National Health Investors Inc (NHI) 2016 Q4 法說會逐字稿

Hello, everyone. This is Colleen Sullivan, Director of Investor Relations. Welcome to the National Health Investors conference call to review the Company's results for the fourth quarter of 2016.

On the call with me today is Eric Mendelsohn, President and CEO; Roger Hopkins, Chief Accounting Officer; and Kevin Pascoe, Executive Vice President of Investment. The results, as well as notice of the accessibility of this conference call on a listen only basis over the internet, were released this morning before market opened and a press release has been covered by the financial media.

As we start, let me remind you that any statements in this conference call which 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 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, 2016. Copies of these filings are available on the SEC's website at www.sec.gov, or on 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 NHI's earnings release and related tables and schedules which have 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 Eric Mendelsohn.

Thank you, Colleen. Hello, everyone. Thank you for joining us. On behalf of the entire team, I'd like to thank you for your continued interest and support of NHI over the past year. We're very pleased with our fourth quarter results and positive momentum going into 2017.

Normalized FFO and normalized AFFO increased 8.5% and 11.6% respectively over the same quarter in 2015. Throughout 2016, we continue to position the Company for growth and value creation. Over the course of the year, we sold a large portion of our investment in LTC stock, creating a cleaner balance sheet and $49 million of proceeds to reinvest in real estate. We also transitioned our RIDEA portfolio with Bickford Senior Living into a triple-net lease structure reducing NHI's exposure to operational risk and creating a stronger operating partner.

Our investment volume for the year totaled $447 million, $320 million of which was from existing relationships. During that same time period, we acquired 11 senior housing and 11 skilled nursing communities. Its been a great year at NHI for total shareholder return. For the year, NHI's total shareholder return was 26.5%, far exceeding the MSCI US REIT and S&P total return indices.

Moving into 2017, we are raising the dividend as Roger will discuss later, making this our 15th consecutive yearly increase. We continue to focus on creating value for shareholders and maintaining our low levered conservative balance sheet.

I'll now hand the call over to Roger Hopkins to walk through our financial results. Roger?

Thanks, Eric. Hello, everyone. For the fourth quarter of 2016, normalized FFO increased to $1.27 per diluted share, compared to $1.17 for the same period one year ago. And normalized AFFO increased to $1.15 per diluted share, compared to $1.03 one year ago. The positive momentum we continue to achieve in our non-GAAP financial metrics is reflective of high investment volume and a careful blend of debt and equity to maintain low leverage.

As of December 31, our net debt to annualized adjusted EBITDA was 4.4 times. Weighted average debt maturity was 6.9 years. Current weighted average cost of debt was 3.62%. And our fixed charge coverage ratio was 5.9 times.

Our results for the fourth quarter were better than we had forecasted as we received full payment on a lease of a 126 unit senior housing portfolio that we had classified as nonperforming. Our RIDEA joint venture with Bickford Senior Living ended on September 30, 2016, so there was no impact to our financial statements in the fourth quarter from the underlying operations of their assisted living facilities. NHI now has revenue from 37 stabilized Bickford facilities, and from three new facilities which opened in 2016. NHI's total revenues for the fourth quarter showed strong growth of 10.8% over the same quarter in 2015.

Our General and Administrative expenses for the fourth quarter were $2.5 million or 3.9% of revenues. Our non-cash stock based compensation expense was $251,000. We continue to opportunistically sell a portion of our investment at LTC common shares, which we have held for more than 15 years. During the fourth quarter we sold 209,000 shares and recognized gains of $6.2 million.

For the year, we offset these capital gains with our dividend return of capital, thereby retaining all of the sales proceeds for redeployment into real estate. At December 31, we held 250,000 LTC common shares valued at approximately $11.7 million. At year-end, our firm commitments to fund ongoing construction, expansions, loans, and new acquisitions total over $127 million as outlined in our form 10-K and supplemental data report. At December 31, we had $158 million outstanding on our revolver, with an available capacity of $392 million. Including unrestricted cash, our available liquidity at the end of the fourth quarter was over $396 million.

We continue to manage our available liquidity resources so that NHI is well-positioned to meet its future investing and financing needs. For the year-ended 2016, normalized FFO was $4.87 per diluted share, while normalized AFFO was $4.39 per diluted share, an increase of 4.3% and 7.1% respectively.

