National Health Investors Inc (NHI) 2013 Q2 法說會逐字稿

Welcome to the National Health Investors Second Quarter 2013 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, Tuesday, August 6, 2013. I would now like to turn the conference over to Tripp Sullivan, Corporate Communications. Please go ahead, sir.

Thank you, Tina. Good afternoon. Welcome to the National Health Investors conference call to review the Company's results for the second quarter of 2013. 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 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 and its periodic reports filed 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, 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 terms used in this call are non-GAAP financial measures; reconciliations of which are provided in the Company's earnings release and the 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 afternoon, everyone, and thank you for joining us. With me today is Roger Hopkins, our Chief Accounting Officer. We had a great quarter with the 14% increase in normalized FFO, a significant amount of investments, as well as enhancements to our balance sheet. I'll review our portfolio and investment performance shortly. Let me first turn it over to Roger to walk through our financial results. Roger?

Thanks, Justin. Good afternoon, everyone. My comments this afternoon 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 am very pleased to report strong normalized FFO growth for the second quarter of 2013. Normalized FFO for the second quarter rose 14.1% over the same period in 2012, primarily as a result of revenues from our new investments funded of $146.092 million in 2012, including debt assumed in a RIDEA-structured transaction with Bickford Senior Living and $26.15 million funded in April of 2013. In the second quarter, our rental income from Bickford increased $1.2 million. New rental income from Polaris hospital was $538,000. New rental income from Sante Partners was $522,000 related to a senior living campus and new rental income from Landmark was $394,000 related to an assisted living facility.

Normalized FFO for the second quarter was $24.398 million or $0.87 per diluted common share compared with $21.386 million or $0.77 per diluted share in the same period in 2012. Normalized FAD for the second quarter was $23.792 million or $0.85 per diluted share compared with $21.01 million or $0.76 per diluted share for the same period in 2012. Normalized FFO and normalized FAD for the second quarter of 2013 excluded the impact on net income of a write-down of certain loan costs of $353,000 related to our updated and expanded credit facility of $370 million that we entered into June 2013 and acquisition costs of $208,000; both of which were required to be expensed for accounting purposes. Net income attributable to common stockholders for the second quarter of 2013 was $19.92 million or $0.71 per diluted share compared with net income of $16.928 million or $0.61 per diluted share for the same period in 2012. Net income for the second quarter includes the accounting impact of the adjustments described earlier.

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. Our revenues for the second quarter were up $6.226 million or 28.5% compared to the same period in 2012, due to the volume and timing of our new investments in 2012 and 2013. Straight-line rental income was $1.412 million in the second quarter. The revenues from our RIDEA-structured joint venture with Bickford amounted to $2.162 million in the second quarter and represents 7.7% of our total revenues from continuing operations. Our RIDEA joint venture with Bickford currently owns 27 assisted living and memory care facilities and also has three facilities under construction. On June 28, 2013, we purchased 14 of these facilities from Care Investment Trust and three facilities from an affiliate of Bickford, at a total allocated cost for accounting purposes of $137.459 million, which includes an assumption of Fannie Mae debt with a fair value of $80.528 million. Our annual lease revenue for this transaction will increase $11.086 million beginning on July 1, 2013.

In total, our annual contractual lease revenue from the operating company and the joint venture will be $18.836 million plus escalators and operating cash flow. Including our share of income from the operating company that flows through our taxable REIT subsidiary, we estimate that our revenues from our RIDEA investment will be approximately 15% of our total revenues over the next 12 months. Revenues and expenses for each year presented in our income statement exclude those properties that were sold or that meet the accounting criteria as being held for sale, with such revenues and expenses being reclassified to discontinued operations. This reclassification had no impact on previously reported net income. Revenues from discontinued operations in the second quarter related to six older skilled nursing facilities that we expect to sell to our tenant, NHC, by the end of August. Rental income from our owned assets represented 89% of our second quarter revenue. Mortgage interest income represented 7% and investment income represented 4%.

