National Health Investors Inc (NHI) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by and welcome to the National Health Investors second quarter 2011 conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator instructions.) As a reminder, this conference is being recorded, Thursday, August 4, 2011.

I would now like to turn the conference over to Tripp Sullivan of Corporate Communications. Please go ahead.

Thank you, Jennifer. Good morning. Welcome to the National Health Investors conference call to review the Company's results for the second quarter of 2011. On the call today will be Justin Hutchens, President and Chief Executive Officer, and Roger Hopkins, Chief Accounting Officer.

The results, as well as noted to the accessibility of this conference call on a listen-only basis over the internet, were released earlier this morning in a press release that's been covered by the financial media. As we start, let me remind you that statements in this conference call that are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risk or uncertainties and are not guarantees of future performance.

All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission including the risk factors and other information disclosed in NHI's form 10-Q for the quarter ended June 30, 2011, filed this morning. Copies of these filings are available on the SEC's website at www.sec.gov or at NHI's website at www.nhireit.com.

In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the Company's earnings release and accompanying tables and schedules, which has been filed on form 8-K with the SEC this morning. Listeners are encouraged to review those reconciliations provided in the earnings release together will all of the information provided in that release.

I will now turn the call over to Justin Hutchens. Please go ahead.

Thanks, Tripp. Good morning everyone and thank you for joining us. With me today is Roger Hopkins, our Chief Accounting Officer. I'll open with prepared remarks regarding the implications of the recent CMS ruling and our investment activity.

Last Friday the Centers for Medicare and Medicaid Services announced their final ruling on changes in Medicare reimbursement to skilled nursing facilities. The final rule is causing an estimated 11.1% reduction in payments in the CMS fiscal year 2012 versus 2011.

Now that it's out, I'd like to offer a few comments on where we go from here. First off, while the cuts were more than most expected, we weren't totally caught off guard by the magnitude of the cut. We had assumed in our sensitivity analysis the worst case of 11.3% and had walked through a scenario or two on our last call. We had also made the strategic decision not to pursue any skilled nursing facility investments at the elevated 2011 valuations.

Furthermore, nearly two-thirds of our revenue from skilled nursing assets is derived from National Healthcare Corporation. This operator has some of the best lease coverage statistics in the industry with a little less than four times coverage in the CMS fiscal 2010, a little under five times coverage in fiscal 2011, and a projected four times in fiscal 2012 after the announced cut, not to mention that their credit is exceptional with very little debt and a substantial amount of cash on the balance sheet. If we look at our entire SNF portfolio, we have an estimated weighted average lease coverage ratio of three times in fiscal 2012 after the cut.

Finally, there are only two investments in our skilled nursing portfolio that are of high priority to us, and we're working on acquiring the real estate that collateralizes these two notes. Both of these investments happen to be not-for-profit operators and have lower-than-average debt service coverage. We are pursuing the purchase of the real estate that collateralizes these notes and plan to lease them to a better credit tenant.

Turning to what this really means for acquisitions, our pipeline is very active with skilled nursing and assisted living communities. While the market has been attracting peak cap rates for both assisted living and higher-quality skilled nursing facilities, we remain focused on select investments that offer the best combination of asset quality, credit, and yield.

I'd like to remind everyone that NHI has not made an investment in a skilled nursing portfolio since first quarter of 2010. We have been patient and selective and will continue to be. With more clarity now on the level of cuts and that bit of uncertainty quantified, we believe we are a logical buyer in the market. We will proceed with caution, as usual, but we plan to be more persistent in our pursuit of high-quality skilled nursing facilities.

A lot of the focus on the call has been our skilled nursing portfolio, but I would also like to highlight the strength of our private-pay assisted living portfolio. I'll discuss our three primary assisted living tenants, Meredith Senior Living, Bickford Senior Living, and Senior Living Management.

Meredith leases eight properties from us and has achieved a mid-single-digit rate growth over nearly flat expense growth in the portfolio over the past year resulting in solid NOI growth and margin improvement. Bickford Senior Living boasts high-lease coverage ratios in eight communities that they lease and are covering at a rate of 1.7 times. Senior Living Management leases five properties from NHI with a 1.5 times lease service coverage ratio.

