please proceed.
Jerry Doctrow - Stifel Nicolaus
Hi, thanks. Couple of things, you're expanding the credit line and you placed a little bit less GSE debt I think than we were expecting, are you kind of rethinking your use of GSE?
I am just trying to understand the rational for maybe expanding the line and whether you are going to relying on it more?
Debra Cafaro
Well, when we extended the revolver at the very end of the first quarter, we had a very distinct approach, and that was, the revolver was originally due in April of 2010. Our job we thought was to protect the downside and preserve the upside, so what we tried to do was get extensions that we did of about $600 million out until 2012, and left ourselves the flexibility to build on those 2012 maturities, as existing lenders or new lenders (inaudible) clear to extending additional credit to us.
It's sort of a classic Ventas way of thinking about things, which is, to make sure that you're not facing a line of credit maturity in April of 2010 in case the bank market continues to be very constrained and negative, but allows yourselves to continue to improve over time. These two new lenders will improve that 2012 part of our revolver to 715, and others will likely follow and that will be great and we will enhance our liquidity.
The GSEs have been terrific. We have done about $300 million.
As the unsecured bond market continues to be on fire the difference between the pricing on those two instruments may compress, and we may decide we would rather do bonds than mortgage debt or whatever from an overall enterprise financing standpoint. So, we are always looking at all of those and it is good to just have access to all of them and we can do more or less as the circumstances dictate.
Jerry Doctrow - Stifel Nicolaus
Are you looking at all at 232 debts?
Debra Cafaro
No. That's the one that we will put to the side.
Jerry Doctrow - Stifel Nicolaus
Ray had mentioned, in terms of giving us some color on the Sunrise portfolio in fourth quarter, that occupancy would be flat, rate would be down, expenses would be up a little bit. I was just curious as to why rate was down?
That was the one piece I guess I wanted to get a little color on.
Ray Lewis
There is a couple of basic drivers for that, Jerry. I think, one, we've seen more demand in the semi-private units, which are less expensive units and with all of the average daily rate down a little bit, we've been leasing up those units.
Then also there has been some incentive and promotional pricing that we've put in place in the portfolio to drive occupancy, which has been working. So, those two factors I think will conspire to have rates decrease slightly in the fourth quarter.
Debra Cafaro
Jerry, just to add one point to what Ray said. As an existing resident at a higher in-place rent rolls off, if you replace that resident with a newer person who maybe gets that break on community fees or whatever, that also has the impact of slightly pulling down the ADR.
Jerry Doctrow - Stifel Nicolaus
I think that's all for me. I think the music at the beginning was little bit boring you might want to spark that up but otherwise.
Debra Cafaro
We don't spend a lot of time thinking about our music, but we will take that under advisement.
Operator
From your KeyBanc, your next question comes from the line of Karin Ford, please proceed.
Karin Ford - KeyBanc
Following up on that last question on Sunrise, can you give us any occupancy numbers post another quarter, sometime through October?
Ray Lewis
Karin, the occupancy in October is higher than the third quarter average. I think, as we look into the fourth quarter, historical patterns have been that November and December have typically been weaker months, because people are less likely to move their parents during the Holiday season.
So that's sort of what is driving our assumption that occupancy is going to be relatively flat on average through the fourth quarter.
Karin Ford - KeyBanc
Do you have a guess as to what is driving the improving demand in occupancy, would you say it's improving consumer confidence, is it housing prices stabilizing, is it people's 401(k)'s looking a little more attractive. Do you have a sense?
Ray Lewis
I think a lot of those are factors, Karin. Certainly the improving economy, people believing that they have net worth and that the bottom is not falling out is providing confidence for a number of decisions including moving into our communities.
I think there are also just some very basic, solid fundamentals in the industry. There hasn't been new supply.
There continue to be more and more old people. So I think that that is playing into it as well.
Finally, we have a need driven product and so there is always going to be I think a base level of demand. So when you combine an improving outlook, strong industry fundamentals and that base level of demand, it's feeding in to increasing occupancies in our properties.
Karin Ford - KeyBanc
Next question I just on the acquisition front, I know you said you were seeing opportunities across all the asset classes, but I think you said last quarter that MOBs were still your preference. Is that still the case or based on relative pricing and opportunities, have you switched to look more at senior housing or something else?
Ray Lewis
We like MOBs and we think that pricing is attractive at current level. So we will continue to work in that area, and in fact.
we are seeing a number of developer, operators that are looking for capital partners and as a public company with access to capital, we are well positioned to partner with them, to take advantage of what we think is a pretty good market opportunity.
Karin Ford - KeyBanc
Are MOB cap rates still in the 7% to 8% range?
Ray Lewis
I think 7.5% to 8.5% is really sort of where I would band them right now Karin.
