National Health Investors Inc (NHI) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the National Health Investors third quarter 2012 conference call. (Operator instructions). As a reminder, this conference is being recorded Monday, November 5, 2012. I would now like to turn the conference over to Tripp Sullivan with Corporate Call. Please go ahead, sir.

Thank you, Shirley, and good morning. Welcome to the National Health Investors conference call to review the Company's results for the third quarter of 2012. 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 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 fact are forward-looking statements. NHI cautions investors that any forward-looking statement 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 September 30, 2012. 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 items used in this conference 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, because with all other information provided in that release. I'm 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 is Roger Hopkins, our Chief Accounting Officer. This was another strong quarter for NHI. We increased normalized FFO by over 9%. We closed on $76 million of new investments that added a significant layer of new growth to the Company and enabled us to raise full-year guidance. We also remain vigilant in aggressively asset managing our portfolio. I will cover these transactions, notably the use of the RIDEA structure in our joint venture with Bickford and the current state of the pipeline in the 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 in Form 10-Q, our earnings press release and our supplemental data report filed this morning with the SEC. I'm very pleased to report strong normalized FFO growth for the third quarter and the full year. Normalized FFO for the third quarter of 2012 rose 9.2% over the same period of 2011, primarily as a result of revenues from our new investments funded of $82,372,000 in 2011 and $91,846,000 so far in 2012.

Lease revenues from our tenant Legend Healthcare increased $1,681,000 due to new investments made in the fourth quarter of 2011 and in the second quarter of 2012. Normalized FFO for the third quarter of 2012 was $22,357,000, or $0.80 per diluted share, compared with normalized FFO of $20,474,000, or $0.74 per diluted share, in the third quarter of 2011. Normalized FAD for the third quarter of 2012 was $21,736,000, or $0.78 per diluted share, compared with $20,055,000, or $0.72 per diluted share, for the same period of 2011.

Normalized FFO and normalized FAD for the third quarter of 2012 excluded the impact on net income of a loan impairment, discussed later, of $2,300,000 and other adjustments of $197,000. FFO for the third quarter of 2012 includes the effect of catch-up depreciation expense of $2,398,000 that was recorded for a portfolio of assets leased to our current tenant, Fundamental, that are no longer classified as held for sale.

Net income for the third quarter of 2012 was $14,351,000, or $0.52 per diluted share, compared with net income of $18,808,000, or $0.68 per diluted share, for the same period in 2011. Net income for the third quarter of 2012 includes the accounting impact of the loan impairment, catch-up depreciation expense and other adjustments mentioned above.

Large transactions that are infrequent or unpredictable in nature that affect net income are adjusted in our reconciliation of our net income to normalized FFO and normalized FAD and are included in our earnings release, our Form 10-Q and the supplemental data report. At September 30, management estimated that the fair value of the collateral security or mortgage note from our borrower senior trust has declined and that the previous carrying amount of our note receivable of $21,336,000, maturing on December 31, 2014, may not be fully recoverable. As a result, we recorded a load impairment of $2,300,000.

Senior Trust is a not-for-profit corporation which owns skilled nursing facilities in Missouri and Kansas. Senior Trust currently pays interest only on its mortgage and a receiver has been appointed to manage its financial affairs in place of a Board of Directors.

Our revenues for the third quarter of 2012 were up 12% compared to the same period in 2011 due to the volume and timing of our new investments in 2011 and 2012. Straight-line rental income was $1,248,000 in the third quarter. Rental income for each year excludes the revenues from those properties that were sold or that meet the accounting criteria as being held for sale. In September we canceled our agreement to sell five skilled nursing facilities in Texas to our current tenant, Fundamental. These properties had been classified as assets held for sale in our balance sheet and as discontinued operations in our income statement.

For accounting purposes, we were required to record catch-up, a depreciation expense, on the assets for the period of time in which they were classified as held for sale. We agreed to a three-year extension of the lease to February 2016 at the current lease amount of $4,989,000 per year, plus fixed escalators. Fundamental has an option to purchase three of the facilities during the lease renewal term.