Depreciation expense increased $1.263 million during the second quarter of 2013 compared to the same period in 2012, as a result of our new real estate investments funded in 2012 and 2013. Our interest income and amortization of loan costs increased $851,000 during the second quarter compared to the same period in 2012, as a result of additional borrowings to fund our new real estate investments and the write-down of loan costs as described earlier. Our general and administrative expenses for the second quarter of 2013 increased $732,000 from the same period in the 2012, due to professional and consulting fees, accrual of incentive bonuses, and acquisition costs required to be expensed for accounting purposes. Share-based compensation expense was $253,000 for the second quarter. We estimate the market value of our stock options granted each year using the Black Scholes pricing model. Based upon the required inputs to this model, we expect our non-cash, share-based compensation expense to be $253,000 for each of the next two quarters. For the six month period ended June 30, 2013 compared to the same period in 2012, our normalized FFO rose 12.2%, primarily as a result of revenues from our new investments funded in 2012 and 2013.

Our revenues have increased $10.239 million or 22.3% from 2012. During 2013, rental income from Bickford increased $2.401 million, new rental income from Polaris Hospital was $1.065 million, new rental income from Sante Partners was $1.027 million and new rental income from Landmark Senior Living was $749,000. Normalized FFO for 2013 was $47.994 million or $1.72 per diluted share compared with normalized FFO of $42.761 million or $1.54 per diluted share in 2012. Normalized FAD in 2013 was $48.197 million or $1.73 per diluted share compared with $43.093 million or $1.55 per diluted share for the same period in 2012. Normalized FFO and normalized FAD for 2013 excluded the impact on net income of a loan impairment of $4.037 million during the first quarter and the credit facility and acquisition-related costs described earlier.

On June 28, 2013, as part of the settlement of litigation with two borrowers, we received a full payoff of the carrying amount of our notes receivable from Senior Trust of $15 million in cash. On the same day, we made in escrow deposit of $2.5 million towards the purchase of seven skilled nursing facilities in Massachusetts and New Hampshire from our borrower, ElderTrust. The transaction is expected to be completed by the end of August. The total purchase price includes cancellation of our note of $13.741 million and cash of $23.35 million. We have agreed to lease the properties to NHC, the current manager, for an initial annual lease term of $3.45 million.

We ended the second quarter with cash and investments in marketable securities of $50.674 million. Our debt at June 30, 2013 consisted of borrowings on our unsecured revolving credit facility of $167,000, unsecured bank term loans of $120 million, with a maturity of seven years and $80 million of Fannie Mae secured debt maturing in July 2015 and secured mortgage debt of $19.25 million maturing in November of this year. We have $83 million available to draw on our revolving credit facility. We also expect sales proceeds of $21 million by the end of August in relation to our sale of the six skilled nursing facilities to our tenant, NHC.

At June 30, 2013, we had ongoing construction projects totaling $38.5 million relating to three new assisted living facilities and expansion and renovation of a senior living campus and an expansion and renovation of an acute care hospital. The total funds advanced so far on these projects amount to $11.745 million. We expect our normal monthly cash flows, sales proceeds, and borrowings on our revolving credit facility will be the primary sources of capital to fund our new real estate investments for the remainder of 2013. We are pursuing HUD financing for a portion of our portfolio to pay down our revolving credit facility and extend our debt maturities. We are also evaluating a debt private placement and will also consider agency debt. Each of these forms of debt capital will come at a higher interest cost as compared to a revolving bank credit.

We continue to have a very low leverage balance sheet relative to the value of our net assets and in comparison with many of our peer companies. As shown in our supplemental data report, we calculate our EBITDA coverage of our interest expense to be 18 to 1. On an annualized basis, our consolidated debt-to-EBITDA is less than 4 to 1. I'd now like to turn the call back over to Justin with comments about our investment portfolio and our 2013 normalized FFO guidance.

Thank you, Roger. I'll start with our portfolio and diversification. Looking at our portfolio of statistics, lease service coverage remained very strong with a weighted average lease service coverage ratio of 2.88 times. As a reminder, you can find details on the ratios for our properties on page 11 of our supplemental. NOI was up 9% in the Bickford joint venture, including the 27 communities in comparing to Q3 of 2012, which is the quarter prior to the original formation of the partnership. Occupancy was down a bit for the quarter and offset by pricing and expense control. The original 10 assets had similar performance. This performance is reflected on page 12 of our supplemental.

