National Health Investors Inc (NHI) 2011 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by, and welcome to the National Health Investors fourth quarter 2011conference call. (Operator Instructions). I'd like to turn the conference over to Tripp Sullivan of Corporate Communications. Please go ahead, sir.

Thank you, Eric. Good morning. Welcome to the National Health Investors conference call to review the Company's results for the fourth 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 notice of the accessibility of this conference call on a listen-only basis over the Internet, were released yesterday afternoon in a press release that's been covered by the financial media.

As we start, let me remind you the statements in this conference call that are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks 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 and its periodic reports filled with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-K for the year ended December 31, 2011. 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. Listeners are encouraged to review those reconciliations provided in the earnings release, together with all other information provided in that release. I'll now turn the call over to Justin Hutchens. Please go ahead.

Thank you, Tripp. Good morning everyone, and thank you for joining us. With me today are Roger Hopkins, our Chief Accounting Officer.

We're proud to report another excellent year for NHI shareholders. We achieved our growth goals, increased the dividend by 5.7% and provided a special dividend as well. And as we'll talk about today, we are poised for another potentially strong year. I'll come back to that in a moment. First, let me turn the call over to Roger to walk through our financial results. Roger.

Thanks, Justin. Good morning, everyone. My comments this morning are consistent with our disclosures on Form 10-K, our earnings press release and our supplemental data report filed yesterday afternoon with the SEC.

Normalized funds from operations for the fourth quarter of 2011 rose 7.1% over the same period in 2010, primarily as a result of revenues from our new investments funded in 2011, totaling $82.4 million. Normalized FFO for the fourth quarter of 2011 was $21.448 million, or $0.77 per diluted share compared with normalized FFO of $20.031 million ,or $0.72 per diluted share in the fourth quarter of 2010.

Normalized funds available for distribution for the fourth quarter of 2011 was $20.908 million, or $0.75 per diluted share compared with $19.468 million, or $0.70 per diluted share for the same period in 2010. Normalized FFO and normalized FAD for the fourth quarter of 2011excludes a $275,000 decrease in the fair value and settlement of an interest rate swap agreement and other adjustments of $135,000.

Net income for the fourth quarter of 2011 was $18.114 million, or $0.65 per diluted share compared with net income of $16.955 million, or $0.61 per diluted share for the same period in 2010. A reconciliation of our net income to FFO, normalized FFO, FAD and normalized FAD for the fourth quarter and year ended December 31, 2011 is included in our earnings release, our Form 10-K and supplemental data report.

Our revenues for the fourth quarter of 2011 were up 10.3% compared to the same period in 2010 to $21.524 million. Straight-line rental income was $1.016 million in the fourth quarter, compared to $910,000 during the same period in 2010. Rental income excludes the revenues from those properties that were sold or that meet the accounting criteria as being held for sale.

Their remains 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.

Income from properties classified as discontinued operations was $1.211 million in the fourth quarter of 2011 compared to $1.371 million during the same period in 2010. Rental income from our owned assets represented 92% of our fourth quarter revenue.

Depreciation expense increased $398,000 during the fourth quarter of 2011 compared to the same period in 2010 as a result of our new real estate investments in 2011. Our interest expense was $1.219 million for the fourth quarter of 2011 and includes $275,000 for the decrease in the fair value and settlement of an interest rate swap agreement and amortization of debt related costs of $459,000. Our fourth quarter results met our internal forecast and were consistent with our expectations when we had our last earnings call in November.

Turning to the full-year results. Normalized FFO for the year ended December 31, 2011, rose 4.8% 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 2011 was $80.176 million, or $2.88 per diluted share compared with normalized FFO of $76.483 million, or $2.76 per diluted share for 2010.

Normalized FAD for 2011 was $80.419 million, or $2.89 per diluted share compared to $76.381 million, or $2.75 per diluted share for 2010. Normalized FFO and normalized FAD for 2011 excludes $9.899 million in gains and recoveries on the sale of a portion of NHI's investment in marketable securities, a $1.197 million decrease in the fair value and settlement of an interest rate swap agreement and other adjustments of $36,000.

Our revenues for 2011 were up 6% compared to 2010 to $82.702 million. Straight-line rental income was $3.778 million in 2011 compared to $3.140 million during 2010 due to the real estate investments made in 2010 and 2011.