Rental income from our owned assets represented 87% of our third-quarter revenue. Depreciation expense increased $2,962,000 during the third quarter of 2012 compared to the same period in 2011 as a result of our new real estate investments and to catch-up depreciation adjustment of $2,398,000.

Our interest expense and amortization of loan costs was $854,000 for the third quarter of 2012 compared to $1,781,000 for the same period in 2011, as the previous year included a charge of $1,188,000 relating to the change in impaired value of the previous interest rate swap agreement. Our general and administrative costs for the third quarter of 2012 increased $405,000 from the same period in 2011, due primarily to a legal settlement of $275,000 and a tax settlement of $180,000.

Stock-based compensation expense was $245,000 for the third quarter of 2012 and is expected to be the same for the fourth quarter. Altogether, our third-quarter normalized operating results met our internal forecasts.

Normalized FFO for the nine-month period ended September 30, 2012 rose 10.9% over the same period in 2011, primarily as a result of revenues from our new investments funded in 2011 and 2012. Lease revenues from our tenant, Legend Healthcare, increased $4,474,000 due to new investments made in the fourth quarter of 2011 and the second quarter of 2012.

Normalized FFO or 2012 was $65,118,000, or $2.34 per diluted share, compared with normalized FFO of $58,729,000, or $2.11 per diluted share, in 2011. Normalized FAD in 2012 was $64,829,000, or $2.33 per diluted share, compared with $59,512,000, or $2.14 per diluted share, for the same period in 2011.

Normalized FFO and normalized FAD for 2012 excluded the impact on net income of a loan impairment of $2,300,000 described earlier, a legal settlement of $275,000, adjustments related to a terminated lease in the second quarter and other smaller adjustments. Normalized FFO and normalized FAD for the same period in 2011 excluded the impact on net income of gains of $9,899,000 on the sale of marketable securities, a $922,000 change in the fair value of a previous interest rate swap agreement and the recovery of a previous write-down of $99,000.

Our debt at September 30 consisted of our bank term loans of $120 million, borrowings on our revolving credit facility of $55 million and $19,250,000 of secured mortgage debt through our joint venture with Bickford that Justin will describe in a moment. We have $145 million available to draw on our revolving credit facility. Aside from the mortgage debt that matures in November of 2013, our remaining borrowings do not mature until 2017.

We expect our normal monthly cash flows, borrowings on our revolving credit facility and potential longer-term debt, including HUD and agency debt, will be the primary source of capital to fund our new real estate investments in the near term. We have a very low leverage balance sheet relative to the fair value of our net assets and our market capitalization. In addition, in our supplemental data report, we calculate our EBITDA coverage of our interest expense to be 30 to 1.

We ended the third quarter of 2012 with cash and marketable securities of $16,216,000. We will begin shortly to calculate our expected taxable income for 2012 and we'll declare a fourth-quarter dividend in the coming weeks. It has been the Company's policy to pay out 100% of our taxable income in dividends to our shareholders. I'd now like to turn the call back over to Justin with comments about our investment activity and our 2012 normalized FFO guidance.

Thank you, Roger. As we have embarked on our growth strategy over the past few years, I see a dramatically transforming Company in many respects. Since 2009, we have significantly diversified NHI by geography, tenant mix and asset class. Our portfolio is comprised of 139 properties in 25 states, up from 17 states three years ago.

Our largest tenant accounts for a little over 42% of our revenues compared with over 70% of revenues a few years ago. Prior to 2009, over 80% of our revenues were in skilled nursing investments. Today, that's down to 67% with substantial diversification through assisted-living, senior living campuses and specialty hospitals. I'll also note that a majority of our skilled nursing derive revenue is backed by National Healthcare Corporation, one of the most experienced operators with the best credit profile in the healthcare industry.

Our investments during the quarter clearly reflect this diversification strategy while at the same time staying true to our disciplined investment criteria. In mid-August, we completed the acquisition of a 138 unit senior living campus in Silverdale, Washington for $25.2 million and an initial lease rate of 7.8%. We also extended an additional $3.5 million at an 8.3% lease rate for an expansion and renovation that will be drawn down over the course of the next year.

