Omega Healthcare Investors Inc (OHI) 2011 Q4 法說會逐字稿

Good morning, and welcome to the Omega Healthcare Investors fourth-quarter earnings call and webcast for 2011. All participants will be in listen-only mode. (Operator Instructions)

After today's presentation, there will be an opportunity to ask questions. (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. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial and FFO projections, dividend policy, portfolio restructurings, 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, and EBITDA, and expenses excluding owned and operated properties. 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 our CEO, Taylor Pickett.

Thanks, Michelle. Good morning, and thank you for joining our fourth-quarter 2011 earnings conference call. Adjusted FFO for the fourth quarter is $0.50 per share. For the 12 months ended December 31, 2011, adjusted FFO is $1.89 per share. Our strong performance reflects the impact of closing $334 million in transactions during the quarter. We increased our quarterly dividend to $0.41 per share. The dividend payout ratio is 82% of adjusted FFO.

Our 2012 adjusted FFO guidance is a range of $2.06 to $2.12 per share. This guidance assumes $150 million in acquisitions during 2012. In addition, the guidance range could change based on capital market transactions, including new equity and debt issuances.

During the fourth quarter, we closed on $334 million in facility acquisitions and mortgages. A blended cash return on investment is 10.2%. These transactions involve negotiations and approvals over a 6- to 12-month time frame, much longer than typical Omega transactions. Dan Booth will provide detail for each transaction later in our prepared comments.

In addition to our acquisition activity, we completed the transition of 10 facilities to subsidiaries of Genesis Healthcare. The new 12-year master lease includes a Genesis parent guarantee. Two Vermont facilities remain to be transitioned, however, the economic opportunities and risks all reside with Genesis, and the master lease rent is fixed. We have increased our unfunded capital expenditure commitments to $128 million, which includes a new $36 million commitment to renovate 13 Communicare facilities.

Turning to the CMS RUGs-IV final rule -- as we reported in our third-quarter call, we expected the RUGs-IV final rule to reduce our EBITDAR coverage from 1.88 times to 1.52 times. Based on October and November data received to-date, it appears that operator coverages may be slightly better than projected. This is primarily related to expense mitigation efforts and effective Medicare assessments.

Finally, for eight years we have positioned our balance sheet to achieve an investment-grade bond rating. In December, Standard & Poor's upgraded our unsecured bond debt to investment grade BBB minus, and upgraded our corporate credit rating to BB plus. Bob Stephenson, our Chief Financial Officer, will now review our fourth-quarter financial results.

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $46.3 million or $0.45 per share for the quarter as compared to $28.4 million or $0.29 per share in the fourth quarter of 2010. Our adjusted FFO was $51.3 million or $0.50 per share for the quarter, and excludes a $2.3 million provision for uncollectible notes receivable, $1.5 million of non-cash stock-based compensation expense, $1.2 million of expense related to the closing of the $334 million of new investments, and it also excludes a $50,000 net loss associated with the run-off expenses from our former owned and operated assets. Further information regarding the calculation of FFO is included in our earnings release and on our website.

Operating revenue for the quarter was $76.3 million versus $71.1 million for the fourth quarter of 2010. The increase was primarily a result of $2.3 million of incremental lease revenue from a combination of acquisitions completed in the fourth quarter, capital improvements made to our facilities throughout 2010, and lease amendments made during that same time period; and $3 million of mortgage interest from new mortgages originated in December 2010 and throughout 2011. These were partially offset by the decrease in other investment income resulting from reduced working capital investment balances. The $76.3 million of revenue for the quarter includes $4 million of non-cash revenue.

Operating expense for the fourth quarter of 2011, when excluding nursing home expenses and stock-based compensation expense, increased by $5 million as compared to the fourth quarter of 2010. The increase was primarily a result of a $2.3 million provision for uncollectible notes receivable, $1.4 million in real estate impairment to reduce two facilities to their estimated sales price, and $1.2 million in expenses related to the closing of the $334 million of new investments.

In addition, we had an increase in G&A resulting from increased costs related to acquisitions completed in 2010. We project our 2012 G&A to be approximately $14.5 million, assuming no extraordinary transactions or unusual events, with the growth over 2011 primarily related to the 2011 new investments. Interest expense for the quarter, when excluding refinancing costs and non-cash deferred financing costs was $21 million versus $20 million for the same period in 2010. The $1 million increase in interest expense resulted from financings related to the $334 million of new investments completed during the quarter.

Turning to the balance sheet, in March 2011 we redeemed all of our 8.375% series D preferred stock valued at $108.5 million. In August, we entered into a new $475 million unsecured revolving credit facility, which matures in August 2015. The 2011 credit facility's priced at LIBOR plus an applicable percentage based on our consolidated leverage.