Our total operating expenses increased only 2.6% in 2011 from 2010 when you exclude the effect of loan recoveries received by us in 2011 and 2010. Depreciation expense increased $1.034 million during 2011 compared to 2010 as a result of our new real estate investments made in 2010 and 2011. Our non-cash stock-based compensation expense was $3.087 million in 2011 compared to $2.368 million in 2010. We award stock options to our directors and employees during the first quarter of each year.

Due to the immediate investing of a portion of these options, we estimate the incremental non-cash impact to our general and administrative expenses and decrease in FFO in the first quarter will be $0.05, which will not reoccur in the next three quarters.

Investment in other income of $14.744 million for 2011 includes $9.899 million of gains as described earlier. The remaining income is our dividends on investments in the common and preferred shares of other health care rates and interest on our bank deposits. Our interest expense was $3.848 million for 2011, and includes $1.197 million in the exchange in fair value and settlement in November of our interest rate swap agreement and $581,000 in amortization of debt related costs. Income from properties classified as discontinued operations was $5.024 million in 2011 compared to $5.577 million in 2010.

During 2011 we sold two medical office buildings, one skilled nursing facility and one assisted living facility. We have selectively sold portfolio assets in the past in order to redeploy the sales proceeds into new assets with long-term relevance to the Company.

Our only debt at the end of 2011 was our borrowings of $97.300 million on a revolving credit facility expiring in November 2015. We have a low debt to total book capitalization of only 18% and a low debt to total market capitalization of only 7.2%.

As discussed on our November conference call, we have entered into a new four-year $200 million unsecured revolving credit facility. Interest on outstanding borrowings is at a margin of 150 basis points over LIBOR and there is an unused commitment fee of 35 basis points. We have the option to extend the maturity to five years. There is an accordion feature in this credit facility which could increase the total commitment to $300 million.

We paid off and canceled the previous credit facility that had an interest margin of 250 basis points over LIBOR and we terminated the interest rate swap agreement. We expect our normal monthly cash flows, borrowings on our revolving credit facility and potential longer term debt will be the primary source of capital to fund our new real estate investments for 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's below our larger [fiercer] REIT industry. We ended 2011 with cash and marketable securities of $27.25 million.

On December 8, we announced an increase in our regular quarterly dividend to $0.65 per share, and a special dividend of $0.22 per share to shareholders of record on December 31, 2011 which was paid on January 31, 2012. The payout ratio of our total dividends declared for 2011, as a percentage of our total FFO generated, was 85%. I'd now like to turn the call back over to Justin with comments about our 2011 normalized FFO guidance.

Thanks, Roger. For 2011, we funded our main commitments of $100.4 million in leaseback transactions and mortgage loans involving health care real estate. Our pipeline remains robust. However, we will continue to exercise considerable discipline and selectivity in new investments.

Looking back at the last three years, we have completed a total of $330 million in investments and would expect a similar pace over the next three years. We believe we've struck the right balance of growth while keeping leverage low to preserve a maximum flexibility with our balance sheet. During that timeframe, I would also note that we've delivered a total return to shareholders of 94.5% for the past three fiscal years.

With a $200 million credit facility we put in place in the fourth quarter, we have the current capacity to fund most of that growth over the next three years. We will supplement it by terming out about half of that capacity over time. Rates and terms remain attractive with the combination of term loans, agency financing or HUD financing.

Turning to our guidance for 2012, we are projecting a range of $3.02 to $3.10 per diluted share in normalized FFO. The primary assumption on a low end of the range is a baseline from Q4 2011 of $0.05 incremental stock comp expense Roger mentioned for Q1 and no additional investments completed in the year. The high end of the range assumes an investment pace similar to what we've averaged over the last three years.

Our pristine balance sheet, lower cost of capital, active pipeline and selectivity in our investment activity have us poised for a potentially strong 2012. With that, I'll turn the call over to our operator and take any questions that you may have for us this morning.

(Operator Instructions). And our first question comes from Rob Mains with Morgan Keegan. Please go ahead.

Good morning, everybody.

Hi, Rob.

Good morning.

Question on the five SNFs [that are] for sale. Any sense as to what the timing of that might be?

It has been a while. They are pursuing HUD financing for the portfolio. I'd be surprised if it was imminent. I can tell you that. And then also our intention is to time the sale so that we're replacing with new assets to preserve our income stream.

Okay. All right. That answers my second question as well. Thanks. So not imminent sometime this year, but I know that HUD financing is pretty hard to handicap.

