Omega Healthcare Investors Inc (OHI) 2016 Q2 法說會逐字稿

Good day and welcome to the to the Omega Healthcare Investors second-quarter 2016 earnings conference call.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Michelle Reiber. Please go ahead.

Thank you and good morning.

With me today are Omega's CEO, Taylor Pickett; CFO, Bob Stephenson; COO, Dan Booth; and our Chief Corporate Development Officer, Steven Insoft.

Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructuring, rent payments, financial condition or prospects of our operators, contemplated acquisitions, and our business and portfolio outlook, generally. These forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially.

Please see our press releases and our filings with the Securities and Exchange Commission, including without limitation our most recent report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures, such as FFO, adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the Financial Information section of our website at www.OmegaHealthcare.com, and in the case of FFO and adjusted FFO, in our press release issued today.

I will now turn the call over to Taylor.

Thanks, Michelle.

Good morning and thank you for joining Omega's second-quarter 2016 earnings conference call. Adjusted FFO for the second quarter is $0.87 per share. Funds available for distribution, FAD, for the quarter is $0.77 per share.

We increased our quarterly common dividend to $0.60 per share, which is a 3% increase from last quarter and a 9% increase from the second quarter 2015. We have now increased the dividend 16 consecutive quarters. The dividend payout ratio remains very conservative, at 70% of adjusted FFO and 78% of FAD.

We increased the quarterly dividend by $0.02 to ensure that we comply with REIT rules requiring that we distribute 90% of taxable income. Our plan is to return to increasing the quarterly dividend by $0.01, subject to continued FFO growth on a go-forward basis. We are adjusting our 2016 adjusted FFO guidance range up to $3.36 to $3 40 per share, an increase of 9% to 10% over 2015 adjusted FFO. In addition, we've provided quarterly guidance, which reflects our July $700 million 4 3/8% bond issuance, and deploying balance sheet cash with budgeted new investments of approximately $400 million through year-end.

Dan will discuss our operator performance in more detail. But I will note that operator coverages continue to remain stable, and that our operators performing below 1 times EBITDAR coverage dropped from 7.6 % of total rent in the first quarter to 4.7% of total rent in this quarter.

Turning to Medicare reimbursement. The final 2017 Medicare rates were released by CMS, with a projected rate increase of 2.4% beginning on October 1, 2016. In addition, CMS has proposed expanding the mandatory joint replacement bundle to include surgical hip femur fracture treatment and to create a new mandatory bundle for cardiac care.

The proposed expansion of mandatory bundling would be effective July 1, 2017. Our operators continue to proactively develop care plans to address both voluntary and mandatory bundles in the same way that they have historically interacted with HMOs and ACOs. Bob will now review our second-quarter financial results.

Thanks, Taylor, and good morning.

Our reportable FFO on a diluted basis was $172.3 million, or $0.87 per share for the quarter, as compared to $100.7 million, or $0.52 per share for the second quarter of 2015. Our adjusted FFO was $173 million, or $0.87 per share, for the quarter, and excludes the impact of $5.4 million in cash received for our prepayment penalty income from the early pay-off of several mortgages and notes; $3.7 million of non-cash stock-based compensation expense; $3.5 million of acquisition- and merger-related cost; and $1.2 million in a recovery from a previously written-off receivable.

Operating revenue for the quarter was $228.8 million versus $197.7 million for the second quarter of 2015. The increase was primarily a result of incremental revenue from over $1 billion of new investments completed since June of 2015. The $229 million of revenue included $5.4 million of prepayment penalty income resulting from approximately $50 million of combined mortgages and notes that were prepaid by an existing operator. The $229 million of revenue for the quarter also includes approximately $20 million of non-cash revenue.

During the quarter, we sold 11 facilities for approximately $41 million, recognizing a gain of slightly over $13 million. The breakdown of the 11 facilities is as follows: five of the facilities sales resulted from two separate operators exercising their contractual purchase options. The remaining six facilities were the result of Omega and our tenants' combined decision to exit those facilities. Three of the six facilities were closed facilities and were not being operated as SNFs.

As outlined in our earnings press release, during the second quarter, we reported $6.9 million in provisions for impairment, and moved four facilities to assets held for sale. At June 30, 2016, we had 22 facilities classified as assets held for sale. We expect to sell these assets over the next several quarters for approximately $53 million.