In the fourth quarter, we completed a seven-facility transaction for approximately $86 million. Consideration consisted of $56 million in cash and $30 million of assumed HUD debt that bears a blended interest rate of 4.87%. In addition, we acquired 17 facilities for approximately $128 million. Consideration consisted of $56.7 million in cash, and $71.3 million of assumed HUD debt that bears a blended interest rate of 5.7%. In November, we entered into a $92 million first mortgage. In December, we entered into a $28 million term loan.

And during the 12-month period ended December 31, 2011, under our equity shelf program or ATM program, we sold 1.4 million shares of new common stock, generating net cash proceeds of $31.5 million at an average price of $22.16 per share. Under our dividend reinvestment and common stock purchase plan, we issued 2.9 million shares of our common stock, generating net cash proceeds of $59.3 million at an average price of $20.78 per share. At December 31, 2011, we had approximately $2.8 billion of gross real estate assets.

On the liability side of the balance sheet, we had $1.6 billion of debt, and we had $202 million available on our $475 million unsecured revolving credit facility. For the three months ended December 31, 2011, our funded debt to total asset value ratio, which is our principal bank covenant, was 51%, and was well within the maximum of 60%. Our funded debt to adjusted pro forma annualized EBITDA was 4.8 times, and our adjusted fixed charge coverage ratio was 3.4 times.

I'll now turn the call over to Dan Booth, our Chief Operating Officer.

Thanks, Bob, and good morning, everyone. As of December 31, Omega had a core asset portfolio of 432 facilities distributed among 51 third-party operators located within 34 states. Operator coverage ratios remained stable during the third quarter of 2011. Trailing 12-month operator EBITDARM coverage was 2.3 times for the period ended September 30, compared to 2.3 times for the period ended June 30. Trailing 12-month operator EBITDAR coverage for the period ended September 30 was 1.8 times, compared to 1.8 times for the period ended June 30. The trailing 12-month period results ended at September 30 represents the full 12-month period under which RUGs-IV was in effect, and thus, has resulted in higher overall operator coverage ratios when compared to prior years.

As previously announced on October 1, 2011, the Medicare rate for skilled nursing facilities was cut by an average of 11.1%. Adjusting trailing 12-month coverages to account for this cut resulted in overall coverages being reduced by approximately 0.36 times. Operator results in the months of October and November, while not necessarily indicative of the overall fourth quarter, do show results slightly better than our simple pro forma calculation. While still early, we believe that operator performance has been enhanced due to concerted mitigation effort by our operators, the continuation of appropriate Medicare assessments, and the slow but steady operating improvements stemming from Omega's capital expenditure program.

Turning to new investments -- in the fourth quarter of 2011, Omega completed new investments of $334 million in the form of sale lease backs and mortgages. The $334 million consisted of cash investments of $233 million, and the assumption of existing HUD debt in the amount of $101 million. The investments essentially involved four transactions whereby Omega invested in 37 skilled nursing facilities, with 4,179 beds, located in seven states involving four separate operators.

Details of the investments include the following. On December 23, the Company purchased 17 skilled nursing facilities from affiliates of Capital Funding Group, a new relationship to the Company, for an aggregate purchase price of $128 million. The acquisition consisted of the assumption of $71 million of indebtedness guaranteed by HUD, and $57 million of cash. The $71 million of assumed HUD debt is comprised of 15 HUD mortgage loans with a blended interest rate of 5.7%. The 17 SNFs, representing 1,820 available beds, are located in Arkansas, Colorado, Florida, Michigan, and Wisconsin. The transaction involved two separate master lease agreements covering all 17 SNFs, with an initial yield of 9.9%.

In a separate transaction, on November 14 the Company entered into a $92 million first mortgage loan with affiliates of Ciena Healthcare Management. The loan encompasses 13 SNFs totaling 1,421 beds, all located in Michigan. The term of the mortgage is 10 years, and bears an initial interest rate of 11% with fixed escalators in years four and seven. The mortgage is cross-defaulted with other Ciena investments.

During the fourth quarter of 2011, the Company also completed $86 million of combined new investments with affiliates of Persimmon Ventures and White Pine Holdings, both new operators to the Company. The investments involved a purchase lease-back transaction, as well as a mortgage transaction. The purchase lease-back transaction involved the Company purchasing four SNFs located in Maryland and West Virginia, totaling 586 beds for a total investment of $61 million. The investment consisted of $31 million in cash, and the assumption of $30 million of HUD indebtedness with an average rate of 4.76%.