In all three cases, we are hearing positive anecdotal feedback and observing strong overall Company performance with these assisted living operators, and all together our lease coverage ratio in our assisted living portfolio is approximately 1.5 times.

Given the tightening of the market, we have also been a seller. In the past year we have sold two medical office buildings and one skilled nursing facility. As we've noted before, we also have a portfolio of skilled nursing facilities that are held for sale to the existing operator. We had originally expected that sale to be completed in 2011, but with the financing for that sale coming from HUD, we are expecting the transaction to occur in 2012. And as Roger will discuss, we also sold a portion of our marketable securities during the quarter.

During the quarter we completed the $15 million sale lease back transaction of four assisted living communities we discussed on our call in May and completed the funding of an $11.9 million construction loan on a transitional rehabilitation center in Arizona. Subsequent to quarter end, we funded a $2.5 million second mortgage for development and construction of an assisted living and memory care community in Florida.

The last two transactions in particular highlight new opportunities that are opening up that offer us the option of owning the real estate as well as entering a market with a leading physical plant low overall cost basis. With the lack of available financing for new development and a competition acquisition environment, we see the potential for NHI to play a role in filling a need for experienced developers and operators. Our management team's experience in operations should also be very beneficial to us should we elect to pursue select development opportunities of our own.

Including our tenants and borrowers, we have 34 customers. Our current investments under review are for the most part coming from this existing base. The benefit of this diversified customer base and longstanding relationships is that they offer a wide variety of further investment opportunity with known credits.

In summary, we demonstrated another quarter of solid execution towards our goal of mid-single-digit FFO growth, select accretive investment opportunities, and growth in the dividend, and we are very well positioned for continued execution. I'll now hand it over to Roger to discuss our financial performance.

Thank you, Justin. Good morning everyone. My comments this morning are consistent with our disclosures in form 10-Q, our earnings press release, and our supplemental data report filed this morning with the SEC.

Normalized funds from operations for the second quarter of 2011 rose 4.1% over the same period in 2010 primarily as a result of lease revenues from our new investments in real estate in 2010 totaling $121.7 million and $15.4 million so far in 2011. Normalized FFO for the second quarter of 2011 was $20,180,000, or $0.73 per basic and diluted share compared with normalized FFO of $19,255,000, or $.70 per basic and diluted share in the second quarter of 2010.

Normalized FFO for the second quarter of 2011 excludes $8,655,000 of realized gains on the sale of a portion of our investment in marketable securities, primarily 381,000 common shares of LTC. The proceeds from liquidating a portion of these marketable securities enabled us to make new real estate investments in May without incurring additional bank date.

Normalized FFO for the second quarter of 2011 also excludes the quarterly change in the fair value of our interest rate agreement of $988,000, a non-cash adjustment an increase to reported interest expense. During the first quarter this same non-cash adjustment reduced reported interest expense by $1,254,000.

Frankly we have received so many questions from investors, analysts, and our own management about this unpredictable non-cash adjustment that we have decided to normalize this adjustment in the calculation of normalized FFO for both the first and second quarter. By doing so, our normalized FFO on a year-to-date basis was only reduced by $0.01 per common share.

Net income for the second quarter of 2011 was $25,117,000, or $0.90 per basic and diluted share compared with net income of $19,189,000, or $0.69 per basic and diluted common share for the same period in 2010. Net income for the second quarter includes the effects of the gains on sales of marketable securities and the fair value adjustment of the interest rate swap as described earlier. A reconciliation of our net income to FFO and normalized FFO for the three months ended June 30, 2011 is included in our earnings release.

Our revenues for the second quarter of 2011 were up 6.2% compared to the same period in 2010 to $20,280,000. Straight-line rental income was $945,000 in the second quarter compared to $767,000 during the same period in 2010. Rental income excludes the revenues from those properties that we sold or that meet the accounting criterias being held for sale.

