CareTrust REIT Inc (CTRE) 2016 Q4 法說會逐字稿

Welcome to CareTrust REIT's year-end 2016 earnings call. Listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about CareTrust's business and the environment in which it operates.

These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financing and other matters, all of which are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied here. Listeners should not place undue reliance on forward-looking statements and are encouraged to review the Company's SEC filings for a more complete discussion of factors that could impact results, as well as any financial or other statistical information required by SEC Regulation G.

In addition, CareTrust supplements its GAAP reporting with non-GAAP metrics such as EBITDA, normalized EBITDA, FFO, normalized FFO, FAD, and normalized FAD. When viewed together with its GAAP results, CareTrust believes these measures can provide a more complete understanding of its business but they should not be relied upon to the exclusion of GAAP reports.

Except as required by Federal Securities laws, CareTrust and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances, or for any other reason. Listeners are advised that CareTrust filed yesterday its 10-K and accompanying press release, and its quarterly financial supplement, each of which can be accessed on the Investor Relations section of CareTrust website at www.CareTrustREIT.com.

A replay of this call will also be available on the website. At this time, I'd now like to turn the call over to Mr. Greg Stapley, CareTrust Chairman and CEO.

Thank you Christy and good morning everyone. Thank you for joining us today. With me are Bill Wagner, our Chief Financial Officer; Dave Sedgwick, our Vice President of Operations; and Mark Lamb, our Director of Investments.

CareTrust REIT finished 2016 strong, with an $84 million overnight in November and $96 million in new investments in December. We also continued to solidify our balance sheet, adding $11 million under our ATM program in Q4 and reinvesting a sizeable percentage of earnings in new assets and revenues.

For the full year, our total capital deployment was a record $288 million, put out at an average initial cash yield in excess of 9%. We've pushed well past the $100 million run rate revenue milestone and cut the outstanding borrowings on our $400 million revolver to $95 million at year end.

On a run rate basis, at 12/31 our debt to enterprise value was a record low 32% and our debt to EBITDA was 4.6 times. Also during the year our credit ratings were upgraded by both Moody's and Standard & Poor's, and we crossed the critical $1 billion market cap milestone for the first time. In addition to setting us up nicely for 2017 all of this produced, depending on how you count it, a total shareholder return of around 47% for the year.

On behalf of everyone here, we're grateful for the recognition and support that this market has lent to our efforts. I'm really proud of our team, which achieved these numbers notwithstanding a still hot M&A market.

Among other things, they fully underwrote about seven to eight opportunities per week last year and picked through many more in order to find the hidden gems that make up our portfolio. And despite price competition, we remain disciplined as we seek out good acquisitions that we compare with great operators to generate safe dividends for years to come.

To start, Dave will address our operator relationships, then Mark will provide some details on our growth and our pipeline. Then Bill will conclude with the financials. Dave?

Great. Thanks, Greg. So Greg noted that $96 million transaction we completed in December. Mark will talk about the assets shortly, but let me tell you about the new operator we brought in.

Priority Management Group has everything we look for in a partner. Big company sophistication combined with small operator agility and a mission driven culture. The principals have close to 60 years of operating experience, and their company is built to scale throughout Texas and the Southeast. The transition is going well out of the gate, and we're both eager to expand the relationship.

With respect to the broader industry, we stay close to what's happening on the ground, both with our operators and the sector at large. We continue to believe that the best operators will adapt to and thrive in the ever-changing landscape.

The Ensign Group continues to be our Gold Standard for the skilled nursing space. We believe their current lease coverage is in line with prior quarters.

We're also pleased to report a new addition to our team. Eric Gillis is a veteran operator who has come to us straight from the skilled nursing and seniors' housing trenches. We first met Eric when Greg and I worked alongside him back in our Ensign days, where he distinguished himself as a top performer.

Eric joins us to lead and strengthen our Asset Management function, and will be instrumental in helping achieve the kind of hands-on oversight we've been working toward as our portfolio matured. Most recently Eric has been working in the ultra-competitive Kansas City market where bundled payments and other changes have forced operators to adapt as quickly as in any other market in the country. We believe our tenants will find him to be a great resource. And now I'll hand off to Mark.

Thanks Dave, and hello everyone. As Greg and Dave have discussed, we capped off the year with an off-market $96 million Texas acquisition. The effective age of these Dallas area assets is around five years. All are well located, with two of the facilities within walking distance of a major hospital campus. Our going-in cash yield on these was almost 9%.