In the second quarter, we recorded a $1.2 million adjustment in provisions for uncollectible mortgages, notes, and straight-line receivables, which represented a recovery of a previously written-off receivable. Our G&A was $8.2 million for the quarter, and we project our quarterly G&A expense for the remainder of 2016 to be approximately $7.5 million to $8.5 million per quarter. In addition, we expect our non-cash stock-based compensation expense will be approximately $3.7 million per quarter.

Interest expense for the quarter, when excluding non-cash deferred financing costs and refinancing costs, was $39.7 million versus $38.2 million for the same period in 2015. The $1.5 million increase in interest expense resulted from higher debt balances associated with financings related to our 2015 and 2016 investments, including the Aviv acquisition in 2015.

Turning to the balance sheet, in June we priced $700 million 4 3/8% senior unsecured notes due 2023 that were issued on July 12. Proceeds from the July issuance were used to repay all outstanding borrowings under our credit facility. Also in July, we purchased the outstanding $180 million secured term loan we assumed with the Aviv merger.

Under our dividend reinvestment of common stock purchase plan, in the second quarter, we issued 2.2 million shares of our common stock, generating gross cash proceeds of approximately $74 million. As a result of our Q3 bond issuance and the repayment of our outstanding credit facility balance and the repurchase of our outstanding secure term loan, we anticipate our Q3 interest expense will grow from $39.7 million to approximately $43 million, assuming no acquisitions.

Our balance sheet remains exceptionally strong. For the three months ended June 30, 2016, our net debt-to-adjusted annualized EBITDA was 4.7 times and our fixed-charge coverage ratio was 5.1 times. I will now turn the call over to Dan.

Thanks, Bob, and good morning.

As of the end of the second quarter of 2016, Omega had an operating asset portfolio of 973 facilities with approximately 97,000 operating beds. These facilities were distributed among 84 third-party operators located within 41 states and the United Kingdom.

Trailing 12-month operator EBITDARM and EBITDAR coverage for our portfolio dipped slightly during the first quarter of 2016 to 1.75 and 1.37 times, respectively, versus 1.78 and 1.4 times, respectively, for the trailing 12-month period ended 12/31/15. Since first disclosing operator's coverage ratios in the first quarter of 2002, Omega has reported coverages by rounding to the nearest decimal point.

A number of recent requests from our investors, analysts, and other stakeholders has resulted in Management revising that reporting matrix. Accordingly, as of this reporting quarter, we have amended our operator coverage reporting such that we will now report coverages by rounding to the second decimal point. Our selected portfolio information contained within today's press release shows coverage using this new methodology dating back five quarters. We hope everyone finds this information helpful.

Turning to new investments, during the second quarter of 2016, Omega completed four acquisitions, totaling $220 million, plus an additional $28 million of capital expenditures. These transactions, all of which were discussed as subsequent events in our previous earnings calls, included the acquisition of 10 care homes in the UK, which were leased to our existing UK tenant; the acquisition of three ALFs in Texas, which were leased to a new Omega operator; the acquisition of three SNFs, two in Colorado and one in Missouri, which were added on to an existing operator's current master lease; and lastly, an $8.5 million mezzanine loan to an existing operator. Subsequently, in July of 2016, Omega completed two additional investments, including a $48 million term loan to subsidiaries of Genesis Healthcare and a $4.3 million acquisition of a 93-unit ALF in Florida.

The $48 million term loan to Genesis was a 40% component of a $120 million term loan, which closed on July 28. Welltower provided the other $72 million, or 60%, of the overall loan. Proceeds of the loan, along with cash provided by Genesis, was used to extinguish an existing $156 million term loan administered by Barclays.

We believe this term loan, along with certain financial covenant modifications, will afford Genesis additional financial flexibility. As of June 30, 2016, Genesis Healthcare was our second largest tenant in terms of revenue, at just over 7% and our sixth largest investment. We currently lease 57 facilities in 13 states with annualized first-quarter rent of approximately $52.8 million.

EBITDARM and EBITDAR coverage for the 12-month period ended 6/30/16 was 1.72 and 1.3 times, up slightly from March 2016 trailing 12-month period, which was 1.71 and 1.34 times, respectively. Overall, Genesis's rent coverages, occupancy, and payer mix has remained very consistent over the last four quarters.

Year-to-date investments for Omega through the end of July totaled $836 million, including capital expenditures. As of today, Omega has $1.25 billion of revolver availability and approximately $190 million of cash to fund future investments.

I will now turn the call over to Steven.