These normalized results primarily exclude gains of $29.7 million during 2016 on the sales of our marketable security investments and noncash write-offs, for GAAP accounting purposes, of $15.9 million related to the transition of our lease of 15 skilled nursing facilities from our tenant Legend to The Ensign Group. As a Management team, we are focused on annual growth in AFFO as this metric excludes the accounting convention of noncash straight line rent income, and gives credit to our actual lease escalators and to our investments, for which no straight line rent calculation is required.

One of our investment highlights in the fourth quarter, is the opening of the Phase II expansion of the Timber Ridge entrance fee community in Issaquah, Washington. We had funded the full $94.5 million construction loan to the project and received $61.3 million in repayment by December 31 from new entrance fees. We've received another $7.3 million since year-end. These repayments were used to pay down our bank revolver balance.

I'm pleased to report a 5.5% increase in our quarterly dividend to $0.95 or $3.80 on an annual basis. We currently estimate our total dividends for 2017 will result in a normalized FFO payout ratio in the low 70% range, and a normalized AFFO payout ratio in the low 80% range.

Moving on to guidance for 2017. The normalized FFO guidance range is $5.06 to $5.12 per share, and the normalized AFFO range is $4.61 to $4.65 per share. We do not include an estimate of investment volume in our guidance range; however, our guidance includes the effects of expected transactions for which we have clarity in the short-term, including financing transactions.

I'll now turn the call over to Kevin Pascoe who will cover portfolio details and new investments.

Thank you, Roger. As Eric mentioned, we had a successful year adding to our existing relationships and building new ones. We remain confident in our operating partners and believe they are positioned for success. Looking at our portfolio, the EBITDAR and coverage ratio was 1.83 times at the third quarter end, which is fully inclusive of the Bickford rent payments. Our skilled nursing coverage is 2.78 times and our senior housing portfolio is 1.23 times.

Looking at some of our larger operating partners, National Healthcare Corporation, which accounts for 16% of our cash revenue, has a corporate cash coverage of 3.67 times. Our relationship with Senior Living communities represents 16% of our cash revenue and has an EBITDAR and coverage ratio of 1.22 times on a trailing 12 month basis as of third quarter end. Entry fees during 2016 were the strongest in Company history, and the Company is positioned well for 2017. Our partnership with Holiday Retirement represents 15% of our cash revenue, and has an EBITDAR and coverage, as of third quarter end, of 1.19 times.

The NHI portfolio occupancy averaged 91.8% for the year, which was down slightly in fourth quarter to 90.8%. Holiday has been working on transitioning their community management model to a traditional management team versus live-in managers. To date, the transition is on plan and leading indicators for the portfolio are positive. Bickford Senior Living accounts for 14% of our cash revenue, and has an EBITDAR and coverage ratio of 1.19 times for the trailing 12 months ending September 30. Occupancy on the stabilized portfolio is solid, averaging 89.8% for the year, and the development properties have opened with great success. Three of the five NHI owned developments are now open with the remaining two scheduled to open mid 2017.

NHI also has two additional developments with Bickford that are underway, under a loan structure where NHI has a favorable purchase option at stabilization. The Ensign relationship represents 8% of NHI's cash revenue. The transition of these 15 properties from the former operator, Legend Healthcare, has taken longer than expected, but we remain confident in Ensign's ability to operate these facilities.

NHI has been active in managing the relationship, and based on discussions with senior leadership, indicators for the portfolio are positive and Ensign leadership feels good about the direction the portfolio is heading. Furthermore, Ensign remains a strong Company with corporate fixed charge coverage of 1.93 times.

Moving on to new investments. In January, NHI announced that it had funded the remaining $11.9 million mortgage and mezzanine loan commitment to affiliates of Senior Living Management to facilitate the acquisition of five senior housing communities operated by SLN. The NHI loans totaled $24.5 million, mature in August, 2021 and bear an interest rate of 8.25% annually. The financing expands NHI's relationship with SLM to 15 communities in Florida, Georgia, and Louisiana, including 10 communities leased to SLM.

Our pipeline remains solid with good opportunities to add to our existing relationships and expand our current customer base with accretive deals. As mentioned last quarter, the marketplace is competitive, and we remain selective to make sure we are adding high-quality operators and communities. Our portfolio is well-positioned to continue to grow and we are vigilant in monitoring our portfolio for competitive impacts.

As of now, the impact is not widespread, but we are monitoring a handful of markets that we think have potential competitive pressures for our operators. That said, our operators have done an excellent job positioning their respective communities in their markets and have the cash flow to weather the headwinds of the anticipated new supply.