We also hit the ground running in 2017. Last week we announced a two-property $26 million senior housing acquisition in the Milwaukee metro area. These are also newer buildings, and we picked them up as a tack-on for our existing tenant, Premier Senior Living, at an initial cash yield of 8.3%.

We continue to value skilled nursing assets in the mid-9% range with lease coverage starting at 1.4 times, with adjustments up or down depending on operator, age, location, skilled mix, reimbursement and other metrics. On the senior housing side we continue to look for assets that target a mid-market consumer in secondary and tertiary markets that render lease yields in the mid-8% range with target lease coverage of at least 1.2 times.

While the market for certain assets remains very competitive, we are cultivating excellent relationships with sellers and brokers, sourcing a number of off-market deals and distinguishing ourselves by striving to out-hustle the competition. We remain optimistic about the quality of our current pipeline, which continues to hover in the $100 million to $125 million range.

About 75% of the current pipe consists of skilled nursing assets, with the balance in senior housing. But remember, that ratio can vary significantly from time to time.

We are excited that about half of the current pipe includes new potential operators and would expand our footprint into several new states. Please remember that when we quote our pipe, we only quote deals that we are actively pursuing which meet the yield and coverage underwriting standards that you are accustomed to seeing from us, and then only if we have a reasonable level of confidence that we can lock them up and close them. Bottom line, we're enthusiastic about our prospects for the coming year. And with that, I'll hand it to Bill.

Thanks, Mark. For the quarter we are pleased to report that normalized FFO grew by 43% over the prior-year quarter to $17.2 million, and normalized FAD grew by 38% to $18 million. Normalized FFO per share grew by 12% over the prior-year quarter to $0.28, and normalized FAD per share grew by 7.4% to $0.29.

Given our most recent dividend of $0.17 per share this equates to a pay out ratio of 61% on FFO and $0.59 on FAD, which again represents one of the best covered dividends in the healthcare REIT sector. As Greg mentioned, in November we executed an overnight offering that was essentially match funded to our December 1 Texas acquisitions, netting us about $81 million.

Also during Q4 2016 and into January of 2017 until our trading window closed, we sold shares under our ATM program. We sold approximately 1.8 million shares at an average price of $15.37, resulting in gross proceeds of $27.9 million.

In yesterday's press release we announced our 2017 annual guidance range for normalized FFO per share of $1.11 to $1.13 and for FAD per share of $1.18 to $1.20. This guidance includes all investments made to date, a weighted average share count of 66.3 million shares, and also relies on the following six assumptions.

One, no additional investments nor any further debt or equity issuances this year. Our outstanding balance on the revolving line today is $110 million.

Two, no rent escalations for any of our leases. Our total rental revenues for the year, again including only acquisitions made to date, are projected at approximately $108.5 million.

Our three independent living facilities are projected to do about $300,000 in NOI this year.

Four, interest income of approximately $480,000. This is down from $737,000 in 2016 because the accounting rules limit the amount that we can recognize on our 2014 preferred equity investment, which capped out in 2016. The $480,000 is the income on two preferred equity deals that we closed in Q3 of 2016.

Five, interest expense of approximately $25.1 million. In our calculations we have assumed a LIBOR rate of 1%. That plus the current grid based LIBOR margin rates of 185 bps on the revolver and 205 bps on seven-year term loan make up the floating rates on our revolver and term loan. Interest expense also includes roughly $2.3 million of amortization of deferred financing fees.

Six, we are projecting G&A of between $9.2 million and $10.2 million, which equates to under 8% of total revenues. And again, without reference to any additional growth in our asset base or revenues this year. We have driven that percentage down every year, and intend to continue doing so. Our G&A projection also includes roughly $2.4 million of amortization of stock comp.

As for our credit stats calculated on a run rate basis as of today, our debt-to-EBITDA is approximately 4.6 times, leverage is about 32% of enterprise value, and our fixed charge coverage ratio is approximately 4.5 times. We also have $60 million of cash on hand. And with that, I'll turn it back to Greg.

Thanks, Bill. We hope this discussion has been helpful. We thank you again for your continued interest and support. And with that, we will be happy to answer questions. Christy?

(Operator Instructions)

Our first question is from the line of Jonathan Hughes of Raymond James. Your line is open.