There remain five skilled nursing facilities in Texas that we plan to sell to our current tenant when they obtain long-term purchase financing. These properties are classified as assets held for sale on our balance sheet and as discontinued operations in our income statement. We plan to defer recognition of the tax gain on the sale of these properties when they are sold. Revenues from properties classified, as discontinued operations were $1,211,000 in the second quarter of 2011 compared to $1,242,000 during the same period in 2010. Rental income from our owned assets represented 92% of our second quarter total revenue.

Our operating expenses for the second quarter of 2011 increased only $32,000 from the same period in 2010 when you exclude the effect of a one-time loan recovery of $573,000 in 2010. Depreciation expense increased $161,000 during the second quarter of 2011 compared to the same period in 2010 as a result of our new real estate investments in 2010 and 2011.

Investment and other income includes $8,655,000 in gains on the sale of marketable securities described earlier. Our interest expense and amortization of debt-related costs were $1,589,000 for the second quarter of 2011 and includes the non-cash charge of $988,000 for the change in the fair value of our interest rate swap agreement. Our only debt is a bank term loan expiring in November 2015 with a current balance of $48,750,000 with a fixed rate of 3.98%.

Altogether our second quarter results met our internal forecast and is consistent with our expectations for the last two quarters of 2011 without any consideration of new investments or unforeseen events affecting our tenant revenues.

Normalized funds from operations for the six months ended June 30, 2011 rose 5% over the same period in 2010 primarily as a result of lease revenues from our new investments in real estate in 2010 and 2011. Normalized FFO for the first six months of 2011 was $38,257,000 or $1.38 per common -- per basic and diluted share compared with normalized FFO of $36,429,000 or $1.32 per basic and diluted share for the same six-month period in 2010.

Normalized FFO for 2011 excludes $8,809,000 of realized gains on the sale of a portion of our investment in marketable securities and $266,000 in a non-cash adjustment for the change in fair value of our interest rate swap agreement.

Our revenues for the first six months of 2011 were up 4.1% compared to the same period in 2010 to $40,897,000. Straight-line rental income was $1,855,000 in the first six months of 2011 compared to $1,429,000 during the same period in 2010 due to new real estate investments made in 2010 and 2011.

Our total operating expenses for the first six months of 2011 were $11,780,000, increased only $349,000 from the same period in 2010 when you exclude the effect of a one-time loan recovery of $573,000 in 2010. Depreciation expense increased $523,000 for the first six months of 2011 compared to the same period in 2010 as a result of our new real estate investments made in 2010 and 2011.

Investment and other income of $11,202,000 for the first six months of 2011 includes $8,809,000 of gains on the sale of marketable securities. The remaining income in our dividends on our investments in the common and preferred shares of other healthcare rates and interest on our bank deposits.

Our interest expense and amortization of debt-related costs were $848,000 for the first six months of 2011 and is net of accumulative increase in our interest rate swap agreement of $266,000. We have no borrowings on our revolving credit facility of $50 million. There is an accordion feature in the credit facility that would allow us total borrowings of up to $200 million.

We have a low debt total book capitalization of only 9.8% and a low debt to total market capitalization of only 3.9%. We expect our normal monthly cash flows and borrowings on our revolving credit facility will be the primary source of capital for our new real estate investments for the remainder of 2011 and 2012. Though we plan to leverage our balance sheet to fund our new real estate investments in the short term, we intend that our debt to total book and market capitalization remain at a level that is below our larger peers in the REIT industry. Our Company has a history of being a low-leverage healthcare REIT as it relates to total book and market capitalization. We ended the second quarter with cash and marketable securities of $32,273,000.

Finally it is meaningful to remind our listeners that we remain committed to our annual goals of increasing FFO and the dividend to shareholders on a per-share basis. Our real estate investments must meet our stringent underwriting criteria and generate current income to our shareholders in the first year. We believe that increasing cash flow from our leases and dividends to shareholders on an annual basis as we have done for many years now is something that never went out of style and that investors can rely on our management to keep this as our goal.

I'd now like to turn the call back over to Justin with comments about our 2011 normalized FFO guidance.

Thank you, Roger. Our guidance for 2011 remains unchanged. Normalized FFO is expected to be $2.83 to $2.93 per share with all other assumptions unchanged as well. The variability in the range certainly relies on the timing and the size of any additional investments we might make.