In terms of concentration, we have essentially hit our long-standing goal of moving the revenue derived from skilled nursing facilities down to 50%. Our next largest concentration is private pay assisted living and senior living campus properties which combined for 35.5%. One of the biggest factors in hitting this goal has been our Bickford joint venture, which was significantly expanded with the acquisition of 17 assisted living and memory care facilities in the quarter and a loan on another six communities that Bickford acquired separately in July. The NHI at Bickford joint venture had the option to purchased the six communities for $97 million.

We've had substantial investment volume this year. We've noted on previous calls, we expected most of our growth to come in the second half of this year. We are a bit ahead of schedule with over $223 million in new investments announced with top-tier operators, including Bickford Senior Living, National Healthcare Corporation, Fundamental and Emeritus Senior Living. All of the previously announced transactions have been closed, with the exception of the acquisition and lease of the Massachusetts properties to National Healthcare Corporation, which should close during the third quarter. We still expect some additional transactions could close in the second half of the year; however, most of what we had baked into our guidance has been executed. Our pipeline still remains very active and there are a number of private pay assisted living communities on the market.

Turning to our outlook. When we announced the Bickford transaction in early July, we issued guidance of our normalized FFO for 2013 to be in a range of $3.48 to $3.54 per diluted share, which equates to growth of 9% to 11% over 2012. The bottom end of this range assumes the baseline from Q2 2013, the recently announced acquisitions, and the timing of the further terming out of debt on our revolving credit facility. On the top end of that range, are assumptions for investment activity. As we noted in May, the dividend for the second quarter was increased to $0.735, a 5.8% increase from the first quarter and a 13.1% increase compared with the second quarter dividend a year ago, while still keeping our payout ratio low at 83%.

In regards to capital planning, we termed out $120 million for seven years at 150 basis points over LIBOR, swapped at a weighted average of 3.4%. The amendment to our revolving credit facility increased the capacity to $250 million with a five year maturity at a very attractive rate of 140 basis points over LIBOR. We have plans to continue to term out debt with staggered maturities over the near and long-term. Due to our low leverage balance sheet, we don't anticipate the need to raise equity in the near-term.

In summary, we have had solid results so far this year, creating value for the NHI shareholders. I am proud that the capital we provide to operators ultimately contributes to the delivery of healthcare services. We are fortunate to have mission-oriented successful companies as our partners. We have established and have every intention of maintaining a culture fostering win/win relationships with operators. This approach ultimately fuels growth. Operator, we're now ready for questions.

(Operator Instructions)

Karin Ford, KeyBanc.

On the Bickford portfolio, you noted that the occupancy fell sequentially quarter-to-quarter, but it sounds like you got some nice rate growth. Can you just tell us where occupancy stands today? Were you surprised by the sequential drop? What type of rate growth are you getting there?

Karen, this is Justin. Let me start by giving you a little color. 4 of the 27 communities are effectively in turnaround mode and that's what's dragging the occupancy down on the group a bit. Bickford's executed a plan to get those back on track and the remainder of the group continues to perform a very strong. In fact, the portfolio is up 9% since the inception of the RIDEA partnership.

There's been a higher level of move-outs than move-ins and the move-ins have not fallen at all, where move-outs were a little higher than normal, particularly in these four communities. I've confirmed with Bickford it's really just a matter of the absorption catching up again. That really addresses the occupancy issue. The occupancy for the quarter was around 84% and I've noted, I think we're probably pretty much on that same page and hopefully, we'll see some improvement as these buildings get turned around over the next few quarters.

What type of rent growth have you been seeing in the portfolio?

It's been in a range of 3% to 5%.

Okay. Can you talk about what type of expected NOI growth you expect on the new portfolio, the care portfolio that you just purchased?

Sure. Back when we did our original RIDEA with Bickford and we analyzed the historical performance, these assets were included in that performance. You might recall that they had a 10-year track record of a growing NOI 6% a year. These 17 were in there, the original 10, most of which were included in that study, as well. So over time, that's our expectation. We'd like to see somewhere around 6%. Some years, it will be a little higher, others it will be a little lower. But over the long term, that's the expectation based on historical performance and in part, why we ventured into this RIDEA relationship.