Karin Ford - KeyBanc
Final question was on the agency debt you raised, seemed like the rate 5.5% was pretty attractive was that just due to the shorter maturities, it wasn't the 10-year deal that we've seen previously, those were sort of in the mid to high sixes
Debra Cafaro
Well, a couple things, one is spread had come in since the summer, though, they were in the high 200s versus over 300. For these assets, the base rate was lower and these were two different loans, a five and a 10, so the average weighted maturity was about 6.5 years, so obviously the base rate for that part and overall was lower than it was in the summer.
So we were able to enjoy the benefit of all those things coming together. One other thing to your prior question, I mean we certainly do like, as Ray had said, the fundamentals in senior housing and certainly that's on our screen in terms of potential acquisition opportunities.
Operator
Rich Anderson from BMO Capital Markets is on the line with your next question.
Rich Anderson - BMO Capital Markets
Simple one first, I think Rick you mentioned about lease termination fees, was that in this quarter or last quarter?
Rick Schweinhart
It is in the second quarter.
Rich Anderson - BMO Capital Markets
You guys are doing one thing different than everybody else, and that is you're increasing your revolver balance where a lot of other companies maybe outside of healthcare or maybe within healthcare are reducing their revolver balance when it comes time to renegotiate. So I am just curious, obviously, you are seeing acquisition opportunities, but as a firm if you get up to $925 million, would you be willing to put to use all of that if the right opportunity came, or is there a number a sort of like a number you would get to, what's your mindset about leverage and the revolver, because it seems like going in a different direction?
Debra Cafaro
Well leverage and liquidity are different and both are very important things. We think about the revolver as a liquidity vehicle, and if we had a $1 billion revolver, that certainly is not oversized for our company size of about $9 billion in enterprise value.
So, in my view in almost every environment, having more liquidity at reasonably attractive option pricing is always better for the company. So, we certainly feel good that lenders in this environment are still willing to commit capital at Ventas at attractive terms, and as I said, we hope to continue to build on that.
On the leverage side, I mean we are at a little over 4 times net debt to EBITDA. That and fixed charges are the things we really look at as we manage the balance sheet here.
As you think, we have a significant amount of capacity and would still remain to increase leverage and still remain well investment grade quality and inside of where our investment grade peers in healthcare and certainly in the REIT sector have their balance sheet. So, we don't have intention to go lever up we do have a lot of credit statistics capacity, if you will, to acquire things over next year or so.
Rich Anderson - BMO Capital Markets
Are there meaningful or material costs associated with unused balance fees or anything like that with the revolver?
Debra Cafaro
Yes. I would say typically you pay some amount of up front fees and then our facility has a 20 basis point facility fee, which is payable on drawn and undrawn, so that's really the cost, but with anyone who just lived through the last 18 months can tell you that it is a very keep option to have 20 basis point facility fee for liquidity.
So I feel that that's the right thing to do.
Rich Anderson - BMO Capital Markets
On the topic of Sunrise, I mean it's good that you are seeing this resilience and all that, but do you envision that portfolio getting back to more of a normalized growth pattern next year, is that what the trajectory looks like or is it further out than that?
Ray Lewis
Well, Rich, this is Ray. I mean I think long-term we believe that as the economy recovers that these assets are well positioned to exhibit growth.
There is virtually no new supply in the marketplace, these are very well located, high quality assets in great markets, and the aging demographics will continue to feed demand into these properties. That's the long-term thesis.
The timing is really going to depend upon the strength and the trajectory of the recovery. We can all sort of postulate what we think that's going to look like.
My own personal bias is that it is probably going to be not as a steep a recovery. It may be later in 2010 or 2011 before you start to see really meaningful growth in the portfolio, but we just have to keep watching the recovery and adjusting our expectations accordingly.
Rich Anderson - BMO Capital Markets
So is a normalized occupancy and same store NOI growth numbers for Sunrise in the range of say low 90% and maybe 6% or 7% NOI growth, is that a normalized level to you, or is that, am I off on that.
Ray Lewis
I think where we would sort of expect to see a normalized NOI growth would be somewhere in the 3% to 5% range in a normalized environment. If the economy is really coming back strong and things are going really well you'd probably be at the upper end or perhaps even above that range.
Certainly, over the last year as the economy struggled, it can be at the bottom end or below that range.
Debra Cafaro
You're right about occupancy I would say.
Rich Anderson - BMO Capital Markets
Then lastly you mentioned the cap rate range for medical office, but as part of this growing pipeline a function of a recent run up in cap rates in your world, or is it more potential sellers coming to the realization of the realities of the world. Is there any part of the movement in market cap rates that's driving your pipeline.
Ray Lewis
I think the bid-ask spread has narrowed and I think the reason Rich is, because the longer you persist in a higher cost of capital marketplace, the more sellers come to the realization that this is not a temporary thing that the bar has been reset and if they want to transact they have to face reality, and so I think there has been an acquiescence to reality.