In closing, note that the long-term growth potential of our industry remains incredibly attractive. The consolidation among owners and operators, the opportunities for potential development and construction lending, and rationalization among sellers and buyers alike continues to play to our strengths of a patient approach, a low-leverage capital plan, and operator perspective in our flexibility and creativity.

NHI has been one of the top performers in the healthcare regroup over the past two to three years, and I like our chances to continue to be a leader, as investors increasingly understand the credit quality of our portfolio and our ongoing growth prospects.

With that, I'll turn the call over to our operator to take any questions that you may have for us this morning.

Thank you very much. (Operator instructions.) Our first question comes from the line of Rob Mains from Morgan Keegan. Please proceed with your question.

Yes, thanks. Good morning, Justin and Roger. Just doing the math here on the guidance. You -- by including the change in the fair value of swaps, you kind of lower the first quarter FFO by a nickel, right?

Yes.

So if -- but the guidance of $2.83 to $2.93, that's with that lower first quarter in mind?

Yes. That's right. It had a $0.05 impact in the first quarter and a $0.04 impact in the second quarter, and so it's just completely unpredictable and we've gotten so many questions about it we just decided to exclude it. And so for six months it only reduced normalized FFO by $0.01.

Okay. I get what you're saying. All right, that -- that makes good sense. Let me ask the first of what I imagine will be several nursing home questions. Sorry. When you talk about your NHC coverage, and I understand because they're -- because you're their only landlord, you're talking about kind of enterprise-wide EBITDAR coverage. Is -- when you talk about the weighted average for the entire portfolio, are you looking at your other leases on that basis or is that just on a property level coverage basis?

That's a great question, and you're absolutely right. On the NHC portfolio we look to their corporate guarantee, enterprise EBITDAR, because we are their only landlord and they have very little other debt so they're -- it's a very I think accurate approach to look to their corporate for the coverage.

Now in the rest of our portfolio we do not take that approach. We look to the property level. And just a stat on that, away from NHC and after cuts, the rest of our portfolio covers at approximately a 1.5 to one. So I don't know if that gets to what you're getting it. Then if you -- we do the weighted average of that together with NHC's coverage, then you're at about a three times for the whole group.

Okay. So that combines the NHC you said roughly four times enterprise coverage with the rest of the portfolio one-half times property level?

That's right.

Okay. Great. And then I just want to make sure I understand what you were saying about the mortgages. Are those two mortgages on two properties or two mortgages on multiple properties?

It's two mortgages on multiple properties. In fact, they're in four different states. And it would be a sizable acquisition. One of the -- just a little additional feedback on that, one reason we're not losing tons of sleep over it is because both portfolios are currently paying P&I with a little bit more going to principle. So from an income standpoint there's still -- even if we don't buy them, there's a lot less risk than there would otherwise be if we were counting on their entire payment to go to income.

Okay. And did you say how many of those -- how many of those two mortgages then, how many of your -- how much of the mortgage portfolio that covers?

How much of it is it?

Are they like properties or balances or whatever?

It would cover more than half of the mortgage portfolio.

Okay. Okay, I'll jump out and let somebody else have some questions. Thanks.

Thanks.

Thank you. Our next question comes from the line of Jerry Doctrow from Stifel Nicolaus. Please proceed with your question.

Good morning. It's actually Dan Bernstein filling in for Jerry.

Hi, Dan.

Hi. I'll try not to ask too many SNF questions also. I just want to make sure, that 1.5 times coverage, that's after the 11.1% cuts and it's on an EBITDAR basis?

Yes, it's on -- it's on an NOI basis after a management fee that runs between 4% and 5% in our SNF portfolio and then after roughly a $400-a-bed CapEx. And before the cuts, just to give you a little perspective, that same group was covering at about a 1.8 times, and it drops to about a 1.5 times.

So it's an after CapEx coverage as well?

Yes, it's even after CapEx. This is as conservative of a look as we could give you.

And as far as NHC goes, do you have a sense of -- give us a sense of what the quality mix is there and what their reliance on Medicare is? I mean should they be expecting their net cut to actually be less than the 11.1%?

Well, I mean here's -- I've --.

Have they given any guidance?