The mortgage transaction involved the Company providing a first mortgage loan to affiliates of White Pine in the amount of $25 million secured by a lien on three SNFs totaling 352 beds all located in Maryland. The overall combined transaction totaled $86 million, consisting of $56 million of cash and $30 million in assumed HUD indebtedness. The combined initial annual yield was approximately 10%, and included seven facilities located in two states with 938 beds.

Lastly, on December 30, the Company entered into a five-year, $28 million amortizing term loan with affiliates of Signature Holdings II. The Company received lease hold mortgages on 32 existing Omega facilities, and is cross-defaulted with the Company's existing master lease with Signature. The loan is for five years, and bears interest at 10%.

In addition to the new investments closed during the fourth quarter of 2011, the Company continued its commitment to provide its operators with capital expenditure funds necessary to update physical plants and reposition their facilities for the future. During the fourth quarter, the Company expended over $10 million on capital improvements, and issued new commitments totaling $36 million. As of December 30, 2011, the Company has outstanding commitments of $128 million for the purpose of funding capital expenditures.

Thanks, Dan. We will now open the call up for questions.

We will now begin the question-and-answer session. (Operator Instructions) Jeff Tyler, Green Street Advisors.

Good morning. I have a question on your EBITDAR coverage. I would have expected that with this last quarter of RUGs, the coverage would have approached the 1.9 times level similar to the 1.88 that you show in your presentation for 3 quarters of RUGs. Can you talk about why that didn't happen?

Well, actually, we started to round on the coverage ratios, so we didn't carry it out to the next decimal point, if you will, so it's really the difference is very muted.

Right. So you're just kind of more like a 1.84 versus the 1.88 that you were talking about for three quarters of RUGs, is that correct?

That's correct.

Okay. And then so you said that you expect that the reduction based on the cuts will be a little bit better than the 0.36 times you had reported in the presentation. How much better? What are you thinking?

Well, you know, the 0.36 is just very simple arithmetic, right? We're just taking the 11.1 and knocking it off Medicare rates. So it's not very sophisticated, right? It's pretty (multiple speakers).So in reality, I mean, that would mean our operators did absolutely nothing to --

Right.

-- offset those cuts so we do expect some improvement upon that. The specifics of the months of October and November, we don't really want to get into monthly reporting but we have seen better results than that simple math, if you will, would indicate.

And then consistent with kind of the 50% mitigation that other people are talking about? Can you -- what did you say?

I don't want to comment on specifics for the month of October and November. It's just too early to say.

Sure, no problem. Lastly, on your new acquisition of the Capital Funding Group, what kind of coverages were you underwriting there?

You know, in most of our deals now, we underwrite to a 1.4 coverage.

Okay.

Taking into account the cuts, quite frankly, and to some degree, some mitigation efforts, but these were not heavy Medicare facilities, so it was consistent with how we underwrite most of our deals of 1.4 coverage.

1.4 coverage, and is that assuming a 4% measurement fee or a 5%?

5%.

Okay. Great. That's all for me. Thank you.

James Milam, Sandler O'Neill.

Hi, good morning guys. Just a quick follow-up on that. When you say the 1.4 times, that assumes a 13.1% Medicare cut or 11%?

It includes a 11.1% cut. We're kind of taking the position that the operator mitigation efforts will offset that 2%

Okay, great. Can you guys just talk a little bit about -- I'll be the first to admit, I was surprised that your success in closing new investments, it sounds like you've been working on them for a while. But can you just give us a little color in terms of how those discussions matured through the summer and then what you're seeing in terms of deal conversations now. It just looks like a lot greater velocity than I had been expecting.

Well, you know, it sort of all just came together in the fourth quarter, so as Taylor indicated, it was the result of many months of discussions. A lot of that time frame was due to the assumption of HUD debt, so that just had a long, long lead time. And then of course in the middle of the discussions, we had the CMS rate cuts. So just really all narrowed down to all coming together in the fourth quarter. You know, we're still seeing a fair number of deals in the pipeline in the first quarter of 2012. I'd say that the -- things have -- I wouldn't say picked up, but they're still running pretty steady and so we're looking at a lot of deals. And once again, our deal flow is choppy. It's hard to predict when and if these deals will close but we are looking at a good number of deals at this point.

Okay, I guess just a couple of follow-ups on that. It sounds like you guys don't want to project, but in terms of guidance, what is assumed for a closing, you know, the timing of closing for the $150 million of deals that are in the guidance?