The community offers independent and assisted living, as well as rehabilitation care and is operated by Sante Partners, an existing operator in our portfolio. In September we closed on our first RIDEA transaction in a partnership with Bickford Senior Living. The immediate financial benefits are substantial, with the longer-term implications for growth as attractive, if not more so.

The business structure is comprised of 10 facilities, eight of which we contributed and all of which were currently operated by Bickford, totaling 488 units plus the current development of three 50 unit facilities. NHI has an 85% ownership interest in both the real estate and operations, with Bickford owning 50%. We are pleased to complete this transaction in the TRS and to do so at a very attractive initial yield of 9%.

NHI will have the exclusive right to Bickford's growth pipeline, which includes all future acquisitions and developments. With 20 years of experience, Bickford is one of the top assisted-living operators in the country.

At the end of the quarter, we also closed on the acquisition of a 181 unit senior living campus in Loma Linda, California for $12 million at an initial yield of 9%, operated by Chancellor Healthcare. The campus has 98 independent living units and 83 skilled nursing beds and represents our first senior housing investment in Southern California.

Through the first nine months we've invested or committed $135 million in capital at a weighted average initial yield of approximately 9%. That compares with an average of approximately $110 million per year achieved during the 2009 to 2011 timeframe. We don't really have a crystal ball to project exactly what the investment pace looks like through the balance of the year and in 2013, but we believe there are enough opportunities available to continue growing at a similar pace.

Our pipeline for new investments remains very busy. From a capital allocation standpoint, we will continue to prioritize assisted living and senior living campuses and our focus on skilled nursing facilities will remain very selective. Assisted-living assets and operators remain the most desirable in the market with absorption outpacing new supply. In independent living, occupancies have returned to their pre-recession levels.

While skilled nursing continues to be under scrutiny by most investors, this asset class has performed quite well. Now, I know that most discussions on growth plans tend to get investors concerned about debt levels. During the past few years, however, we've seen the benefit of our diversification strategy result in a significantly lower cost of capital, as well as a much stronger growth profile while still being able to tout one of the lowest leverage balance sheets in the REIT industry.

With this pristine balance sheet and available liquidity, we have plenty of dry powder to execute our growth plans. Turning to our guidance. Based on the investments completed to date and the timing, we are now projecting our normalized FFO for 2012 to be at a range of $3.15 to $3.18 per diluted share and that's up from $3.08 to $3.13 a quarter ago.

Before we go to Q&A, I want to talk about the dividend as we normally set the fourth-quarter dividend during the first week of December. Since 2009, we have raised the dividend by 18% while lowering the payout ratio by 10%. We are committed to growing and protecting the dividend with our aggressive asset management strategies in highly selective investments. And with that, operator, we are ready to take some questions.

(Operator instructions). Karin Ford, KeyBanc.

I wanted to ask you a couple questions about the Bickford transaction. First of all, can you tell us what your expectations are for NOI growth over the next few years in the portfolio? And can you give us some metrics on what the rent per unit, the occupancy rate, and what the rate growth experience has been in the portfolio?

Sure. So, let me address the first part of your question, and then I'll end with some other metrics that -- you're asking about our growth expectations. But, when we did the underwriting for this investment, we reviewed Bickford Senior Living's operating track record. Bickford operates 47 communities. They have developed several and they've also operated several over a number of years, and we took the same store operations over a 10 year period, and Bickford's operating growth experience, and as it pertains to NOI has been 6% per year. So we don't think it's unreasonable to expect that our JV assets will perform the same.

There's no guarantees, but, certainly, there is a long track record to rest on that supports that 6% growth. In regards to some other metrics, they run what we consider a mid high-price point around $4500 a unit. They're 88% occupancy -- excuse me, they're 88% occupied currently, which leaves some room for some occupancy growth as well. What other questions did you have?

What type of rate growth experience have they had the last few years that have gotten them to the 6% same-store growth?

They -- there is -- as you -- I'm sure you are well aware, in the assisted-living there is the pre-recession rate growth and then there's the recession rate growth and then there's the expectation that the industry has moving forward. In pre-recession they were around 5%. They were a little lower than that during the recession. I don't have the exact number, but I know they performed lower than that.