With that, I'll hand the call back over to Eric.

Thank you, Kevin. We are all very well aware of the issues and concerns regarding our industry, and based on conversations with our operators, we feel very positive about the year ahead and the guidance we've given today. With that, we will now open the line for questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of Chad Vanacore from Stifel.

Hi good morning, all.

Hi, Chad.

So I was just looking at our forward estimates for [Thad], and it seems like we had modeled the straight line rent improperly. So is the difference being straight line we figured would increase with the conversion to triple-net lease? However, it doesn't seem like it's structured that way. Can you give a little more detail how the ultimate structure of the Bickford portfolio, how does that come out?

Chad, this is Roger. We have more than one lease in that portfolio, which will soon be 42 buildings. They are maturing at different times. They would, in effect, automatically renew on certain dates. We would calculate the straight line rent income. But that's really not the biggest factor in our straight line rent modeling. We've had some very large acquisitions over the past several years. Straight line rent is the highest in the initial year. And so there is a bit of a burn off each year in that straight line rent calculation. So, this is our best estimate of what straight line rent would be for 2017.

Roger, can you remind us, do you have fixed escalators or CPI based?

No, only the fixed escalators would be subject to straight line rent. And it really brings up a topic that is worth mentioning. Our AFFO excludes the impact of straight line rents, which I know it's hard to model those. Straight line rent is only for those leases in which we have fixed escalators. So certain of our leases, for example, NHC, Ensign, which was a large investment this year, has no fixed escalators. One is a percentage rent escalator. The other is an inflation-based escalator. The other thing we have done is invest strategically in mortgage and construction loans. Those, of course, don't give rise to straight line income. So it's a little bit more difficult to model FFO, but easier to model AFFO.

Just thinking about that portfolio. I think I heard Kevin say it was 1.19 EBITDAR in coverage, but last quarter we talked about writing those leases at about 1.3 times. Can you tell me where the difference is?

Chad, it's Kevin. So you're talking about Bickford, correct?

Yes.

So they are at 1.19 times. That is I think what you might be referring to, and that's a relationship coverage. The 1.3 that I think we may have disclosed, was on the option properties where we bought the five properties.

Okay.

So just a little bit, this was the whole relationship versus just the subset where we were looking at those individual communities.

And then just thinking about you had commentary on Ensign and the Legend portfolio that they are leasing from you. They seem to have struggled with integration of those properties. Can you give us some more color on what they've related to you what's going on there and where it might change?

As I mentioned, we've been very active in talking with them about what is going on and stay very close to those particulars. In deference to them, we're not in a position to disclose more than they did. But that said, the issues have really been more around the integration turnover in Management, refilling those seats, and getting their culture installed in the buildings. Legend was a very good operator. They have a little bit different way of doing things. So that, I think, has really been the tail of the tape here. But as I mentioned, they feel good about the investment. The initial indicators are good. Or leading indicators, I should say, where they are getting the referral volumes back and the things that are going to be productive to their business and that's something we're watching closely.

Thanks, guys.

Our next question comes from the line of Juan Sanabria from Bank of America Merrill Lynch.

Hi, Juan.

Mr. Sanabria, our line is open.

Sorry, I was accidentally on mute, apologize for that. Just following up with Chad's question on Ensign. Wondering if there's anything specific to Texas, which I think is where the assets were located, that caused any of the integration issues. I know a couple other REITs have talked about Texas being a problem from a skilled nursing perspective.

Juan, it's Kevin. There's not anything specific as you look at the rate environment or any other issues that impact facilities from just a Texas specific level. Its really been just, as their largest acquisition they've made, it's just going to take a little bit of time for them to digest it and fully integrate it.

Okay. And then curious if you guys have seen in your skilled nursing tenant any DOJ inquiries for materials? Or any other regulatory pressures, whether they're RAC audits or what have you that is new this quarter that you guys haven't seen before on the skilled nursing side?

We haven't been apprised of anything new. Clearly, as you mentioned the RAC audits, and the typical regulatory visits that happen. But nothing that has been out of the order within our portfolio.

Okay, and last question for me. Could you just speak a little bit about what drove the Holiday change and how they manage the assets at the local level to be more normal with the rest of the industry versus the live in and if you've had any initial discussions? I know it's very early days with SoftBank about how they are thinking about that business with the purchase of Fortress, how things may change. If you have any insights there.