Rich Anderson - BMO Capital Markets
Not necessarily a change in the absolute levels of cap rates just a realization of what they are now?
Ray Lewis
Yes. I think generally that's correct.
I mean look our fundamentals are still good in our marketplace. Our cap rates have widened a hundred to a couple of hundred basis points off of their peak levels.
I think, as I said, the sellers are now starting to recognize that as a new reality.
Operator
Your next question comes from the line of Mark Biffert with Oppenheimer.
Mark Biffert - Oppenheimer
Ray, just continuing on with the Sunrise margins, I'm curious as to whether or not when you said the 3% to 5% NOI growth on a normalized basis, your margins, I calculated roughly 31% and when you look at the other operators Brookdale and Ameritas they tend to be in the mid-30s. Would you expect then that in '10 and 2011 that you could see outsized NOI growth as those margins close?
Ray Lewis
I mean I think, as I said, if there is a strong recovery you could see the ability to push revenues well ahead of expenses and that would certainly improve margin, but I also think that perhaps as Sunrise is able to continue to shift its focus away from its liquidity to its operations, I think that can continue to drive productivity in our portfolio.
Mark Biffert - Oppenheimer
When you look at acquisitions, I'm just curious about the structure of the deal in terms of what you would look at, potentially maybe partnering with an operator or something or providing some type of purchase option as part of that. Is that a type of deal that you would do if you were looking at the senior housing space or skilled nursing space?
Ray Lewis
Mark, I mean every deal is going to be different, but in general we are going to be looking at triple-net lease structures on quality assets with quality operators. We haven't offered purchase options as a general rule when we structure transactions and we wouldn't expect to change that going forward.
Mark Biffert - Oppenheimer
What about mez investments if you are able to get control of an asset, would you look to do some type of mez investment?
Ray Lewis
The mezzanine loan-to-own strategy has not generally been something that we have participated in or advocated. In general our objective is to find good quality assets on the market that we can buy at an attractive price.
To the extent that we are looking at doing debt transactions, we are really looking for distressed sellers of paper, where we can buy performing debt at, what we consider to be an attractive risk adjusted return for the debt investment itself.
Debra Cafaro
We look to get paid back in those circumstances. As a protection, have to feel comfortable that if we took the asset we could have a good recovery on the asset.
In general real estate I think most people who follow the mez-to-own have not been happy with their outcomes. In addition in healthcare it's a much more operating asset with elderly residents, and so on.
So we are not really following that as a sort of a loan-to-own. We would like to be paid back (inaudible).
Mark Biffert - Oppenheimer
What type of spreads are you seeing in the market? Are you seeing those deals in the market right now or not really?
Ray Lewis
Which deals?
Mark Biffert - Oppenheimer
Just the mez deals. I am just trying to get an idea of what premium that people would have to be willing to get to invest in a mez debt deal say, versus just a straight-up acquisition?
Ray Lewis
We have seen those deals Mark, but we haven't been putting ourselves in the position to price them. So I guess I couldn't really tell you where those things are clearing right now.
Mark Biffert - Oppenheimer
Then one last thing, just on the convert debt that you have coming due. I mean what's your thoughts potentially, given the compression we've seen in the unsecured market about going out and issuing some unsecured and maybe tendering for the rest of that to kind of push out our maturities.
Debra Cafaro
No. That isn't really due until the fourth quarter of 2011.
The coupons 3 and 7/8, we expect to pay that off at maturity.
Operator
Your next question comes from the line of [Brian Satino] from Barclays Capital.
Brian Satino - Barclays Capital
Just quick question here on the mortgage debt with a 5.5% rate. How does that compare to some of the debt that's earmarked and that's maturing?
Debra Cafaro
Well, there's some debt maturing at the end of 2010 and that's probably in the 7% to 7% plus range.
Brian Satino - Barclays Capital
Then on the G&A expense with that coming down a bit in the quarter, I wanted to see if you could put some clarity around that, the decline in your expectation going forward?
Debra Cafaro
We expect on average between $40 million and $44 million total G&A for the year.
Brian Satino - Barclays Capital
Then really quick moving to Sunrise here, I know you mentioned there would be some ramp up in the back half of the year for utilities and repairs and marketing, but if I look at the margin, year-over-year, I think it came down a little bit and I just wanted to see if there was something else going on there? Are there some specific expense lines you can point on?
Ray Lewis
I think with respect to the decrease in margin, it's really just sort of the normal puts and takes that you'd see within a quarter I wouldn't point to anything specifically there.
Operator
Your next question comes from the line of Michelle Ko from Banc of America-Merrill Lynch.