Right.

And then in terms on the acquisition side, two questions. The first one is assisted living, senior housing. Where you're seeing pricing for that giving a little bit of an upturn in the economy? And the second on the nurse nursing home side, some of the companies are starting to report or give guidance. It sounds like the outlook there isn't as dire as you might have thought the last couple conference calls. And I know that the focus for NHI is going to be more senior housing, but whether you're seeing any increase in supply or willingness to do deals on the skilled nursing side.

Okay. Let me start with just your assisted living question. The lease cap rates that are out there in the market are in the high sevens to the mid eights. Of course, when we make a leaseback transaction with the existing operator, we're trying to leave excess cash flow in place.

So we're usually trying to purchase in the high nines, all the way up into the tens, in terms of cap rate on NOI. But if you're going to make an acquisition in the open market, which really hasn't been our focus, we've been more relationship oriented, usually the cap rate on lease rate and NOI are pretty close together.

Having said that, our pipeline for assisted living is the biggest it's been in three years. In fact, it's the biggest it's been for anything, any asset type in three years, but we still remain selective. We are pursuing assisted living as a priority.

There is some skilled nursing. I think part of our pipeline has been driven by our being vocal about preferring some diversification in our portfolio which includes the private pay assets. But we've been opportunistic with skilled nursing as well, where we can get very high quality assets, our operators, and particularly, we've been prioritizing our existing customers.

In terms of the skilled nursing outlook, we've have numbers in our portfolio now, so we actually have some real world numbers that speak to what the performance was relative to the expected cuts. And where everyone seems to think it would be was somewhere close to what their 2010 run rate was. So, basically just eliminating the excess revenue that everyone experienced in 2011. It wasn't a clean cut because they also changed the [runs] reimbursement a little bit. So there was some adjustments made and some of the technical fixes caused some operational adjustments as well.

But what we have seen is some operators have come in a little better than what they expected in terms of the 11% cut, which would mean they're probably even doing a little better than their 2010 run rate. And then we have other operators that were a little higher than 11%. And it really was just driven by the patient mix that they had in their facilities.

I'll just add this. It speaks to your question I think, but also it might answer some other questions that might come up. And that is how the operators adjusted, and really what we saw with our tenants as they just adjusted in three primary categories.

One was managing the length of stay. There was opportunity with case management and setting goals in certain markets with the patients to expand the length of stay. Another was just expense control usually at the corporate level and as far away from the patient as possible. There was some efficiencies on the expense side. And then also census.

One of the big strategies that the skilled nursing operators have been focused on has been to partner with hospitals to prepare for the hospitals being penalized for the hospital readmissions as part of the Obama health care plan. So there's been a lot of interactions in various markets with the operators in hospitals and the net outcome of that is some census increase. So there's been some volume of census improvement as well.

So it's very local market focused, but it's not as broad brushed as I just described. But the operators have been very responsive and so far, so good. Certainly will continue to monitor it closely.

Okay. And then one fast follow-up to that. You said that what you kind of targeted was for the nursing homes, fiscal 2012 being kind of a fiscal 2010 levels. Is that revenue or [EBITDAR]?

I was referring to revenue.

Okay. All right. That's all I needed. Thanks a lot.

Thanks.

Next question comes from the line of Todd Stender with Wells Fargo. Please go ahead.

Hi, guys. Good morning.

Hi, Todd.

Good morning.

Just based on what Rob was going at with your initial lease yields you called it, Justin, above 9% on assisted living. Within that, are you looking more at pure play independent living or assisted living or would you err on the side of more looking at combination facilities?

Actually let me just qualify that, Todd. What I was referring to when I said above 9% was actually the cap rate on NOI.

But let me just resummarize the lease caps. And then I'll get to your asset type question as well.

And so the lease caps that we're seeing in the market are for private pay assisted living, are high 7% to mid 8%. We tend to drift to the higher part of that range because we're usually focused on one-off assets or smaller portfolios which attract less competition. It's usually a little bit more of a relationship orientation in our deal as well.

On the skilled nursing side, well, they were in the 8% for some investors last year. They're squarely back in the 9%, and all the way up to 10% again on the lease cap which is where really they have been for years and years.