Well, they haven't, but I'll tell you what they said and I'll tell you what -- how we got to our sensitivity analysis by talking to them and other operators.

Basically where NCH stands is they're -- they're really looking at once they make some mitigation adjustments and they're on their regular run rate with the new reimbursement, they think their 2010 run rate is about where they'll be. And so -- and they took everything into consideration, and that's been pretty consistent with the other operators.

The way we did this is you took -- you take that 11.1% parity adjustment and aside from that you have to consider the technical fixes, the changes in group therapy, the changing in the timing of the OMRAs, those other Medicare required assessments, and the operators are putting numbers to those, but they're also putting numbers to some mitigation through expense reduction, and we're just not considering the technical fixes and we're not considering mitigation. We're just saying it's an 11.1% cut.

And I think most operators will tell you they'll probably get a little bit -- probably do a little better than that, but we're taking a conservative approach when we run our sensitivity analysis.

That's what we've done so that's right on line. In terms of the rent sale from NHC, that can't go backwards at all. Excuse me, you may not get as much percentage rent increase, but your rent there can't go backwards, is that right?

That's right.

And in terms of the acquisition environment, you've obviously not made a lot of acquisitions in the SNFs. The prices that the multi-billion-dollar deals have been going for --.

Yes.

Do you -- I guess what kind of magnitude pullback in cap rates would you expect from the dislocation that's going to come from those rate cuts? Is it 50 BPS, 100 BPS, or at least maybe where do you expect to be able to buy SNF assets in the future in terms of either initial yields or cap rates or however you want to think about it?

You know, I don't have a good feel for that yet. I can tell you this, and this isn't even kidding around. We had a one-off asset that we consider -- this is not in SNF, this is in assisted living, which has also been elevated in the cap rates. We had a one-off asset that we considered that we put kind of our normal underwriting to, and we were outbid by 25% on the purchase price, and the lease rate was 100 basis points lower than what we were considering. And that was -- so it's a very aggressive market.

I think that market's going to come back as well now that some of the big deals are behind us. But in the -- the price expectations that come with that and also I don't believe there's been nearly as much capital raising in the first part of this year as there was in 2010 in the peer group.

So I think that the assisted livings will come back a little bit. Certainly the skilled nursing cap rates -- the one thing that's interesting about skilled nursing cap rates is they've been almost exactly the same for 15 years running until this year. And you started seeing deals get done, very aggressive twelve caps reportedly and maybe even a little bit more aggressive than that based on where the actual run rate will be on the go-forward basis after the cuts.

So we're anticipated the cap rates at least on NOI to get back to that twelve to 14 range and closer to 13 and 14 and the lease rates back in the solid nines again. And that's been a pretty consistent market for the skilled nursing sector. And on the assisted living side, I just don't quite have a read yet. There are some deals we're pursuing. A lot of them are more with our existing customers, and it's a different dynamic then -- it's more of a strategic play then out competing for acquisitions in the open market.

And I just have one last question and then I'll jump off. We've seen from some of the senior housing operators I guess weak second quarter results in terms of occupancy, and you talk about your portfolios doing well. I just wanted to get your thoughts on what you're seeing out there in terms of -- I guess maybe broadly how you're feeling about the senior housing industry today and what's influencing the occupancy weakness.

I didn't hear what you -- what'd you say you're seeing?

I guess some of the senior housing operators reported weak quarter-over-quarter occupancy.

Yes.

And you're saying your operations are doing well. I just wanted to get some more clarity and what you're seeing in terms of senior housing performance and maybe what's influencing the -- your performance maybe versus the rest of the industry.

Well, I can tell you even -- a little color, I got a call this week from one of our operators that said we hit a new milestone in your portfolio. We're at 94%, in an assisted living portfolio, and they're still seeing growth there. We have had some good growth in our portfolios. There's been different reasons for that.

One of the things that helped, for instance, the Bickford portfolio. When we bought that almost two years ago, the first part of it was in lease up still. It's brand new buildings. They were still in lease up, and so they just kept right on going, and now they're at a level where they're close to stabilized.

So maybe we have a little different look then what you're looking at in the public companies. But I can even tell you in terms of the markets that we're -- we've been looking at and as we've pursued some other potential investments, there's a lot of strength out there in senior housing.