Hey, guys. Thank you for taking my questions. So you've been utilizing the ATM quite a bit since you rolled that out last year. How should we think about how you use that going forward, and if that will decrease your propensity to do large overnight offerings?

Hey, Jonathan. This is Bill. We'll continue to issue under the ATM as long as we like where our stock price is trading and there's volume in the stock. As it relates to overnights, if we cobble together enough material acquisitions or we have a big transaction that we'll do and we like where our stock prices is, we would probably do an overnight.

The ATM gives us great access to fund these, call it, singles and doubles investments that we have been doing. And you saw that with the February closing. That was a $28 million deal and we issued equity in December and January to match fund that. And also we'll use the ATM and overnights to make sure our debt stays in a comfortable range, which is around 4.5 times to 5.5 times on a debt-to-EBITDA basis.

Okay, that's helpful. Appreciate that. And then in the past you've mentioned you'd like to access the unsecured debt markets at some point. Has the upcoming change to the Barclays Bond Index for only issuances of $300 million or more will be included, has that changed your assumptions on that front? Maybe put term loans back into the mix? Any color there would be great.

Yes. The term loan market is in play for us right now, and we like the pricing on that. To do a $300 million unsecured deal we would need a lot of assets out there, and we're just not there right now.

Okay. I guess I just have one more. Last May Gary Sabin retired from the Board and you commenced the search process for filling his role. Any update there or plans to increase the size of the Board with a few more new Directors?

Jonathan, it's Greg. No plans to increase the size of the Board. We think for a Company our size, five is a really good number.

We do have a candidate that's in the final stages of vetting. We expect to make an announcement soon.

Okay, that's great. Thanks guys, appreciate it.

Thank you. Our next question is from the line of Chad Vanacore of Stifel. Your line is open.

Hey, good morning all. Or afternoon, I suppose. Greg, you started off, you mentioned a hot M&A market and it made me think about the markets you're in, who are you competing with, in general?

Chad, it's Mark. I would say that the biggest competition is coming from both operators as well as private equity. We're seeing some REIT peers selectively, but for the most part the main competition is coming from operators and the private money sector.

Okay. And then Mark, what are you seeing as far as cap rates in the markets that you're in? Are they stable, are they compressing or are they widening out?

I'd say they are pretty stable. I think typically in the low to mid-9% is where we are pricing stuff and is where we are seeing stuff go for, the low 9%. But I think you take certain states, particularly California, Pennsylvania, Florida, Virginia, certain, call it CON states or high barrier-to-entry markets, and you'll see cap rates go below that. So I think in general cap rates are somewhat flat but there are markets that have the ability -- that people are paying up for, despite property level economics not being there today. A lot of folks are buying on what the potential that these properties can do in the right hands with the right operator.

All right. And then when you're thinking about underwriting skilled nursing, how do you think about the risks of potential changes in government reimbursement policy when underwriting that, say, a new SNF or a new operator? And then can you talk about specifically, maybe anecdotally, what kind of pressure skilled nursing operators are expressing to you that they are concerned about?

Yes, so let me take the second question first. Most of our operators are making sure that they are finding the right people and the right talent to prepare for the new post-acute environment, looking for the right people that they can scale with, that they can kind of reposition that clinical product to meet the needs of bundled payments, shortened length of stay. Increasing their clinical capabilities is first and foremost, in the front of mind for most of the operators.

I would say going to the underwriting question, like I said in the prepared remarks, we start off the underwriting at a [1.4] coverage and then adjust from there. So in certain markets where we have -- the facilities have high margins or a high skilled mix, we typically will increase our coverage. And a lot of it is going to be dependent upon how many Medicare Part A patients there are, what level of HMO PPD are there.

And then conversely, we take a look at the expense side and try to understand these assets in our operators' hands, are there potential for cost savings right out of the gate. We start at one floor and then rise and fall. Historically, we've bought some largely Medicaid facilities, and really we felt there's been nowhere to go but up and so we could cut coverage. But as we're seeing just performing assets as well as non-performing assets, we start at 140 and then adjust from there if there's, like I said, the skilled mix is higher, we will increase coverage.

All right. That's great color. Thanks a lot.

Thank you. Our next question is from Jordan Sadler of KeyBanc Capital Markets. Your line is open.