And then, moving forward, competitive pressures will play a role and, certainly, CPI growth will play a role, so I don't think we have the crystal ball in terms of exactly what to expect, but what we do expect is, regardless of the rate growth, they will do their best to manage the balance of service delivery to the residence and maintaining a 1 to 1.5 spread between that revenue per unit growth and their expense per unit growth. If they do that, then that's how you get to that mid-single-digit NOI growth that their track record reflects.

Great. And is Bickford your RIDEA horse, essentially, from here? Do you plan to do any additional deals with other operators or would all your future RIDEA activity come through Bickford?

Good question. So, certainly, we have a very high regard for the relationship with Bickford Senior Living. In addition to the ten stabilized assets in our relationship, we plan to pursue acquisitions together and even up to eight developments together, three of which are under way.

So, there is a very strong commitment to that relationship. However, we are not limiting our potential RIDEA partners to Bickford Senior Living and, in fact, we are exploring other operators as well, on the general criteria that we use is we want to a bona fide operating track record and private pay assets.

That's helpful. And my last question is on the fundamental assets. Can you talk about why you chose not to sell the assets and whether there is any changes to your rent and your cash flow as a result of the reclassification and the new -- the extension on the lease?

Starting with the second half of your question, there is no real change in terms of rent and cash flow. In terms of the decision to sell the asset, the buyer, which is Fundamental, had maybe a change of priorities, I'd say, in terms of how they were going to allocate their capital, so we just reworked the deal and they do have the option to buy three of the buildings. They already bought one building for $4 million. They closed on that last year.

It was a cash drain and it was in both parties' best interest just to move that out of the portfolio, so there's been some movement from the standpoint of Fundamental making a purchase. There is potential that they'll do more. And, in any event, we feel good about the three year lease extension and we'll have many discussions between now and the end of that extension that determine the best place for the assets.

Thank you very much.

Rich Anderson, BMO Capital Markets.

Thanks, and good morning, everybody. So, good color from Karin's question on Bickford and the future of RIDEA for you guys, but how big, as a percentage of the portfolio, do you think it can become?

That's a great question ,and we haven't established a target yet. So, stay tuned and, as we get deeper into the structure, we'll come up with some goals for that.

Okay. Interesting how you structured it 85%-15% but Bickford doing all of the management. Did you give any thought to just doing 85%-15% on the entire business of the properties and thereby having an ownership stake in the management, or did that -- was that something you just did not want to be a part of?

From the get-go, in terms of all discussions related to the investment, we excluded management from the discussion. We didn't have any interest in owning management. It was always assumed that that was going to stay with Bickford and that we focused on all the cash flow after management fee was paid.

Okay. So, what is your general view of that? Because HCN has a 20% stake and -- in their deal recently. Do you feel like that blurs the lines too much as a general rule of thumb? Or do you feel like there could be situations where you might want to be involved on the management side?

As it pertains to NHI, we are comfortable owning a majority stake in the operations. Clearly, we want to own the majority of the real estate. We are comfortable we can choose appropriate partners so that we are protecting our potential downside risk adequately, but really haven't thought of also adding in the management risk at this point in time. So, it really hasn't landed on our radar. Doesn't mean it isn't a good investment for others but, for us right now, it's just not the way we are viewing the best way to utilize the structure.

Okay. And then, from a political standpoint, is the person you are voting for the same person that would be good for the business of healthcare? Or where do you stand politically on the election and how it impacts the business of the healthcare delivery system overall?

That is a great question, and I'm going to keep that between me and the voting booth. I will say, though, that it seems to me that no matter who wins there is going to be some tax increases down the road and it will be interesting to see what happens. The impacts on healthcare related to tax increases, the overall growth of the economy. I don't have a crystal ball or even come close to being the right person to make those predictions. And, obviously, the metric to watch is what do interest rates do over the next 2 to 3 years, and I don't have the crystal ball for that, either.