And I don't know that a public company's performance is necessarily representative of the whole industry. And maybe there was some quarter-to-quarter weakness, but my gut and my hunch based on what I'm seeing is that that's not the start of any kind of trend, particularly in the need-driven assisted living and Alzheimer's market. Not as clear on independent living. We don't spend as much time there. But I just don't see, from where I'm looking, any start of a trend in reduced occupancy in assisted living.

Okay. I appreciate it. Thanks for having me on the call. Have a good day.

Yes, thanks. I appreciate it, Dan.

Thank you. Our next question is from the line of Todd Stender from Wells Fargo Securities. Please proceed with your question.

Hi. Thanks guys.

Hi, Todd.

When you're looking at how the CMS has played out and how your tenants are looking at maybe their liquidity, do you guys provide working capital loans? Is that part of -- is that part of what you do?

We -- we have not provided working capital loans, and based on our initial look, at least within our portfolios, we don't think that's going to be needed. Maybe there'll be -- there might be some requests for that. I know it's been done in the past when there's been some weakness in the market by some other REITs. It's certainly not our preference to really add leverage to what might already be an over-leveraged situation, but -- and have not had anyone request that from us.

Occasionally we'll get requests. In fact, we love this kind of deal though where an operator will ask us to invest in their capital expenditures as a reimbursement to building improvements and expansions. We're doing that with our Emeritus portfolio right now. We'd like to do that -- some more of that type of investing because the ROI on that tends to prove to be very good and it's an opportunity to invest in our own real estate. And I think if we're going to invest more in -- it's going to be more than likely in the form of CapEx.

And just staying on that, Justin, with the CapEx discussion. Do you think the CMS announcement and how it's going to play out is going to impact the operators from making capital expenditures in the facilities or maybe those expenditures get pushed out?

There's definitely some retooling that's happening in talking to our customers there's -- in one in particular that went out publically and said that they felt as though they were overspending on their portfolio a little bit. Strategically they had room to pull back, and where they pulled back they would look to reach to help contribute some financing for some strategic repositioning in their buildings.

And I would expect we'll get more requests like that and we'll see more of that. But the thing about operations and staying competitive in the market, everybody knows you have to keep your buildings up-to-date and particularly where you have a REIT involved with an operator, you have an extra emphasis on that given the resources that REITs have and that NHI has to oversee our portfolio.

Thanks. And just switching gears. Just in your opening comments discussing the mortgages that may prompt your acquisition of these facilities, what triggered this? Was there an event that prompted the discussion to -- for you guys to take ownership?

No, well, yes. In one case there was a maturity that is -- we're going to go ahead and extend, but that got us to the discussion -- the negotiating table with them. And then in the other case, you just have an operator that doesn't desire to operate long term, and they haven't had much profitability, and it -- we all mutually agree it could -- the buildings could do a lot better in the hands of a new operator, and we think it's a pretty good opportunity if we can buy that and get it with a better credit and a more sophisticated operator, and that's really what's driving it.

And on our last call I mentioned in the sensitivity analysis that those portfolios would be our lowest coverage or really be the biggest focus of ours. And now that the cuts have materialized, they continue to be our biggest focus. And fortunately we already have plans underway with those, and I feel comfortable that we'll have a -- we'll have an outcome that doesn't materially impact our income from those if at all.

Okay. And then just following on the sensitivity, and you gave some pretty good coverage of where the rent coverage is, you said it's 1.8 times on the non-NHC portfolio after the 11% cut, now it's down to about 1.5.

Actually, yes. Let me clarify that. It was 1.8 times before and 1.5 after the cut.

Okay. If you look at -- if you look at --.

On the non-NHC.

Non-NHC.

And then NHC drops to four times after the cut.

Is that -- is that really just looking at the revenue line and not giving any forecast for any operating cost reductions?

Yes. We did not allow for any mitigation of the cut, so we just ran with the current expense rate, which all of our operators say that's not going to be the case. There's going to be an expense reduction. But what we also did not give credit to is the impact of the OMRAs, the dates required to end therapy if moved a little bit, and that's going -- it's going to reduce reimbursement to our operators, and I don't think everyone's clear how much. It's not going to be a huge impact, but we just didn't give credit to it either.