Last question, just on investments, have you changed your required cap rates on deals since the move-in interest rates? I know you've been sensitive in the past about keeping the pace of growth, not wanting to grow the company too big too fast and you've done deals early, as you said. Has the rise in rates and/or the early pace caused you to take a step back from the investment market here in the near term while things settle out?

We have not taken a step back. I have heard in the peer group, particularly the larger peers, are taking a step back and evaluating. Maybe there is a lack of large acquisitions available in the marketplace that's helping to drive that In our case, there's still one-off assets with small portfolios available. If you look at our weighted average cash yield, in '09 to '12 it was 9.4%. So far in '13, it's at 8.77%, so there's really enormous spread in place over our weighted average cost of capital. We have always known, as interest rates would go up that there'd be pressure put on that spread, but we're starting so wide that we're not concerned about adjusting our cap rates at all.

In fact, we do understand it will put a little pressure on the amount of volume that we're forced to do to sustain a growth rate and we'll be mindful of that as we create our business plan and also just inform our shareholders on the go-forward basis. We still like our opportunity to grow. I did mention, during the prepared remarks, that most of the volume that we expected for the year is already done. However, there could be some more growth and then we're continually evaluating more opportunities and in fact, we're very busy in doing so. I don't expect much change from where we've been over the past several years, quite frankly.

Thank you for the color.

Daniel Bernstein, Stifel.

Do you have year-over-year occupancy and average rate growth data for the Bickford? At least the 10 same-store properties? I'm not sure I've heard that or saw that.

As soon as Q3 happens, you'll start having year-over-year. I just wanted to make the launching pad, the start of the relationship. Once we get in, further down the road, we'll have year-over-year data, but I haven't really prepared to reach back before NHI was involved with the operations.

Okay. Okay. That's fine. What do you think the impact of the flu season was on Bickford's occupancies in Q2? It seemed, from other operators in healthcare REITs, maybe occupancy bottomed in March or April. The average has worked against that sequential, how you reported Q1 versus Q2. I'm just trying to think about how that was influenced and going back to your operational experience, how was this flu season compared to prior flu seasons that you've seen?

In regards to flu, and this came up on the last call, I do think there was impact in the industry. I do think that it was probably a little more than in previous seasons. In regards to, specifically, the Bickford portfolio, they've had some flu, but really what would they were pointing to more as the cause of move-outs is rising acuity and expirations of residents that have been a little higher, that caused higher move-outs than normal. Some flu and there's a slightly higher number of memory care move-outs then there are straight assisted living, but it is really not even material. Altogether, it's a number of things. It's all really acuity-related is how I would describe it and good news is the move-in activity has not slowed down. We anticipate the billings ahead of a little bit of a falloff to get back on track.

If you go back to historical flu, given the acuity increase in the industry and in the Bickford portfolio, should we expect maybe, going forward, a greater seasonality in the first half of the year than we had seen in the past and then a bigger rebound in the average occupancies in the second half? Just going forward even beyond 2013, are we going to have a more seasonal pattern because of the higher acuity in senior housing space.

What I would say, and I'm not really speaking to any particular company, but academically, I was a little surprised by the softness in Q2. Usually, Q2 is a little stronger and then Q3 is even stronger than that. I don't think we've seen enough to say it's going to be a pattern each year, but I understand why you're noting it because it was a little unusual.

I might start calling you Professor Hutchens from now on. One last question, a few of your other healthcare REIT peers have talked about maybe some increased competition for assets. Maybe that applies more to the larger portfolios than the one-off transactions that you're doing, but are you seeing any additional competition out there, whether it's from private REITs or private equity or maybe even some other small cap healthcare REIT peers?

I would say that it's definitely more competitive. There are some smaller REITs, there's some new REITs on the scene, private equity is stepping in more now because the leverage levels are a little higher. It's very competitive. An advantage that we have, of course, is the fact that we have so many existing customers. We have 28 existing customers. We've had repeat business with a number of them over the past few years, even some of those that were newer to NHI, and we continue to add new customers as well. I think part of our insulation from that competition is servicing our existing customers, but I would concur that there is more competition out there in the marketplace.