Thanks, Dan, and thanks to everyone on the line for joining today.

In conjunction with Maplewood Senior Living, we anticipate construction commencing this quarter on our planned 200,000 square-foot ALF memory care high rise at Second Avenue and 93rd Street in Manhattan. The project is scheduled to open in the first half of 2019.

Our commitment to reinvest in our assets continues. Not only did we invest $28 million in the second quarter in new construction and strategic reinvestment, we currently have over 100 active capital investment projects in planning or process at the end of Q2. Nine of these new construction projects, with a total budget of $360 million inclusive of Manhattan, are actively being funded and have $162 million of construction profits on our balance sheet as of June 30, 2016.

The recently announced mandatory cardiac payment bundle commencing in mid-2017, in conjunction with the mandatory CGR pilot that commenced on April 1 of this year, highlights the importance of aligning with operators who embrace these changes as necessary to assure adequate healthcare access, while being paid appropriately for the services they provide. These changes bring risk, as well as opportunity for Omega and its operators.

We believe that an understanding of the payment model is a start, but what sets us apart is our commitment to further understand how the models, which are driven by thoughtful proactive healthcare policy, impact each operator and facility in each of their respective markets. Our reinvestment strategy prioritizes the allocation of capital to those facilities that are not only in markets that present the highest potential for success, but also leased to those operators best suited to succeed in the evolving marketplace.

Thanks, Steven. This concludes our opening remarks. We will now open the call for questions.

(Operator Instructions)

Nick Yulico, UBS.

Good morning, everyone. For the $400 million of investments that you're hoping to get done, that's in the guidance, what are the assumptions for how you're going to fund that relative to the guidance?

We will use the cash that's sitting on the balance sheet today, which Dan remarked, is $190 million today, with the balance being out of the revolver, so another so another $210 million out of revolver.

Okay. So plans to pay down the revolver wouldn't be in your guidance this year. We should assume that, that's a 2017 event?

That's a pretty good assumption, just given where the capital markets are today. I would look at that $400 million and assume that it's cash on the balance sheet and revolver as we typically have done in the past.

Okay. On page 6 of your supplemental, where you give the different buckets of operator coverage, you talked about the number below 1, the number of operators below 1 times EBITDAR coverage got better. But if I look at the 1 to 1.2 range, that went up, as far as more operators falling in that bucket and more revenue. How much of that is issues with -- on the skilled nursing side where coverage is going down versus how much is the impact of senior housing in that bucket where maybe the coverage is already lower?

None of it is affected by senior housing; it's all SNFs. But it really was boils down to three operators. One of them is -- went from the lower bucket to below 1 to 1 to the 1 to 1.2 so that created that to get a little larger. And you had two other operators, both large top 10 operators, that fell from the 1.2 and above bucket to do that 1 to 1.2. One of them was right on the cusp in it, so its coverage did not fall materially and it's been consistent coverage, for quarter after quarter, for a long, long time. That will bounce around. I would expect it could just as easily go back up in the next quarter.

The other operator is a little bit more of a story there. In the beginning -- or end of third quarter, early fourth quarter, the owners of that company, they changed over its entire senior management from the CEO on down. That has been a theme throughout -- going from that period of time even up through this last quarter, where that then filtered down to lower levels in the facilities that had changed at over 20 administrators and numerous [DONs] and they've gone through a systematic house cleaning if you will. That has resulted in a reduced coverage and it will take few quarters for that to roll through, the operation changes that they made.

But it's all on the expense line. It's not revenue -- it has nothing to do changes in reimbursement or bundling. It's really just a change-over in the senior management, which has resulted in a changeover to many of the facility level management. We think that blip in coverages, if you will, is temporary. It might take another quarter or two to come through, but we definitely believe in this operator and that it will bounce back in subsequent quarters.

Okay. Then as far as the -- again, on this page, you have 92% of the whole portfolio is in there, and then there's 8% that is not, which is various other reasons you cite here. How should we think -- what is that other 8% -- what does the coverage look like for that other 8% that's being excluded from this page? Where would they fall on these buckets?

Some of them are new acquisitions, some of them are facilities that were recently completed and are in fill-up, some are facilities that transition from one operator to another. There's a whole host of reasons of who gets put in that bucket.

But for the most part its recent deals and deals that are in some way, shape, or form, in transition. And the coverage for that -- we don't really look at the coverage for that non-core, if you will, so I don't have that, but you can assume -- it's somewhere probably in the 1 time bucket.