Well the second part first. We haven't had discussions at that level yet. We're really just focused on our portfolio and how they are managing through the change that they are making. As I mentioned, they are on plan. And they are actually probably slightly ahead in terms of what type of disruption they allow for in their forecast. But the major catalyst here was last year, they had the Department of Labor ruling on how they treat overtime. And with the live in manager, it's nearly impossible to be on the salary and then have that profile that they had before, without going off the clock, if you will. So it was really, to some degree it was something they had been talking about. But their hand was, in essence, forced to comply with the Department of Labor ruling for how they were going to treat overtime. And it just made sense for them to go to a traditional model.

And the people that they had as live in managers were great people. It's a niche that they had that they have done well for them. And that said, I think there's an opportunity for them. And I think they would agree that to get somebody that is a sophisticated sales person, seasoned in selling and managing a business unit is a potential upgrade for them. And it's something they are really looking forward to and as they make this transition going forward.

Could you give us a sense of how far along they are? We've heard a lot of comments here that it's very difficult to find people given all of the new supply and just generally, a very tight labor market. Just curious what pressure that may be adding to a very heated market.

The majority of our buildings have gone through the change and the managers moved out and they have been able to release the majority of those units so far. So again, just looking solely at our portfolio, feel good about the progress that they've made. And there are clearly challenges in the marketplace, just not even specific to Holiday, but in terms of attracting and retaining labor and continue to build your culture. But so far, they're doing everything they said they were going to do and they are on plan.

Thanks.

Thanks, Juan.

Our next question comes from the line of Todd Stender from Wells Fargo.

Hi, thanks guys. The supplemental shows the Bickford construction loan, I know there was one made in January. But is the one in the supplemental a Q4 loan?

The one in the supplemental would have been from last year.

Okay so that was as of 12-31. So there's been one partially funded already in January?

That's right.

Thank you. Just looking at the SLM mortgage. Can you go through some of the terms? The coupon looks pretty attractive to them at 8.25% versus say what you'd buy a real estate acquisition at. Can you just go through the terms and loan to value maturity, that kind of stuff?

Okay, yes this was basically a relationship play with a tenant that we've had for a very long time. And they had the opportunity to purchase these communities from an existing individual landlord. And this is a way for NHI to position itself to acquire additional buildings down the line. Basically, we have a right to buy the buildings down the road. Or at least be in position to buy the buildings, which is why we would do a mortgage or any kind of alternative structure in the first place. So that's just to couch the relationship of what we're looking at here. But in terms of LTV, it's about ballpark 80% loan to value. Traditional kind of points in and out. And there's also a feature where we have an effect like a carried interest in the property. So if we don't buy it, there's an upside for us on the way out, which puts us in position to buy the communities when they are ready to sell them. So there's a little bit of a seasoning, if you will, in terms of how long we have the loan for. But feel like we're in good shape to be able to purchase these and continue to expand that relationship.

Got it. Thank you, Kevin. And just to stay with you Kevin. When I look at the Brookdale facilities you guys own, it's not that many. But are those legacy Emeritus assets?

They are, yes.

Where I'm going with this, I wanted to see if you can provide some further details on any landlord consent provisions that you have in those.

Todd, this is Eric. I can do that since I actually negotiated that lease. When I was at Emeritus, just by coincidence, the landlord change in control provision provides that consent is necessary. Unless the acquirer is the same or better management reputation, same or better balance sheet and same or better regulatory history.

Okay so there's some quantifiable items in there. It's a credit decision?

And operator. So if for example, I just got your e-mail update about [Ventos], if it were Ventos, then we would need to know what type of credit enhancement, what the balance sheet would look like, what the net worth would look like after the merger. Would Ventos stand behind it and would the management team stay in place, questions like that.

Okay that's helpful. Thank you, Eric. And Roger just one last one. Looks like you don't have much variable rate debt on the balance sheet. I think it's just your line balance, is that right?

That's exactly right. Just our revolver.

With rising interest rates, I guess when you look at the 10 year. And when you also think about what the Fed is doing, how do you view your most attractive fixed rate long term debt sources as you potentially take out the line balance and then fund new investments this year?

I'm going to let John Spade handle this one.

Sure. So we're in contact with a variety of sources, and we regularly test the market. We have private placement sources that we look at. And depending on tenor, they are in the 4% range, we have some bank sources that we can swap into. They are not too far off of the private placement sources but for generally shorter tenors. And then we definitely keep an eye out on the convertible debt market as well. We can usually find a lower coupon, the quid pro quo being the convertibility of a bond. And we're still seeing some pretty strong metrics there. And of course we are always testing the public debt market as well. We have not made any decisions to go in that direction just yet, but we're keeping an eye on it as well.