I think from our perspective, it's unlikely you'll see anything significant in Q1. And you think about a normal lead time for deals for us is a 3-month-type timeframe. So, if we get into negotiations this quarter that are fruitful, you could see stuff starting in Q2, but as we've said all along, it's always choppy. I mean, our guidance could end up being in the fourth quarter.

Right. Okay. And then I guess just following up on that, one more, I'm sorry, I didn't get all the numbers in terms of what you said, in terms of ATM issuance and a drip equity issuance. But if you don't mind just giving those to me again and then can you just talk about what your -- the capital plans look like for 2012?

You wants the ATM and drip in the quarter or for the year?

In the quarter.

In the quarter, we did no ATM at all.

Okay.

Yes. And then the drip was very, very modest. It was --

Okay.

245,000 shares.

Perfect. Sorry. I saw that in the release. I just misheard what you said in your comments. So I apologize for that. So can you just talk about with -- where the line of credit is now and your anticipation to close more deals in the quarter? Do you guys think you'll be able to go to the unsecured market? Are you looking at turning the ATM back on? Do you think there's a secondary? Just how are you looking at funding options for 2012?

You know, we -- it's likely that we'll fund about 50% of any future acquisitions of stock and it's just going to -- The decision, you know, is at what price and what multiple, but in our budget, that's how we've looked at the world. The unsecured bond market has become incredibly attractive over the last 3, 4 weeks, so that's something that we've talked about. But with $200 million on the line and nothing -- no clear deal in the pipeline that's imminent, I think we're just going to wait and weigh out all those different alternatives over the next month or two.

Okay. And can you guys -- how have the conversations with Moody's been going regarding getting them to give you the investment grade rating as well?

Well, we're meeting with them in the first quarter.

Okay.

But you have to remember, they're 2 notches below, so we're not just split-rated, we're 2 notch split-rated. So even if Moody's were to move, I just don't see them moving 2 notches, so I don't know that there's anything imminent on that side.

Okay. Perfect. Thanks. I'll go ahead and share the call now. Appreciate it, guys.

Tayo Okusanya, Jefferies.

Yes, good morning, guys. Congratulations on a great, great, great quarter.

Thanks, Tay.

Couple of questions. The -- when I think about fund -- acquisitions going forward, this year you guys guided to $150 million -- at 2011 you guided to $150 million and almost doubled that, you're guiding to $150 million again next year. Just kind of curious, why that number? Why not higher? What are you seeing in the market right now in regards to just acquisition activity?

I think the issue is just the lumpiness of it in the sense of when we think about guidance in terms of earnings and what we think we can put out there that's prudent, we look at $150 million and what's in the pipeline and that's prudent, but we certainly are going to position ourselves that if there's more than that available to us, that we can close under our parameters, we'll go do that.

Okay.

And it really just -- it just comes down to lumpiness. We could do 1 deal and have that done or we could wait until December and cobble together 10 deals.

Got it.

The other thing that's hard to predict is just what happens to cap rates and prices. The first half of 2011, we had to be patient because there really wasn't a lot out there that we could do in our niche, in our [return]. So, you know that could happen at any time. That's just hard to predict.

Got it. Okay. And then in the improvements you've seen in operator fundamentals, would you say it's really more of a cost-cutting side of things that's looking a little bit better? Or is it them really managing on the revenue side, whether that's a patient mix issue or what have you?

Most -- I would say that the feedback -- most of our feedback has been anecdotal but it's been more cost-cutting. You see now therapy on an individual basis almost exclusively. There's almost no group therapy happening today. So that modification has been made and very quickly. And then a slight change in patient mix where you're seeing the more -- a little bit more clinically complex-type patients in the mix.

Okay. And then just last question, the capital expenditure program, you have $128 million of commitment. Do you expect to do all of that in 2012 or is there a certain amount you're going to do in 2012 and what returns are you expecting on that?

Embedded in that $128 million is some brand you new construction processes, so they take actually a couple years. So no, if I was to guess, I'd say it'd probably be about 50% of that would roll out in 2012.

Okay. At what return?

They're all 10% give or take, you know.

Great. Thank you very much.

Thanks, Tay.

John Roberts, Hilliard Lyons.

Morning. Looking big picture. Obviously you've had three really good years here growth and expecting really good growth granted in 2012, but looking beyond that, what is it going to take to continue the current growth rate you see and what do you feel comfortable with on a long-term growth rate going forward for an analyst who's looking at projecting beyond your current window?