Okay. I'm a little confused why recent acquisitions would be excluded? What's the rationale for that?

If it happened in mid-quarter, it's not going to go into this stratification, if you will.

Okay. I see. One last question is regarding the way you guys calculate your normalized -- or you guys call it adjusted funds from operations. You are one of the only -- I'm not sure that I know of another REIT that we cover that actually adds back stock-based compensation to your -- not for a FAD or FFO number, but for a normalized FFO number.

I'm wondering why you guys think that -- I know you have historically done that -- why you think that's appropriate and would you give any consideration to actually considering that to be a real expense like most companies do for your funds from operations?

That really goes back to more than a decade ago, Nick, when we started adding it back because it's such a material number, and it wasn't clear whether any of it was ever going to be realized. It's very consistent.

We make it very clear what we're adding back so that folks that decide to push it back through the numbers can do that. But it goes to a legacy that started many, many years ago when that was a fairly large component of a very, very much smaller Company.

Yes. Would you guys give any thought to maybe changing that now and being more in line with how most of the REIT industry calculates normalized--?

We need to -- we have not heard that feedback from anyone else. Everyone else is pretty comfortable, they understand how our numbers are calculated, and they do their own math. If we had a lot of feedback about it -- I don't have a big issue with it either way, it's just a legacy that's been there. But it's really simple to figure out what the meaning of this is and decide how you want to think about it.

Okay. Thanks, everyone.

Thank you.

Juan Sanabria, Bank of America Merrill Lynch.

Good morning. I was just hoping you could speak to how you're thinking about underwriting future SNF deals, given the changes CMS outlined for bundling, including the hip and femur and then cardio, which if you look at some of the operator presentations, are a bigger risk than CJR. Are you looking to have a bigger buffer than the historical 1.3 to 1.4 EBITDAR or looking for higher cap rates?

The first step in the underwriting is, as always, is understanding the market and what you're seeing in terms of referral patterns, and what the skilled nursing facility we are interested in has. We actually have that data and access to that data and use it to evaluate whether you mark the coverage at a different rate, just given the facility and its market. That's a piece of the equation that digs down into the detail of the underwriting, and obviously, we are going to take that into consideration

Can you help us quantify how, generally speaking, you think about either NOI may be at risk, or percentage of NOI at risk, or percentage of volumes at risk, with the expanded bundling by CMS?

It's really early to start thinking about that, particularly when you also have to look at the demographics in each market, in terms of the population growth and in the 80-plus category. It's really the intersection of those two lines. I don't know that you necessarily -- every situation is going to be unique. There's not going to be a percentage of NOI that's at risk.

Juan, if you look at the period over the last five years, which is the only thing we can hang our hat on, the demographic Taylor was pointing out actually offsets by admissions -- in other words, the demographic is correlated very highly to the number of admissions going up at SNFs.

Then when you look at the pressure that some of the operators are feeling with managed Medicare, accountable care organizations, pushing pressure on length of stay, it's remarkable in how censuses remain reasonably level. What I alluded to in my remarks was CMS is really trying to keep that capacity in line. Some of these bundling things are going to do probably nothing more than offset the demographic shift going forward as we've seen over the last five years.

But don't the demographics really -- that doesn't impact or meaningfully grow until about the middle of the next decade and the CMS bundling initiatives are starting mid-next year or new pieces are starting mid-next year?

Look at the 80 to 84 age cohort, the growth rate from 2010 to 2015 was actually flat because of the World War II phenomenon, there wasn't a lot of births. That age cohort actually goes from about 0.14% CAGR for the last four years to about 1.5%. I know that doesn't sound like a lot, but it's a lot of bodies.

The 85-plus population goes up at the same rate. Starting in 2020, that number doubles, so when we talk about these initiatives, they are pilots, they don't penetrate all the markets. The cardiac initiative, by example, doesn't start till the middle of 2017. I actually applaud CMS for getting ahead of this because if you wait until the demographic bubble comes, you're going to have healthcare access issues.

Okay. I wanted to follow-up on Nick's earlier question on the rent coverage levels from an EBITDAR perspective, of what's below 1.2. It looks like you had an extra $80 million-plus that is now sub-1.2 times, and if I look at year-to-date non-skilled nursing acquisitions, and assume a 7% cap rate, that's significantly lower NOI that's implied than that $80 million, so I'm having a hard time reconciling the fact that it's not really related to any deterioration in the skilled coverage?