Todd Stender, Wells Fargo.

Can you provide a little more color with regard to the purchase option on the six properties that Bickford purchased that you guys funded? What was the cost of the option and did you get a look at those before Bickford did?

Sure, the six assets were assets that Bickford had minority ownership and a management agreement with. They bought out the majority partner, that's what drove it their purchase. They purchased it for $97 million. Based on our arrangement with Bickford, the joint venture had the opportunity immediately to purchase it for that price. We decided to hold off because the cap rate was sub-8 and there is some more opportunity for stabilization of those assets.

What I would like to see is for that stabilization to occur. Because the purchase price is fixed, when we do pull the trigger on the option, if we do pull the trigger on the option, I'm anticipating that we'll move into those assets at a cap rates that's north of 8. That's really why we delayed in terms of making the purchase, but we're already involved with the assets because of the [Mes] loan that we gave to Bickford to help make the acquisition happen.

Can you share what that stabilization rate is and what you're waiting for?

The going in cap rates was close to 7 and then what I would consider a stabilized cap rate is going to be north of 8. I don't have the NOI numbers in front of me, but at least gives you an idea of what the pricing would mean to us, if and when we pull the trigger on the purchase option. You asked the question earlier, too, did we pay for the option? We did not pay for the option. It was something available to us because of our contractual relationship with Bickford to have the opportunity to either right of first refusal and right first offer, quite frankly on their acquisitions on the go-forward basis.

Thanks, Justin. I appreciate that. Roger, when you're looking at the guidance, I know the low end and the top end guidance assume that the line is termed out. Any changes in your interest rate assumptions on some of the coupons and the debt pricing that you looked at the beginning of the year and where we sit right now?

Todd, we're still actively pursuing opportunities to term out debt. That's a high priority for us. We have seen long-term rates increase, as a matter of fact, just in the last three months. Long-term rates have probably increased around 50 basis points. We continue to evaluate Fannie, private placement, HUD; so yes, we are in a raising interest rate period. Our blended cost of debt capital right now is around 3.3%. As we look out over the next couple of years, we do expect that average cost is going to increase about 100 basis points to 150 basis point. But terming out debt certainly remains a high priority.

Last question, regarding the guidance, are the asset sales you mentioned that are expected to occur later this month, are they in your guidance?

All activity that we have any visibility in over the remainder of the year is included in that guidance range.

(Operator Instructions)

Rich Anderson, BMO.

I have this idea, since healthcare REITs have been disproportionately impacted because of the re-yield component, maybe you should cut the dividend.

[Laughter] I don't like that idea.

Just checking. You talked about the transaction market is still churning along, but with rising rates, would you give any more weight to using equity to get deals done or are you still okay to deploy the balance sheet?

In the near-term, and when I say near-term, it's looking throughout the rest of this year, probably all of next year, we think we have enough capacity on the balance sheet, plenty of capacity on the balance sheet to continue to use debt. We'll reevaluate at that time, but there's really no plans on using equity anytime in the next 1.5, two years.

How new is the website with the image of the really big guy looking down at the really small guy?

(laughter) That is relatively new.

Just wanted to point out that was pretty good. I like that.

Thank you.

Back to the transaction market, has there been any change in your mind to the longer term IRR [calc] in terms of rising interest rates and how that might influence what you're willing to accept from, not a cap rate basis, but an IRR basis?

I guess the way we're looking at it, it's just pure spread investing. Obviously, based on the numbers that Roger gave, we're right around 500 basis points now and we don't have any expectations that's going to continue for much longer. If you look out at some of our internal modeling we've done, as Roger mentioned, I think that we can see our weighted average cost of capital going up 100 to 150 basis points. If that happens, you're getting closer to about a 350 basis point spread. We would still consider that to be a very good spread and that's just using our existing weighted average cash yield that we've had in 2013. But obviously, as interest rates go up, I would expect some impact on cap rates. It's not going to be a direct correlation by any means, but cap rates will go up a bit which will to preserve that spread.

The last question is, when you look at the next RIDEA deal, I know you've gone through this probably with me and others or maybe even on the conference call, but when you're valuing the real estate and you're valuing the operations, how does that rough math work out? I know you're applying incrementals of risk associated with the op side of the equation, but can you provide a matrix to how you basically go about that?