Okay, thank you. Just a little bit of a follow-up on pricing. It sounds like things are stable somewhat, but there's been, I guess, relative to what we were seeing, let's say pre-election, despite the fact that maybe long-term interest rates are up 50, 60 basis points, you haven't seen upward pressure on cap rates, or you haven't necessarily changed your underwriting standards?

Jordan, it's Greg. We changed our underwriting standards a little bit. We moved them up at the end of 2015, beginning of 2016. And through the course of this past year our cost of capital has dropped a bit, so we've looked at whether we should raise them a little bit and we are being very cautious about that. But we haven't really moved them up materially in this past year, and don't plan to right now. But we are keeping an eye on it every day.

Okay. When you look at sort of the pace of transaction activity in the market, just try to -- not relative to the pipeline that you identified that seems to be at a pretty consistent level, but relative to the product that's available for sale, how has that sort of flowed sequentially?

I think you have to bifurcate the market into two different buckets. One, there is the huge portfolios that are out there, for example, the Kindred portfolio right now. And those are analyzed and priced and pursued in a completely different way and by largely a different set of buyers than the smaller one-off singles and doubles Bill talked about, which are the things that are our bread and butter. We'll bid on parts of large portfolios from time to time, but we really are sticking to our knitting with the smaller acquisitions that we can cobble together to put up a good year.

That makes sense. And then I guess back to Bill for just the financing side. The recent credit upgrades and the use of the ATM at lower leverage sequentially, all looking pretty positive. Would you say, I know you touched on this but would you say that your propensity is for lower leverage now as things are changing a little bit in the environment?

I mean, obviously you're down. Would you look to continue to taper the overall level of leverage?

It's Greg. I'll take that one, Jordan. We're really comfortable with where we are right now. Bill articulated a 4.5 to 5.5 times debt-to-EBITDA range.

We feel good about that. Our belief is that we will be able to produce the best returns for shareholders while we stay in that range. Absent any kind of anomalous opportunity, call it, I think that's where you'll see us stay. We could go below it temporarily, but I think that it's right where we want to be.

Okay. Thank you.

You bet.

Thank you. Our next question is from Josh Raskin of Barclays. Your line is open.

Thanks. Good afternoon, or I guess good morning for you guys. First question, just on Priority Management Group. I guess, could you just give us a little bit more color on their operating breadth and what they do and how big they are? And then maybe just a little bit of a background on how that investment came to you guys. I think you said it was off market?

Yes, so Priority Management Group, they are a Louisiana-based operator. And they were an introduction to us by the broker that was actually selling the portfolio to us. They come out of a big Mississippi-based company, 30 to 50 buildings. They've been on their own for five or six years and have amassed a small portfolio in Louisiana and Texas. We like them because they are focused on what we believe to be the right things.

They pay attention to the expenses, they know how to drive census, they are focused on the clinical side, they are very, very focused on building relationships with the acute hospitals. So for instance Baylor Scott & White as well as Texas Health Resources. They've had meetings with both of those major acute hospital systems in DFW, which two of the facilities are located right next to a Texas Health Resource facility and a Baylor Scott & White.

They just understand the business, the basic blocking and tackling of managing labor, pushing census occupancy as well as skilled mix. We just like the fact that they are focused on the right things culturally and do right by their patients. We feel like they are in a great position to continue to stay ahead of the competition in these particular markets as the post-acute environment evolves.

Got you.

Jordan this is Greg -- or, Josh this is Greg. I'll take the second half of that question, how we came by this off-market deal.

It is really common in the skilled nursing industry for sellers, particularly local small mom-and-pops and small regionals, when they do decide it's time to retire, step away or get out for whatever reason to be very cautious about widely marketing something because that tends to create a little bit of turmoil inside their operations if that news gets out that they are going to sell. And so they will go to a broker and say, look, I want to show this to one or two really narrowly targeted buyer candidates that we can count on to be confidential, to be good transaction partners, and to actually close a deal.

We work very hard here at CareTrust REIT to be sure that we are that kind of a buyer. We have a relationship with the broker who got that call and brought that deal and said to us, can you do this? And indeed we could. So that's how that happens.

You answered my question on how a broker was not marketed. I guess the other question on this, what were they doing for financing before? Were these owned assets? Are all their other properties owned assets?

It was a combination of owned, and I believe they had two leases from some kind of local Louisiana-based landlords. But for the most part, very conservative in their growth and really kind of bootstrapped the facilities that they currently have.