Okay, thank you.

Thank you, Todd.

(Operator Instructions)

Our next question comes from the line of Jordan Sadler, from KeyBanc Capital Markets.

Hi, good afternoon. I thought I'd messed that up, 1-4. So I want to come back Eric if I could on the question regarding Brookdale/Emeritus. So are the metrics somewhat subjective? Or is there an actual standard surrounding better versus worse credit if you have non-rated entities?

Well frankly, there's a lot of different ways to measure net worth, enterprise value. You would look at Brookdale's balance sheet, what their leverage ratios are, what their cash balances are, whether or not a company is rated, keep in mind --.

I understand you could certainly come up with a host of different metrics to measure two different disparate entities, but I guess what I'm asking is, is the decision a subjective decision based on one person's opinion of credit versus another's, or is it defined?

Jordan, this is John Spade. It's defined as a better net worth than the current tenant. So, generally we view that as book net worth. And so it's pretty clear to us.

Now with that said, if say they were being purchased by another operator, and say that operator was not a good operator and had a lot of regulatory difficulty, then there would be some subjectivity there.

Okay. That's helpful, thank you for that. Separately, coming back to your guidance for a second if I could. The run rate again, and I know I always go here. But the $1.27 that you did in the fourth quarter annualizes to $5.08. And a little earlier than mid quarter you purchased a CCRC for $74 million. And obviously, you've done this loan at post quarter end, which offers some accretion opportunity. And so I'm looking at your run rate being better than the $1.27, when you adjust for full quarter and what you've invested recently. And so seeing that FFO number push up above your $5.12 high end of the range, and I know you don't give acquisition guidance, but I'm trying to understand what the offsets might be to FFO that I might be missing?

Well, Jordan this is Roger. In the first quarter for one thing, we do an annual option grant. There will be a sizeable non-cash comp expense component that will affect our P&L in the first quarter. As I mentioned, our guidance includes the fact that we have visibility in the short-term about potential acquisitions and ways to fund them. And we've been very active this year, in terms of raising capital, both on the equity front and permanent long term debt. So this is our best estimate given the factors that I mentioned.

Is there line of sight on the acquisition pipeline? Is there an acquisition pipeline that you either have under contract or high likelihood of closing that you could offer any guidance around? Is it, be it $20 million to $50 million or some kind of guideposts, or no?

Jordan, this is Eric. Unfortunately, we don't offer guidance on that. Our run rate is between $300 million and $500 million. And our guidance reflects a pipeline that we do have visibility on after backing out all those items Roger mentioned. So we're feeling very good about the first quarter.

So it's interesting that you feel good. How is the transaction environment from your perspective? You didn't offer a ton of flavor and you usually got some good insight in terms of what you're seeing in the market.

Certainly, happy to comment on it. Just to define the parameters here. Our pipeline, as we describe it, is the deal flow that we're reviewing and underwriting of deals that we're interested in. And, I can tell you that the first quarter is off to a bang. There are several large transactions floating around that we've reviewed and multiple smaller ones and regional ones. So it's almost like you're at the end of a game of musical chairs and everyone wants to get a deal done before the music stops. So we're underwriting as fast as we can.

Is that senior housing heavy? What do you think mix looks like?

Senior housing and there's a respectable amount of skilled nursing still. It's not all about Genesis. It's not all about Manor Care. There are several other skilled nursing providers out there that are shedding assets and swapping out operators.

Okay. That's helpful, thank you.

Our next question comes from the line of Rich Anderson, from Mizuho Securities.

Thanks and following on what Jordan just asked there. When you look at your track record of growth, FFO earnings, growth going back a few years, how much of it would you say is produced from internal sources? Escalators and what not? And how much of it is from external sources? Just trying to get a sense of how that math works out on a typical run rate basis?

We generally have fixed escalators in our leases of 2% to 3%. I've mentioned the NHC escalator which is a percentage rent. An increase in revenue over a base year. We entered into a large transaction with Ensign which is an inflation based escalator. But blended over the portfolio, you can probably count 2%, 2.5% escalators organically. And as you know, we've done a lot of repeat business with our existing staple of operators, and we show that on page 5 in our supplemental. And each year we've been fortunate to add new operators. So our growth has really been outsized over the last six or seven years. And we had another really good year this year in terms of investment.