I know that you have asked me this and every time you asked me I give you a different answer. The reason is, we really don't actually bifurcate the returns when we make the investment. But what I have decided is that if we are getting into an assisted living acquisition that's north of -- that's high quality, a mid- to high-price point, which is exactly what the Bickford portfolio has been and we're up into the mid-8 cap rates, then we've adequately taken into consideration that operating risk. It's just really a matter at that point of where do you want to value the real estate?

Do you want to call it 6 cap, do you want to call it 7 cap and in any event, the operating cash flow stream, which is, if not actually more volatile, in theory, it's more volatile over time. You'd have some kind of double-digit return associated with that and then a lower single-digit cap rate associated with the real estate. That's absolutely how we viewed the risk going in, which is why we didn't do any of these deals. When we found an opportunity to get it done at a cap rate that we think prices in operating risk, not to mention that there's a structural advantage to the way we did it with Bickford that mitigates operating risk to NHI, it made sense to do it.

If you're looking at a RIDEA deal, if it's $50 million, just to use a number, how much of the value of that transaction is in the real estate? Is it $45 million? Just rough numbers, how does that work?

Another way to put it is, any way you slice it, you have to get down to an income stream and you need to identify the lease income stream and you need to identify what's left the from the operating income stream. You might get they 15 or higher multiple on the real estate component and then you get maybe a 5 times multiple on the operating component.

Right. But I mean, if you're just looking at the asset, the $50 million transaction, is it -- certainly it's weighted toward the real estate because you have hard assets there. But I'm just trying try to get a sense of how weighted it is towards the real estate.

It's very heavily weighted for real estate, but beauty is in the eye of the beholder. You get five of us at the table, we would all give you a different answer.

We'll work it out over the next 15 years.

Daniel Bernstein, Stifel.

I want to go back to the use of equity versus debt, particularly using secured debt. I'm not sure, when I look at your valuation, you're really still treating it like a sub-6 implied cap rate. Why encumber the portfolio with hotter agency debt versus the use of equity? I know it's a little bit higher cost, but why [uncover] the portfolio versus using something that doesn't do that?

The reason is because it's higher cost. If you believe interest rates are going to go up then now is the time to term out debt and that's what we're really focused on is terming out debt and utilizing debt financing, which we can fix for years and years to come. We have seven-year term loans now. Obviously, we're going to look for mid-term and long-term financing, as Roger mentioned.

Now as it pertains to equity, we don't have any plans in the near term. I would never say never, though, because if there was a sizable acquisition or there's potential that we could use equity, but just continuing with our current business plan and looking at the outlook for the next 1.5 to two years, I don't really see the need for equity. The reason is, it is more expensive.

Effectively, you're going to sub debt for debt and you're not too optimistic about interest rates, so you want to take that 30, 35-year term debt that HUD's offering?

That is right.

Okay. Okay. That's the trade-off you though about. I just wanted to understand that a little bit better.

Karin Ford, KeyBanc.

I just wanted to go back to the four turnaround assets in the Bickford portfolio. Can you just talk about what Bickford is doing to turn the assets around and how long the turnaround plan is expected to last? Are they spending capital or is it simply just a marketing or a mix issue?

There's no new capital needed. All the assets are in just very top condition. They have, quite simply, one of the methods they're using is just time. Because as I mentioned, the move-ins never slowed down, it was just trying to catch up from the higher percentage of move-outs that they experienced in the first half of the year. In a couple of cases, they have some new management they've put in place. There's not any timeframe that we've put in place in terms of where the performance is going to be, but the expectation that they have is, is that they'll see improved performance over the next few quarters and as the performance changes, I'll keep everybody updated. As I mentioned also, the rest of the portfolio is performing very strong, which is why, overall, you're getting NOI growth in spite of those few properties that are dragging a bit.

Right. It's above 9% even with those included, right?

Right.

Mr. Hutchens, I'll turn the call back over to you for any final or closing remarks.

I want to thank everybody for your interest in NHI and your continued involvement. We look forward to talking to everybody on the next call.

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