The opportunity to step up and take on four buildings really kind of set the wheels in motion on what they are able to achieve. So they've been able to scale up, make some incredible hires of some really, really good talented folks operationally on the reimbursement side and then on the marketing side, as well as the therapy side. This is really going to, what we feel, jump start PMG into -- we expect to do a lot of business with them in the future and start to tack on acquisitions in the very near future.

Got you. Then on the Milwaukee properties, should we read into that in terms of where the opportunities lie? I know you said 75%/25% in terms of SNFs versus senior housing in the pipeline. But does a low 8%s yield on assisted living now feel a little bit more attractive relative to low 9%s for SNFs, or am I just reading into that as one transaction and don't make a trend of it?

Josh, this is Greg. That's just one transaction, and from our point of view remember, we're old skilled nursing guys and so we're really comfortable in that arena. A low 8% assisted living or seniors' housing deal versus a low to mid-9% skilled nursing deal from a risk perspective for us, the way we vet them, those are equivalent risk. It's just they will pay us the risk premium for the SNF deal, so we'll take it.

Got you, got you. Okay. Thanks, guys.

Thank you.

(Operator Instructions)

Our next question is from Todd Stender of Wells Fargo. Your line is open.

Hi. Thanks, guys. You talked about the 1.4 coverage. I think I missed the front end of that. Was that under the skilled nursing deals?

That's right.

It seems on the lower side, is that a projection or that's -- how do you have comfort, I guess, inside of 1.5?

That's our starting point and we adjust from there. If you have 100% Medicaid facility, we did several of those transactions last year, high kind of 90% to 100% Medicaid revenue. 1.4 coverage is actually pretty good, but you start to add skilled mix to it and as the skilled mix climbs, we go ahead and start to add the coverage from that perspective.

And then we also look at expenses, what expenses can day one be found by our operators. In certain transactions, ancillary contracts can be put into place day one where meaningful savings can be realized. We start at 1.4 and move from there.

Last year we underwrote Smith's in one of the transactions we closed, we closed at about 1.55, 1.60 coverage. So it just depends on the building and it depends on the operator that we put in there.

Okay, thank you. And then how about the senior housing stuff, did you guys talk about the coverage on that, the two you just closed in Milwaukee?

So our underwriting, we under write to about 1.2 times on the senior housing side. There again it really is dependent. In this case Premier is a great tenant of ours.

We have six or eight buildings with them, and so tucking these two buildings in under a master lease just allows us to spread the risk of this lease. These buildings were underwritten right in and around 1.2. I don't recall the exact metric, but that's -- we start at 1.2 and adjust based on the characteristics of the asset.

Okay, thank you for that. Sticking with the underwriting, I guess, with the backdrop of new supply in general coming in assisted living, potentially higher inflation for more of a pro-growth economic backdrop, potentially I guess under President Trump, any changes in the way you're structuring leases? You generally have pretty friendly leases compared to some of the peers. But that was under, really, an anemic or non-existent inflationary market. But any changes you guys are potentially taking advantage of, any changes in CPI, maybe multiples of CPI, anything like that?

Todd, this is Greg. Remember that our leases start at a 15-year term along with some extension options for the tenants. They are very, very long-term leases. We continue to believe CPI-based escalators with a zero floor and maybe a 3.5% cap is the right place for us to be and the right place for us to put our tenants so that their health and welfare is not impaired by fixed bumps that may or may not in the distant future, or maybe a not so distant future may or may not match up with what's really going on in the marketplace.

Great. Thanks, guys.

Thank you.

Thank you. Our next question is from John Kim of BMO Capital Markets. Your line is open.

Thanks, good morning. Your EBITDA coverage improved this quarter, but it sounds like it's going to be moving around quite a bit with acquisitions and then potentially moving back up as operations improve. Where do you see this figure ending up at year end?

At the end of this year, 2017?

Yes.

Well I'm not sure, John, that we could project that because remember we're constantly layering in new acquisitions. If you are asking about the overall lease coverage, the Ensign lease coverage has been pretty steady for the past few quarters and while they haven't released last quarter yet, we think based on our conversation with them that Q4, it's about the same as it's always been, at least with respect to our portfolio.

And it pulls up, it still represents half our portfolio, and it pulls everybody up very significantly. So with respect to the portion of the portfolio that's not Ensign, we would expect those that have been in the portfolio for awhile to continue to season and mature and improve a little by little over time. In terms of the overall, if we layer in some that are a little below our average, you might expect our coverage to sort of stay about the same to slightly drop over time as we dilute Ensign.