When Dan spoke to it, it's related to two operators that are in our top 10 that he described that I won't repeat--

That are both SNF operators.

That are both SNF operators. But it's not -- the important point that Dan was making is this wasn't a revenue occupancy-driven change. One was an operator that was right on the cusp on and will float between -- right around that 1.2 number and the other was, as Dan described in detail, a dramatic management shift.

We applaud the owners of that portfolio for making it because they're not a public company. They can step back and take a little bit of the pain of aligning their organization in a way they think is going to benefit them in the future and they went and did it in a meaningful way. It's going to take a quarter or two for them to work their way through that.

Okay. Last question for me, could you give us any cap rates for the second-quarter dispositions, as well as what's held for sale? Or I know some of them aren't generating NOI. Maybe just how we should think about the NOI that's going to come off the books?

It's not -- we will have Bob circle back with you on it. I can tell you, it's not meaningful NOI. It's going to be a cap rate where we redeploy that cash at 9%, it's going to end up being a push. But Bob will circle back and get you the exact numbers.

Thanks.

Tayo Okusanya, Jefferies.

Good morning, everyone. Two questions for me. First of all, given some of the uncertainty around skilled nursing, it seems -- I know that's coincidental, but you seem to be doing a much more in senior housing now; it's 10% of your total revenues. When we think about the next two to three years, should we be thinking you guys diversifying more and how big does senior housing become as a percent of revenues two to three years from now?

It really goes to something we've talked about in the past and that is supporting our tenant relationships. Obviously, we have a very big one with Maplewood and we've developed a couple of additional relationships, which will continue to grow, but Maplewood is the big growth engine for senior housing for us and we will continue to find opportunities with them. Because it's a relatively low percentage, you can assume it will continue to grow, but it's going to be principally with the three or four dedicated tenants we have today.

Okay. That's helpful. The second thing, within New York City, although there's not a lot of new supply senior housing, once your project was announced, HCN has also announced a project. There's also another very large private project going on, as well. Does that create any concern that there are three very big senior housing projects all going on at the same time in Manhattan?

Our current thinking is if you look at any typical penetration rates of markets, that market could absorb well in excess of the three you are describing without putting a dent in it. That is before you get into the folks who will likely come in from outside that market to be with their children who live in Manhattan. The utilization penetration rates are off the charts low, given the population density there.

Okay. That's helpful.

All of them will be successful.

Okay. Thank you. One more thing. The $400 million in additional acquisitions, I may have missed this, but could you talk about what that comprises of? Is it mainly skilled nursing? Is it mainly senior housing?

It's principally skilled nursing. As you know, Tayo, we don't typically put out guidance unless we have a lot of visibility, so we feel pretty good right now about our visibility with respect to that pipeline.

Great. Thank you. Good quarter.

Thank you.

Chad Vanacore, Stifel.

Good morning, all. Could you give us some additional details on the new loan to Genesis (technical difficulty) and what were the main lease covenant modifications granted?

As I indicated, the term loan to Genesis, it was our loan and Welltower put together $120 million loan to pay off an existing $156 million loan, where the lenders maybe weren't as understanding as other of their stakeholders. We just thought it was good, sound business. In conjunction with that, we did make some covenant modifications. There are a number of them. There's a fixed charge covenant, there's leverage ratios, there's interest coverage.

We did have some modifications to those. Our lease covenant did not change at all that we have with our facility with Genesis and we have a corporate Genesis fixed charge coverage that was only slightly modified. But details of that, we're going to let Genesis talk to that on Friday, but that is the main components of the transaction. It's a four-year deal. It was really meant to assist Genesis and they needed a little bit of financial flexibility and we provided it.

Thanks, Dan. So thinking about the $53 million in assets held for sale, are any of those associated with Genesis and should we expect any future dispositions like we have seen in other REITs with Genesis shed non-core assets?

None of the held-for-sales are Genesis assets.

We do have a handful of assets that we've agreed with Genesis, that we would look to market, and either transition to a new operator or sell it, what is, Megan? Seven assets. We have a year or so to work through that.

All right. One quick one, probably for Steve. I missed the Maplewood development update (technical difficulty). Has that broken ground yet and how is that proceeding along with what you thought it would be?

It's going according to time schedule and according to budget. We will break ground with construction activity in this quarter.

All right. I'll hop back in the queue. Thanks.

Thank you.