And then another category that we invest in on a very selective basis is the Mezz financing. And we're seeing double digit yields still in the Mezz financing. And we've utilized that as an opportunity to build relationships over the last few years, as well as just -- what we call juice our yield up a little bit. Because if you get 12%, 13%, 14% on a Mezz loan, it helps to bring that overall weighted average initial cash yield up that we measure.

Okay. That's really helpful. Thanks. Just along those lines, just looking at your investments spreads. What are your capital funding assumptions for this year, if you're just going to fund with debt, what kind of interest rates are you budgeting for?

Well, there's some room in our guidance range for us to grow and term out debt. So the bottom end would assume that we're just running with the Q4 run rate, and then factoring in the non-cash comp and running with our existing comp to capital.

But as we grow, we do expect to term out debt. And over the next few years, we would expect to term out about half of everything we have in our revolver. So I don't have a blended number for you, but I can tell you that we are anticipating that we will term out and that will time it with acquisitions. And so the guidance range actually takes that into consideration.

So if these are senior housing, this is likely secured debt? Would it be Fannie Mae-type stuff, or what are you looking at?

We'll time it with acquisitions. We're actually looking for our own portfolio for the assets. And HUD's financing is available for both assisted living and skilled nursing.

And then Fannie and Freddie which is a little easier to put in place, but it only goes out ten years, is available for assisted living. We're looking at both. And then we're also speaking to the banks about term loans as well.

The ultimate goal is to have staggered maturities and to try to term out our debt for as long as we can. But don't forget that we're brand new into a four-year revolver that has a one-year extension. So there's no imminent maturities. And so we're just going to take our time this year to put the long-term financing in place.

Okay. Thanks, Justin. And just one last one. Just while we're on the theme of yields. Looking at your mortgage and out receivable book, can you just give us an indication of -- really a reminder, of what the average interest rate is on that book? And then just in comparison, what a current market rate would be if you were to charge a new borrower.

Well, the original loans that we made that are in our book would have ranged anywhere from the mid 7%, all the way up to low double digits. And that would have all been dependent on market timing when the loans were made. Also those loans were made years and years ago.

So I think the better indicator of market for you is where we've focused over the past few years. And that is on the Mezz financing, which is either guaranteed corporately or personally or it has a second mortgage attached to it.

And in that case, we've been charging anywhere from 12% all the way up to 14.5% on those loans. And it has never been big volume, although we continue to look at those because it gives us unique opportunity to partner with new customers, and we like the yield. And don't forget too, when he we talk about Mezz financing, we're generally going up to about an 85% loan to value.

So it's not like we're 100% leveraging anybody. We're still pretty selective, even when it comes to the high yield loans.

Here's another just indicator for you. In 2009 our weighted average initial yield including everything we did, leaseback and loans and construction, 9.84%. In 2010 it was 9.89%. In 2011 it was 9.3%. You can see it drifts down a little bit. Moving forward when we mix everything together, we're trying to target 9%.

Okay. And real lastly. If you were to break down your acquisitions, not a volume number, but just on a percentage basis, how much do you think the Mezz financing will represent as a percentage of total investments for this year?

That's a great question. I would be surprised if it was more than 15%. So that gives you a pretty broad range. It hasn't been that high over the last few years, but we do continually look to pursue it. So that gives us some room.

Okay. Thank you.

Thanks, Todd.

(Operator Instructions). And our next question comes from the line of Karin Ford with KeyBanc Capital Markets. Please go ahead.

Hi, good morning. First question just on guidance. Is the disposition of the five properties included in your guidance?

We assume that we're going to replace that income.

Okay. Do you assume it will be a negative spread between the yield you're selling and what you're buying?

We do not assume it will be a negative spread.

Okay. Second question just on the pipeline. Can you talk about what volume you are reviewing today? Do you have anything under letter of intent or anything that's closed year-to-date?

If you don't mind, let me just step back for a minute and I'll highlight for you exactly to your question, our existing pipeline. What I want to do is just remind everybody how our growth plan has played out over the last few years. And I'll do it quickly.

If you start in 2009, we invested $88.5 million. That was all timed in second half of the year. In 2010, we invested $141.4 million, that was mostly timed to the front half of the year. And then in 2011, we invested $100.4 million, which was mostly timed to the second half of the year.

So if you look at the volume it's been consistent, averaging a little more than $100 million a year, but the timing has varied. That will be the case again this year. We have, like I said, more on our plate than we really have ever reviewed at any given time in the last few years.