Thanks for that. It sounds like on a same-store basis that is going to actually improve and then on an overall basis, decline with acquisitions? Is that correct?

That's a good way -- [wish I'd] said it that way.

Okay. On your acquisition pipeline, can you just remind us what your typical closing rate is when you go through the pursuing process? Or actually stated another way, what percentage of the $125 million do you expect to close?

Yes, I would tell you that it's going to vary. If you look back to the pipeline in Q3 we had the Texas acquisition in there, which took up most of it. I would say in general our hit rate, I don't know the exact statistics, but I would say we typically close about half of what we're quoting in the pipeline.

And so this is not your full-year guidance as far as acquisitions, correct?

No, I'm just saying on the pipeline that was quoted earlier, the $100 million to $125 million, I think we would expect to close at least half of that.

Remember, it's a snapshot of where we are today. And as I mentioned in my prepared remarks, we're vetting seven to eight deals a week.

I'm sorry if I missed this, but did you provide guidance for the year as far as acquisitions?

As far as acquisitions, we did not. Our guidance is ex of any additional acquisitions.

And then as far as your current pipeline, is there any preferred or [mezz] that you're looking at?

Not at this point.

Okay, great. Thank you.

Thank you.

Thank you. Our next question is from Michael Carroll of RBC Capital Markets. Your line is open.

Yes, thanks. I had a quick follow-up on an earlier question. With the uncertainty caused by the new administration, has this impacted the acquisition market at all in terms of opportunities that are available or specific valuations?

I'd say that Kindred is the big transaction that's out there in the, call it Q1 or thus far throughout the year. You've seen a little bit of a slowdown in acquisition opportunities where I've seen, maybe the velocity that what we saw in Q3 of 2016. I think there is some kind of wait and see from the sellers in terms of what's going to shake out.

I think inevitably you have mom and pops that are committed to selling and then are going to get out before bundled payments fully take effect, but I think for the most part I think right now there's a little bit of a lull in the market in terms of number of quality transactions that are -- or number of sales opportunities. But just in talking to the brokerage community and meeting folks last week out at ASHA, we would expect transaction pace to actually pick up over the next month, especially as we head into the [spring mix]. For the most part, I think everybody knows what's coming and I think we'll see a pick-up in transaction flow.

Is there a thought process out there, an optimism that between any of the operators that the new Secretary could actually slow down the value-based reimbursement trend?

Hey, Michael. This is Dave. We watch that real closely and there is a sense that Tom Price, if confirmed -- was confirmed? Will be helpful for the space. He gets skilled nursing, and he's obviously opposed to the mandatory nature of bundled payments, but not necessarily bundled payments in general. In terms of our underwriting, we're assuming that everything is status quo and will continue down the same trajectory as before. We really do like what we see in Tom Price.

Okay. And then I guess with Tom Price potentially being appointed, does that change how you guys look at any new types of deals, or there's no changes yet?

No, there's no change yet. Just some color that we've gotten from some operators in Georgia that have worked with him, they really are positive about him, particularly around his sympathy for the rural operators.

So there could be some benefit in rates there across the country. But we're not at a point, we don't have visibility enough into that to include that into any of our underwriting.

Okay, great. And then Bill, can you talk a little bit about your CPI expectations? I know you didn't put it in your guidance last year either, but did you record a modest CPI rent increase on your leases last year?

Yes, there was a modest and it tended to go up closer to year end. As a general rule of thumb on our portfolio, our leases turn throughout the year. But if a 1%, call it a 1% increase in CPI would result in a $0.01 increase to our guidance range. We've run it out on a sensitivity basis on a 1%, a 2% and a 3% and 1% is $0.01, 2% is $0.02 its and 3% is $0.03 on our guidance.

Do you think that you'll have another modest increase this year at all and you're just being conservative, or do you expect the CPI will be virtually zero again?

No, I mean if the trend continues, we expect to see a modest increase in the CPI calc.

Okay, great. Thank you.

Thank you. That concludes our Q&A session for today. I'd like to turn the call back over to Mr. Greg Stapley for any further remarks.

Again thanks, everybody, for being on the call. We're grateful and we look forward to talking to you again in about three months. Take care.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a great day.