What is your sense of your operator population, in terms of what would be the better -- would it be better to see ObamaCare carry on or would it be better -- would your operators think that it would be better to have some changes at the margin from ObamaCare?

I will say this. The one thing about ObamaCare that does benefit the skilled nursing industry is the penalties that the hospitals will endure for the readmissions within the 30-day discharge window. And that should help. And there's been a lot of work done by skilled nursing operators over the last couple of years to position themselves to maintain these patients in their facilities and with -- and earn the confidence of the physicians to do so, which, ultimately, should have some positive impact on census. Outside of that, I think it's -- I think we'll wait and see and as we learn more, we'll adjust our underwriting criteria accordingly.

Okay. And then last question is on the dividend. Roger mentioned the policy being 100% of taxable income and you're working out those numbers now. But is that the floor? In other words, if it worked out that 100% of taxable net income was a number lower than what you are paying now, you wouldn't cut the dividend?

That's right, Rich. We have been paying more than 100% of our taxable income. But we go through that exercise to consider, particularly what I would call the nonrecurring transactions, that may have occurred during the year and see what the impact is on taxable income. So, we at least want to cover that, but we have been paying more than 100% of our taxable income.

More or less I just wanted to get that on record. (Laughter). Thank you very much.

Daniel Bernstein, Stifel Nicolaus.

I'll start off with the negative question. Is there -- with the loan in receivership, is there a potential for additional write-downs going forward?

I'll let Roger explain the rationale for the write-down and then I'll talk a little bit about the status of those loans.

It is our policy to look at the underlying collateral of any of our mortgages on a quarterly basis. And there has been deterioration in the NOI of that portfolio and we made estimates of what we believe to be the value of that portfolio and what amount could be recoverable when the loan maturity occurs in 2014. So, it was prudent to impair that known at this time.

We don't have any indication at this point about -- obviously, their operating results for the future. There is a receiver in place. We recently updated the public in an 8-K about our business relationship with Senior Trust back on September 7. But, from an accounting standpoint, it was prudent to impair that loan at this time.

I'll just add, Daniel, that we have actually been down this road before, three, four years ago. We had another nonprofit borrower that was liquidating their assets and -- in the state of Tennessee when a nonprofit company liquidates a substantial amount of their assets, the Attorney General's office has to approve the transfer of those assets.

And so, that action brought the Attorney General's office in. That particular investment had some litigation and then some negotiation. We wound up purchasing the assets. And in that case, we had about 1.7 times cover over our lease payment when we made the purchase. We are going through a similar process with these two loan portfolios now, where those receivers have signed.

The goal of the receiver is to liquidate assets. The goal of NHI is to substantiate the value that we have in those assets and then -- we have the option, perhaps, to purchase them. If not, we're just going to make our case in terms of the underlying value of the assets and the amount of any proceeds that are due to NHI. All of those discussions are happening and we'll certainly keep everybody up to date as that moves forward.

Thanks. That's really helpful. And I presume you see the assets of a quality that you would bring on balance sheet if -- as an owned real estate if possible? If the process allows that?

Yes, I think that's a safe assumption. We wouldn't rule out making a purchase.

All right, so on to the good stuff with Bickford. I appreciate, again, the color that you gave earlier on the occupancy and rate. Do you have the margin for those facilities as well? I presume at 88% occupancy and a good fundamental backdrop, you're expecting some margin improvement there to help the NOI growth.

They tend to run in the mid-30s. I don't have the exact margin in front of me, but Bickford just -- Bickford's general track record is in the mid-30s.

And you think it's a correct statement that the margins can go a little bit higher as occupancy improves and costs stay low?

If we're going to get that 6% growth we are hoping for, I sure hope so. Yes, we would expect to see some margin improvement as we move forward.

Okay. And then I had one question. I was looking through your supplemental and I noticed you were about maybe 50% public operator. I presume that's mostly NHC on the senior housing side. It looks like mostly regional small operators, some public operators. How do you view investments in the public operators versus the regional or smaller operators? Do you see differences in quality of care or quality performance of the assets, or would you prefer to be in one or the other?