And I don't think it's going to be nearly enough to offset the expense reduction mitigation. So just by simply going with the 11.1% cut from their CMS fiscal year 2011 Medicare revenue, I still think that's conservative, and we're still at a 1.5 to one on the non-NHC, and we're at three times overall.

Okay. That's very helpful. Just switching gears on my last question. With your stock beaten down like everybody else, and I would say probably unfairly just based on your coverage ratios and where your -- the direction your portfolio is heading, does the Board have a share buyback program in place? Is there any discussion around that if your stock price falls to a level that you guys deem is -- could be attractive to buying back?

Haven't entertained that. We're optimistic that we're going to bounce back. But really at least at this time we haven't. That's not part of our planning.

Okay. Thanks guys.

Thank you. (Operator instructions.) Our next question is from the line of John Roberts from Hilliard Lyons. Please proceed with your question.

Hi, Justin and Roger.

Hi, John.

Hello.

Most of my questions have been answered, but let me just -- a little housekeeping, and I may have missed this. Roger, did you mention what were the marketable securities you sold during the quarter?

I did. We sold 381,000 common shares of LTC.

Okay. And then maybe just following up a little bit on the elephant in the room, the SNF questions. This also plays into the ALFs. Has the fact that you guys haven't been real active, is that a function of just sitting on the sidelines or more that you've been outbid on properties?

It's been a little bit of both. There's actually been kind of three factors in terms of our -- the slowness in activity. I'll start with the first one. The first one was in the skilled nursing facility pipeline, when the announcement came out that there were potential cuts, our frame of mind was we have to assume the worst cuts will happen. So it was nearly impossible to come to an agreement on our price when we're underwriting -- we were underwriting 11.3% cut into our potential investments. And some of the investments we were pursuing actually did get done by other investors.

There's still -- and then there's another part of our pipeline that continues where we're working with existing tenants that were more on the same page where they really wanted to see what the outcome would be of the cuts and see that we're getting to evaluation because they want to make sure that they're able to afford to cover our lease payment for years to come and if they have a cash flow stream to count on. And so that's -- those types of discussions are still happening.

We have been outbid on some portfolios. I gave the example of that one-off asset. And there's a limit in terms of how much we're going to pay and how much -- and certainly we're very focused on making accretive investments that ultimately give us cash flow to increase our dividend. And when you start getting into an investment that's not accretive, it just doesn't make sense from a credit standpoint or from a strategic planning standpoint of increasing the dividend over time.

So it's been a bit competitive, but I also add that we're still very, very busy with opportunities, both with existing customers and other new referrals out there, direct referrals that are looking for a capital partner moving forward. So even though it is competitive, I feel very, very good about how -- NHI's position in the market and expect that it will continue to grow.

So you might expect some pickup in activity going forward?

Yes. Yes, in fact I think it was on our last call that we mentioned that we expect to deploy $250 million over the next couple of years. The timing of that will vary of course. And that's exactly where we still stand today.

Great, guys. Thanks.

Thanks.

Thank you. And our last question is a follow-up from Rob Mains from Morgan Keegan. Please proceed.

Yes, this is an easy one. I may have missed something, but Roger, sequentially rental income was down a little bit. Is there -- did you discuss that, or is there an explanation that I'm not thinking of?

The rental income was up for both the three and six months.

Okay, I must have -- I must have something wrong in my calculation. I'll call you off line.

Go ahead.

Thanks.

There are no further questions at this time. I'd now like to turn the call back to Mr. Hutchens.

Okay. All right. Well, I'd like to close with just a comment that moving forward strategically and coming off Todd's question earlier about whether we'd consider a stock buyback. While that's not in the planning now, certainly we're always putting all options on the table to try to enhance shareholder value. We believe we have a lot of levers to pull to continue to do that. Love the positioning we have in the market place and look forward to more growth and value creation for our shareholders. And we appreciate your time today and look forward to speaking to you again on the third quarter call.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation, and we ask that you please disconnect your line. Thank you, and have a good day.