Michelle Ko - Banc of America-Merrill Lynch
I was wondering if you could tell us in terms of cap rates, could you give us a sense of what you are seeing for the SNFs in senior housings?
Ray Lewis
Yields on skilled nursing facilities are leased deals between 9% and 10%, independent and assisted little broader range depending upon the acuity and the quality of the building, but say 7.5% to 9%.
Michelle Ko - Banc of America-Merrill Lynch
Earlier you were talking about unsecured debt looking more attractive these days and in the future you might look towards that versus GSE financing, and I was just wondering if you could tell us what pricing you would get on unsecured debt today?
Debra Cafaro
I'm going to give you an aggressive number, but we really think we could print a 10-year in the 7% to 7.5% range, probably more towards the higher end of that, but unsecured, yes.
Operator
We have a follow-up question from the line of Jerry Doctrow from Stifel Nicolaus.
Jerry Doctrow - Stifel Nicolaus
Two quick things, the sense I got from the comments on acquisitions was pipeline building, but more likely we see stuff in 2010 than in the fourth quarter just from a couple of things you said, is that kind of the right take?
Ray Lewis
Jerry, I think that's probably right. As I said, the pipeline is building, there is interesting opportunities in there, but deals take their time to get done.
So, yes, I think that's probably right.
Jerry Doctrow - Stifel Nicolaus
Just coming back to Sunrise, I know you had in your original purchase contract with the REIT, you got certain rights to buy stuff that was either in development or lease up, I know with Sunrise and their German workout, they've identified a number of things to sell, some of which are properties that are lease up properties, so are any of those things that you have contractual rights on or maybe more broadly would you consider buying Sunrise' assets maybe as they get stabilized that are currently wholly owned?
Debra Cafaro
We do as you correctly say, have rights to acquire development assets in Canada and also in specified geographical areas in the US. We don't have contractual rights relative to the assets to which you refer.
There aren't a lot of them. We would consider it under the right circumstances.
Operator
You have another follow up from David Toti from Citi.
Michael Bilerman - Citi
It is Michael Bilerman, I have quick follow-up. Debbie, your break out of NOI on slide seven in your supp, you should have break it out between all the different categories, if you were to think about three years out based on where your desires to invest are, based on where the pipeline sits, how does that breakout going forward?
What would the company look like?
Debra Cafaro
We've talked a bit about that subject, because we think having a balanced diversified portfolio is a very important positive attribute and that it results in reliable cash flow for investors. So I would tell you that MOBs would be larger.
They've rocketed from 3% to 4% sequentially to NOI. So I think those will be larger and I think that the hospital segment will be about the same to the extent that we get traction on our not for profit hospital initiative, if we don't that probably will shrink a little bit, maybe towards the 10% range.
This over time will probably shrink to 25% or below, although we are open to acquiring quality skilled nursing assets and senior housing with all that will probably stay about half. I think I probably did more than 100%.
Ray Lewis
You might see another asset class in there. I mean there is still other areas of healthcare that we're not involved in that could provide some opportunities as well.
Debra Cafaro
Is that helpful?
David Toti - Citi
That's helpful. Sounds like some of those other asset class and MOBs make up for potentially a larger piece of the pipeline?
Debra Cafaro
You asked about a three year projection, not the pipeline. We will try to make that decision.
Ray Lewis
I think the general theme is that we want to continue to diversify our portfolio and grow it.
Michael Bilerman - Citi
You said the pipeline today was about $2 billion. I guess that's a no.
Debra Cafaro
I don't recall saying that.
Michael Bilerman - Citi
I won't put you on note.
Operator
From Morgan Keegan, your next question comes from the line of Chad Vanacore.
Rob Mains - Morgan Keegan
It's Rob Mains I just wrenched the phone out of Chad's hands. I was on another call, but I don't think this has been touched on, G&A has gone down sequentially three quarters in a row, are you at a level you think is sustainable?
Debra Cafaro
I think it will probably go up a bit in the fourth quarter. We did say they we generally project about $40 million to $44 million per annum.
Operator
You have another follow up from Karin Ford from KeyBanc.
Karin Ford - KeyBanc
One more quick one. When do you expect to have the cash, the $100 million of cash from HCP on hand?
Debra Cafaro
We will let you know as soon as the check arrives. Post trial motions are pending.
We would expect those to be resolved by the end of the year. Then if either party files an appeal, then that will be stacked on to that and that may be another 18 months let's call it.
It's just really hard to predict timing.
Operator
We have no further questions in the queue.
Debra Cafaro
I want to thank everyone for joining our call today. In a period of continued uncertainty, but certainly some positive developments, we appreciate your support.
I want to assure you, all of us here at Ventas, are going to continue to do everything we can to deliver excellent results and build shareholder value for you and we look forward to seeing everyone at (inaudible) in a couple of weeks. Thank you.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Have a great day.