Well, let me start with why I like regional operators and smaller operators. The profile of the management is that they are owners. And their entire livelihood is dependent on the outcome of their operations. So, you have owner-operators, very close to their customers and close to the value creation within their company. So, from just a pure incentive or motivation standpoint, I really, really appreciate that dynamic.

It's also not a coincidence that they also are the group that needs us more, because public companies have more access to capital. They tend to play in larger transactions. We tend to play in smaller transactions with companies that don't have all of the access to capital that the public companies have. So, a lot of our growth is going to come from the smaller operators and regional companies moving forward.

As it pertains to the public companies, we feel just terrific that half of our credit is backed by a public company balance sheets and we have some great operators. We have National Healthcare Corporation, Emeritus Senior Living, Community Health Systems. Really strong, experienced operators with very solid credit backing a large percentage of our revenue.

And public companies have grown over time to have a level of sophistication that allows them to successfully manage hundreds of sites, in some cases. So, we feel very good about those relationships. But also just expect a lot of the growth to come from those smaller companies that have so much invested personally in the outcome of their business.

I appreciate that. And one quick question, did you break ground on the Bickford development yet? I think you mentioned on the last conference call you would expect all three to have broken ground by year end. Is that still the case?

We'll have two to break -- well, for sure, two will break ground by year end and there will be one right behind those.

Okay. Okay. That's all for me. Thank you, gentlemen.

Todd Stender, Wells Fargo.

Just going over the Bickford deal, particularly the three developments and anything else that comes down the acquisition pipeline, how are they allocated? Whether it goes into the JV or you guys wholly-own them? How is that determined?

That's a good question and the answer is, it depends. Let's just take an acquisition for an example. Certainly Bickford, who want to maintain the 85%-15% split, Bickford will have the opportunity to contribute capital to an acquisition. Should they choose not to do so, then we would set up a target for them to earn their 15% ownership through operating performance. And also the same would be true when it comes to new developments.

And let's just be clear about the -- why this relationship makes sense. NHI has a tremendous balance sheet and access to capital. Bickford Senior Living has a very solid 20-year background operating and creating value for their customers and for their company. And so, it wouldn't be unnatural for NHI to bring most of the capital on the front-end of these deals and for Bickford to then earn out their share over time.

But we'll see as we move forward how each investment lines up, but that's probably how I see it going. And another option, by the way, is that the JV is a co-borrower, and as it stands today, that debt that Roger mentioned, that $19,250,000, doesn't have any NHI guarantee. That's just a mortgage that's in place and Bickford and the NHI are co-borrowers in the JV entity.

And we'll also pursue financing opportunities straight to that joint venture, and, to the extent that we can co-borrow a revolving credit facility that's assigned specifically to the JV, that gives Bickford the opportunity to maintain their 15%; NHI maintain our 85%; and that's a potential outcome, as well. We're in the process of really evaluating all those options right now.

That's helpful. And does that apply to the CapEx requirements, too? 85%-15% split on, I think you mentioned in the release, it was $500 a unit assumption.

Right. There is a waterfall and in the waterfall, that $500 a unit CapEx is taken before we share the remaining cash flow.

Is that your responsibility up front? How does that get allocated?

It's really theirs.

Okay. Just switching gears, back to the five SNFs in Texas that were held for sale. I know the current tenant and prospective buyer was waiting on HUD financing. Did that play a factor into them not making the transaction? They couldn't get financing. Is there anything around that?

There was -- it definitely played a role. Let's face it, these assets had been set held for sale for over two years, I think, so, that's exceptionally long. The reason we had them in that category is because the operator was pursuing HUD financing and had some snags in getting it approved, and then it just takes -- so much time passed, they just changed priorities altogether. So, now they've targeted a few of the assets they would like to purchase. They're comfortable extending the lease. We are comfortable with both of those options and so we just arrived at a mutually beneficial new deal together.

Did this negatively impact your budgeting at all? Were you expecting any gains on this sale to allocate the capital elsewhere? Any impact to your results for this year?

Absolutely zero impact on the results for this year. And then, from a capital allocation standpoint, we feel we have sufficient capital available to continue to meet our growth goals, really all the way through next year and without even worrying about the sources. We have our sources lined up.