So I feel really comfortable in supporting our growth pace. But I'm not really at liberty to report on any specific LOIs or investments that are in our pipeline.

Are you comfortable just giving us what volume you guys are under review today?

It's been the same as what I've kind of always reported. Because of our selectivity, we quickly break the pipeline down into a smaller bucket. We generally have at least $100 million that we consider fairly high priority under review at any given time, but the total pipeline is much larger than that.

That's helpful. Next question just on coverage. I know you said earlier that it seems like some of your operators are doing a little better than you had expected,some doing a little worse. Do you still expect roughly three times coverage on the SNF portfolio once the dust settles on the CMS rate?

You know what we're just going to keep a close eye on it. None of our operators are particularly stressed about it. It was just kind of a mix of something that came out a little better than expected, some of it came out a little worse. None of it was enough to put any serious strain on the portfolio.

Got it. And last question just on the financing plan for this year. I mean clearly leverage is low, and you'll be using primarily debt. Is there a scenario where you guys think you might need to issue equity at some point in 2012?

You know what, with our balance sheet being so low leverage and the cost of debt capital being so low, and then third point, management being incentivized to create value on a per share basis, I don't see it -- the need for equity. It just has not been part of our discussions because of those factors I just mentioned.

Great. Thank you very much.

Thanks, Karen.

Our last question comes from the line of Daniel Bernstein with Stifel Nicolaus. Please go ahead.

Good morning.

Hey, Daniel.

Good morning, Dan.

Hi. Back in January in our conference, you had mentioned maybe thinking about using taxable REIT subsidiaries a little bit more. We've clearly talked today from one of your peers, a lot of use of the TRS structure. How are you thinking about the use of the TRS? And is it more so that you're getting more comfortable with that structure, if at all, or do you need that to be more competitive for acquisitions with people coming to you looking for that structure?

Let me start with what our view has been on a taxable resubsidiary historically, and then I'll get into current day. The historic point of view -- and don't forget I have an operations background, so in some ways I feel like I know too much. And what I've been uncomfortable with has been subjecting the rate to an operations downside risk with limited control over the operations.

But that point of view was also driven by the opportunities that we were considering, which usually included a portfolio of buildings that were part of a bigger company's overall capital plan. And so, we may have ten buildings in a large company that has several more buildings and markets that are triple net or they have other types of capital resources to fund those investments.

Our investment becomes a lower priority I think potentially in that structure. And for us to be in a situation where we have downside operating risks and we're potentially a low priority for the operator, relative to their triple net lease portfolio, it caused discomfort for us.

Where we might get comfortable, and I stress might, because it's just something that we're opening up to again. Is if we can just buy the whole operating company in a joint venture arrangement, a TRS. And in that arrangement where we have the whole operator, I feel as though we would have adequate controls in place to protect our downside risk.

And, yes, there is some demand in the marketplace for that structure. Some of our larger peers have entered into that structure and have picked their relationships on the go-forward basis. So there is quite a few operators out there really to consider this in the assist private pay assisted living industry that we could potentially partner with.

The thesis on doing a TRS is that if you pick the right portfolio and prices are right and have the right operating partner, then your growth that you get to participate in from the NOI outpaces what you typically get from your escalators. And in a world where a few years from now, we're going to be facing increasing interest rates, if not sooner, that's an appetizing structure.

So that's really where we stand on it. We're very selective in everything we do, and cautious, and we take our time to do our homework and get to know people. But maybe it's of more interest than it was before.

Okay. And does buying a whole asset portfolio from a company, does that imply that you might look at larger transactions for that particular structure than you normally do?

Yes. In the case where -- yes. It would be a larger transaction than we normally do, because you're buying a combination of assets and lease hold interests in the operations, because they may have other landlords or other capital structures that we're inheriting as well. So it tends to be a pretty large transaction.

Okay. And the other question I had revolves around development and maybe some of your funding of that. I know you looked into your funding of the acute care hospital in Tennessee. And again some of your peers have seemed to pick up development or picked up funding of development, particularly in seniors housing. Are you seeing more opportunities to either develop properties or fund development, particularly in senior housing, or any other asset class, if that may be the case?

We're seeing potential opportunities in development in almost any asset class. We're not trying to do a lot of volume in that category. We do think there's a lot of opportunity when it comes to having some assisted living developments at some of our existing customers. There's some other unique opportunities like the General Acute Care Hospital that you mentioned, that clearly fills the market niche.