Unknowing the escalator range, how does that matriculate to the bottom line? Is it directly? Or when you add leverage do you get FFO growth from 2.5% that translates into FFO growth of 4% to 5%? Is that a reasonable way to look at it?

Rich, rethink that again. You're saying with the escalators -- ?

[Get] your NOI growth. And then when you look at growth at the bottom line, does that translate from 2.5% to 3% at the top line to 4% or 5% at the bottom line when you tack on leverage and other moving parts within your P&L?

Well, there are a lot of moving parts. And I will say that the escalators certainly add to the top line revenue, in terms of straight line rent and fall to the bottom line net income. Of course all of that is subtracted out to AFFO which is really a focal point for our management team. We have used leverage wisely, I think we're very low levered in the firs place. Our weighted average cost of debt, as we disclosed at the end of the year, was only 3.62%. So really the sprinkling in of debt and equity, the careful use of our revolver, maintaining very substantial liquidity at all times. Those really, together, get us to 5% plus growth. Which is really a minimum goal for us as a management team is 5% AFFO growth.

That's what I was looking for thank you. And then Eric, you mentioned also in response to one of Jordan's questions. Looking, I think it was him, looking at potential opportunities in the skilled nursing space. What is it that you're doing differently now? Given all of the uncertainty about underwriting? Is it tougher for a skilled nursing deal to cross the finish line or is it the opposite? Are you seeing some dislocation happening that's presenting more opportunities for you that are somewhat easier to underwrite? Which would be interesting.

I would say that it's tougher. There seems to be a lot of new money coming into the space that has bid up the value of assets that we consider just average. So we're looking at stuff, and we're passing on it. And then we're scratching our heads as we see the announcements come in. So we're pretty picky. We stick to our underwriting guidelines, which is a minimum of 1.5 coverage on a skilled nursing asset, and I think you've seen some deals close below that. And we are also conservative in our underwriting, in that we want to underwrite using in place or trailing financials. Not pro forma future financials.

Okay. And so your run rate of $300 million to $500 million do you feel like, given what you just said there, that you'll be closer to the low or high end of that range in 2017?

I wish I knew. I know that we are going to have a good early part of the year. And you know Rich, I like to under promise and over deliver. I still consider myself fairly new in this role and still building credibility with the Street. So I don't want to over promise. And we'll certainly adjust guidance like we did in 2016 as soon as we know what it looks like.

Okay fair enough. Thank you.

Our next question comes from the line of Dana Hambly with Stephens.

Thanks for taking the questions. The $56 million commitment to purchase four skilled nursing facilities. Can you remind me is that with the Legend portfolio?

Sure, this is Kevin. So within the investment that we made, as we purchased the Legend portfolio, they had four developments that were either underway or in the planning processes. So, as those come out of the ground in season, we will have the opportunity to purchase those buildings. One of them opens here in the very near term, and then there will be several others that happen over the next, call it year to two years.

Okay and Ensign is to be the operator of those buildings correct?

That's correct. They are the operator day one. It's just as they season that's when we have the opportunity to purchase.

You aren't obligated to purchase? I'm just wondering given the challenges they've had, is there any increased hesitancy to get involved with those properties?

These are going to be brand new buildings, they are good sites. They are good markets. We still have very high regard for Ensign, so I don't foresee anything changing. There are some hurdles that they have to meet in terms of physical plant, the licensure. There are steps along the way that have to be completed. But it is our intention to purchase those.

Okay that's helpful. And then Eric or Kevin. On the specialty hospital opportunities, I think you guys have done pretty well with the rehab behavioral down in Murfreesboro. I'm just wondering if it's part of a pipeline. Are there any meaningful opportunities to expand that segment? Either with the operator there in place there in Murfreesboro or other assets that you're seeing?

Good question. The operator in Murfreesboro, the operations were bought by Acadia, a large behavioral health company based in Franklin, Tennessee near Nashville. So, we're in discussions with them. So that's good news. They are a great credit tenant. And they're in our neighborhood. The bad news is, they have great access to capital and the capital markets, so they don't really need our money or our help. So we'll keep relationship building with them and hope that bears fruit. In the meantime, there are other behavioral health companies out there that do need capital partners. And we're meeting with them and reaching out to them. So stay tuned on that.

Appreciate it. Thank you.

Thank you. There are no further questions, so Mr. Mendelsohn, I'll turn the conference back to you.

All right, everyone. Thank you again for your interest and participation. And we'll see you at one of the many conferences we attend soon.

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