And I don't know if you mentioned this, I might've missed it. When is the senior trust loan mature? When does that come due?

Todd, that matures in December of 2014.

Okay, and that's a -- you'll get a balloon payment; you'll get your principal back. Is that the current assumption?

That is the way the note is structured currently. They are paying interest-only monthly. They are making payments on time each month. And, otherwise, the principle is due in December of 2014.

Are you able to look at the loan right now in terms of the loan to value ratio? Is there anything you could share from a quantitative standpoint?

Well, essentially by this impairment that we've taken in the quarter, we have reduced the carrying amount down to the value of the portfolio.

Okay, thanks, guys.

(Operator instructions). Karin Ford, KeyBanc.

Just wanted to follow up on your answer to that last question. Can you talk about -- you said you had your sources of funds for next year basically lined up. Can you talk about what those sources are?

Sure, I will let Roger elaborate on that a little bit and then I might add some comments, too.

Karen, as I mentioned in my prepared remarks, we do expect to continue to access our revolving credit facility, of which we have $145 million available to draw. We also have our normal cash flow over and above our payout in dividends. We will also explore longer-term debt options including HUD and agency debt. And so, all of those will really contribute to funding our acquisitions for 2013.

Okay. It looked like you had about $55 million out on the line now and you're not selling the SNFs. So, can you talk about what your thoughts are on when you would -- how much more exposure you'd want to have out on the line before you do longer-term debt?

This is Justin, Karin. Let me articulate it this way. From -- first of all, it's a very high priority in 2013 to term out debt. I think among one of the first options you'll see us utilize is HUD financing, and we have many others that are under review. So, I'll be surprised if this time next year if all we have is five and seven-year maturities still as we do today.

Second point is, let's assume we put $150 million of debt in place. That gets us to about $350 million in total, and as you know, we don't have the crystal ball to know exactly when we'll deploy their capital. But when that is done, we think our debt to NAV will still be around 25%. We think our fixed charge cover will be roughly 12 times, still, at that point.

And, probably a good point to make is given that, in 2013, we really don't anticipate -- barring some large acquisition, which would be out of character for us -- we don't anticipate having a need to access equity. So, we feel like we are very well positioned to continue to use short-term debt and well positioned to term out debt throughout 2013.

That's helpful. And as far as looking ahead on the future pipeline, are there any other deals that are likely to close before year-end?

That's a great question. I'll tell you -- and you ask it every call.

I know. Sorry.

What I'll say is this. In terms of the guidance, we did -- I think we have clarity on the top end of the range. But there is some moving parts that I'll just mention and we'll update investors as we have more information. But, there's some potential loan payoffs in the quarter.

There is also a potential draw request to Capital Funding Group on that mezz facility we have in place with them that we would fund. And then, we always have acquisitions in our pipeline. So, we tried to put a range in place that we felt comfortable we could achieve and we do have clarity on that top end.

Okay. And the loan payoff, is that Polaris or is that other things as well?

No, there is some legacy loans that could potentially pay off. Not material to the guidance, I can tell you that. And that was the point I was trying to make.

Yes, okay, thanks very much.

John Roberts, Hilliard Lyons.

Any impact from the hurricane?

I'm sorry, what was that?

Any impact from the hurricane on any of your properties?

Thank you for asking and no. Fortunately, everyone came out okay.

Good. And, finally, the dividend -- if you are at 100% and you haven't paid out enough, do you anticipate paying a special?

John, we'll be going through that calculation. We'll also be considering, internally, our outlook for 2012 and we have had occasions over the last several years where large nonrecurring transactions gave rise to special dividends. But, as we sit here this morning it's much too early to tell. We'll be going through that analysis in the coming weeks.

All right. Thanks, guys.

There are no further questions at this time. I'll turn the call back over to you, Justin Hutchens.

Okay. Well, I'm sure everyone can tell we are very pleased about our growth this year and confident about the opportunities moving forward. We appreciate your participation on our call today and we look forward to speaking with you on the fourth 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 lines.