And so, yes, we'll have a mix of construction financing. And a part of what we do when we to it, and I'll give you an example of this, last year we did a second mortgage as part of a capital stack that funds the construction of an assisted living building.

And in that case, although we made the loan fully funded for the purposes of construction, we're actually getting paid current on it. So we're not capitalizing our payments, which obviously helps from a cash flow standpoint. And then also in that case we have a purchase option on the facility.

And then moving ahead to this hospital construction, while we are capitalizing the payments, we actually own the property from the start. And that's generally mostly what you're going to see from us moving forward. We'll own the project, so that we're meeting our ultimate long-term goal, which is to increase our own assets portfolio.

Okay. And then the last question, I'm going to switch back to the skilled nursing side that everybody likes to talk about. We saw in the proposal for the [doc fix] yesterday that there may be some decrease in bad debt reimbursement for dual eligibles. Have you had any feedback or any thoughts coming back from your skilled nursing operators on what kind of impact that might have on them, in addition to any cuts that happened last year?

Dan, I did read that report yesterday. And saw a summary of it from another source that really has the expertise to follow the regulatory and reimbursement changes.

I got through it, but it came out yesterday. And then between then and the call, I haven't had an opportunity to bounce the structure off our operators to get their opinions yet. I suppose they'll be -- something we'll be ready to talk about on the next conference call.

Okay. I appreciate it. You have a good day.

Thank you.

Our next question comes from the line of Rich Anderson with BMO Capital Markets. Please go ahead.

Hey, guys. How are you doing? Good morning.

Hi, Rich.

Good morning.

I just want to do a follow-up on the [ridea] conversation. And specifically I wonder if you could comment on what you think an equivalent return spread would be if you're saying you would do triple net at an 8% lease yield, what would about the ridea equivalency be for a deal like that, do you think?

Well there's --

Assuming it would be higher. Because you're taking on more risk.

Well like I said, really the only changes that we're more open to it.

Right.

But the way we look at that, though, when you enter into that structure, you're buying some assets and you're assigning a lease rate to that asset. And the rules allow for you to sign a lease rate that is high as you possibly can, that's within market reason.

So you assign your rent, which is probably going to be a little bit better than what you would have had if it was just a straight leaseback to transaction. But then you're also buying a cash flow stream from whatever operations they have that you don't own. And on that cash flow stream, then you switch gears and view it as an equity investment.

And so on that portion, you're all the way up into the -- obviously you have to negotiate this effectively. You could be in the low 20s to the high teens.

And then don't forget you're going to get taxed on that as well. And so we want to factor in plenty of returns, so that if we do get the opportunity and you factor the tax in -- you are, in fact, taking on some downside operating risks.

It has to all be there to be worthwhile. Yes, we would expect the return to be much higher than what we get in a triple net.

Right. But the underlying mass to get there, it's not just as simple as converting the income stream to an operating lease. But there's negotiating different term of the types of cash flow that you're going to buy. So it's not really simple math I guess is the way I would put it. Is that a fair statement?

That's exactly right. Because you're not just buying the real estate any more, you're buying the cash flow stream. So you value those differently.

Correct. Okay. That's all I have. Thanks.

All right. Thanks, Rich.

Mr. Hutchens, I will now turn the call back to you for your closing remarks.

Okay. I'm going to close with just one statement that I wanted to make that underscores our game plan. I thought it might come out in the Q&A, it didn't, but I'm just going to touch on it before we end the call. It speaks to our dividend growth.

And in 2009, we had a recurring dividend per share of $2.20. Our payout ratio on a normalized FFO was 94.4% that year. Our target is to be 90% and less.

In 2010 the dividend went to $2.36 a share on a recurring basis, our payout ratio was 85.5%. In 2011 our annual recurring dividend was $2.495, our payout ratio was 86%. For 2012 right now where our dividend sets, it's set at an annual number of $2.60. Given our guidance consideration, that keeps our payout ratio in the mid to low 80%.

So the way we're looking at this is from a dividend growth standpoint, considering our goal is to be 90% or less, the table is set really as well as it probably ever has been to grow the dividend because we have room in our existing cash flow to do so. As we layer on growth it only gets better.

So I just wanted to highlight that point, since there wasn't any questions around the dividend. And I want to thank everybody for your participation on the call today. We look forward to speaking with you on the first quarter call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your line.