Kevin Tyler, Green Street Advisors.

Good morning, guys. Thanks. Taylor, I was hoping to get your thoughts. In the evolving revenue model deck that you guys have put together, you said a tiny portion of Medicare revenue on the national scale comes from joint replacement. That exact number was 2%. I'm curious in your portfolio today, and in your SNF operators' business, what would you say that number is in terms of Medicare revenue coming from joints?

We are about a couple days away from having very good scrub data, not only on the Omega portfolio by every diagnostic group, but nationally. We've hired a consulting firm to do work for us, called [Xcenda]. What our plan is -- I have some visibility on that, but I don't want to talk to it, but we will publish, in the next week or so, an updated slide deck that incorporates a lot of that data.

So I'm not dodging your question, but we are not quite prepared to release the data. I don't think anybody's got it. We had to hire the consulting firm to dig it out of the CMS database. We now have all the data by diagnostic groups, so everybody can think about bundling.

Okay. That would be helpful. Look forward to seeing it. But from a goal post standpoint, you said that about 25% of your properties were in CJR geographies. Is that still about the right scaling or not ready to comment on that either?

Yes, 25% are in those 67 MSAs. That's correct.

Okay, great. One more on this point. When CJR expands the cardiac bundle, into the cardiac side and on the CJR side, as well, clearly, it's becoming more of a need for operators to track this data and then put the infrastructure in place to do it. We are seeing some of that spending come through on the expense side, but as this technology gets built out, is it a concern for you, with your operators? Are the regional operators more nimble, let's say, than a larger operator and what kind of exposure do you see to the expense side of this in terms of building out the data tracking?

I don't know that the expense exposure is going to be significant. Our guys are nimble. They are already working on care plans. They really have in dealing with some of the ACOs and HMOs, have already done some of this. But I will tell you they are very, very proactive in developing care plans and many of them are already in the voluntary bundles, so they're already ahead of the curve.

Thanks. Bob, one for you, just on the balance sheet side. We touched on it a little bit earlier in the call, but can you talk through maybe some plans to bring down leverage over time? It seems like it's been a priority, but is there any greater scale plan that you might have, either on the equity side or otherwise? How do you think that plays out over the next 18 months?

In the second quarter, we did issue the $75 million worth of equity. In the guidance that we put out, it shows a year-end weighted average share count of about 200 million shares, which means we would have to issue, to get there, about another $100 million worth of equity throughout the third and fourth quarter to get to that weighted average share count number for the year. With that said, we do plan -- in our guidance, we plan to issue about $100 million worth of equity as we sit today, but it's all going to be driven on what our stock price is.

Okay. Do you have a certain range that you would be considering in terms of stock price or do you think about it in terms of what acquisitions might come through the pipeline and funding it--?

It's really the latter. It's the pipeline and the related yields and we correlate that all back into our stock price. That's part -- that's how we make our decisions in terms of allocating capital. But we've, as you know, we've stayed in that 4 to 5 times debt-to-EBITDA range and we are committed to that.

Okay. Thanks, guys.

Thank you.

Tayo Okusanya, Jefferies.

Thanks for taking my question. Another question around the UK in general, and also from the perspective of diversification, why do this particular deal? Why was it so interesting? What kind of infrastructure you have in the UK and again how big can the UK now become as part of the overall portfolio?

This goes to what we've talked about many times, which is supporting existing tenant relationships. We have one operator in the UK, Healthcare Homes, with two principals that we have great relationship with, and will continue to grow with. I will tell you that they have now grown to 35 facilities in total from the 23 we originally had.

They have said to us they're going to step back just a little bit and digest what they have. But for us, when we first went into the UK, it was the right operator relationship in a place with a great demographics and somebody we could continue to push capital towards, and we have. We continue to find small opportunities and we may identify a second operator in the UK, just like we have here in the States.

We like to have multiple operators in our geographies, so we will look for that. There will be some opportunity in the UK. Obviously, there's a lot of turmoil around the whole Brexit issue, but frankly, our operators, their biggest issue in the UK and their biggest fear is labor. So we are going to watch that carefully, but overall we continue to like the market a lot.

Got you. Thank you.

Thank you.

(Operator Instructions)

This concludes our question-and-answer session. I would like to turn the conference back over to Taylor Pickett for any closing remarks.

Thanks, Andrew. Thanks, everyone, for joining the call this morning. Bob Stephenson will be available for any follow-up questions you may have.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.