Our model has been the same since 2004, and frankly, our balance sheet has stayed small enough that $300 million in transactions a year still moves the dial. So as we look at it, the opportunities --We've expanded our tenant base, and they're -- they feed the pipeline as much as anything, so that's helpful when you think about needing to do a little bit more in acquisitions to keep the consistent growth rate. So I don't see any dynamic out there other than, as Dan mentioned earlier, the market is finicky. And we don't -- Assuming cap rates stay in our world and capital costs remain reasonable, we can continue to execute on this plan for another 3 or 4 years. There's plenty of product out there.

What do you see from competition-wise? There's a lot of press out there saying the institutional investors are now hopping into the market with you. Are you seeing much of that and what are -- are they being more picky than you are or are they being more aggressive than you are?

The institutional investors have historically stayed away from Skilled Nursing facilities and have focused more on independent and Assisted Living. It's just -- it's a simpler model to underwrite. And so I -- Dan, you can comment, but I don't think we've seen any institutional investors competing with us.

I have not.

You think you may see that in the future as cap rates go down in the other areas?

Maybe, but because of the nature of the business, it's a little bit more difficult to underwrite, so I think you'd have to have an institutional investor that's committed to, a management team that comes out of this industry.

All right, great, thanks guys.

Thank you.

(Operator Instructions) Daniel Bernstein, Stifel Nicolaus.

Good morning.

Good morning, Dan.

A lot of questions have been answered. I just want to get a sense on the flavor of the acquisitions in the quarter and the acquisition pipeline. Are you seeing people come out of the woodwork because of the cuts, they're distressed and they need to sell or they want cash out of the business, or are you seeing -- or are your investments basically based upon people coming to you and going we see opportunities, we need the money? So is it distressed sellers? Or is it opportunistic buyers who need your funding? How should I view your pipeline and the sources there?

Well, the transactions that we did in the fourth quarter are really with all what I would call household names. There was no distressed sellers at all. This was just good business arrangements between two different parties. You're seeing a little bit of mom and pops deciding it might be time to sell. We -- but that's consistent. We see that year over year. That just is -- when the time is right, that's -- people decide it's time to sell. I haven't seen any real distress out there at all and I'm not sure that I'm going to see any in the near future.

So the cuts just aren't -- the Medicare cuts just aren't prompting people to, make transactions in any kind of way?

Well, not yet. It's very early, you know. But at this point, no, I'm not seeing distressed sellers.

Okay.

No more than -- (multiple speakers).

I'm sorry, on the CapEx, I just wanted to understand a little bit better on guidance. So your guidance incorporates the $150 million in acquisitions and then about $50 million or $60 million of additional CapEx. Would that be the right way to think about it?

No. We lump the CapEx in with our acquisition. It's really allocated capital. So $150 million of capital allocated into our portfolio, whether it's CapEx or deals. And frankly CapEx, you never know for sure how that's going to time out. So maybe it's $35 million and maybe it's $60 million, we'll have to see how that all paces itself out; but that's included within the $150 million.

Okay. And then one last question here. On the mitigation, are you seeing any difference between your larger operators and your smaller operators and their ability to mitigate the Medicare cuts in any way?

You know, Dan, I'll -- we have the results for 2 months, so I think it's a little early to say. I think everybody's looking at the same -- there's only so many areas to be cut, right? But I don't think I'm -- at this point, given the 2 months data that we have, we're not seeing a big distinction between big, small, medium or otherwise.

Okay, great, thank you.

Thank you.

Todd Stender, Wells Fargo.

Hi, thanks, guys. Can you just talk about the volume and the activity around your mortgage investments and maybe just what the operators are using the proceeds for right now?

Yes, we don't make a huge distinction between sale lease-backs and mortgages. A lot of times the mortgages are just put in place for a myriad of different reasons, most coming from the sellers or operators themselves and their needs. So we don't really look at that as a big distinction, but we do, do -- mortgages are generally only done as an accommodation so it's really not our mainstay. Beyond that the use of proceeds is usually the same. It's to pay off other debt or in part cash out.

How much would you say, if your investment guidance is for $150 million this year, how much do you think would go toward new mortgages?

Right now, based on our pipeline, we don't have anything that's mortgage-based. So that's based on what we see today. But the other comment I'd make about mortgages is not only are they an accommodation typically from our -- to the operators, they're structured very much like leases in terms of lockouts, very difficult lockouts and prepays, very long terms. Most have escalators just like a lease. If we already have a lease relationship, the mortgages are crossed in. So I just want to be clear when you think about the economics of a mortgage versus a lease in our world, they're not that dramatically different. But mortgages really aren't our business; they're an accommodation, and again we don't have anything in the pipeline today that would be structured that way.

Okay. And the stuff that you did in the fourth quarter, are these amortizing loans or are they typically interest only?

They are typically interest only.

Okay. Just going back to one of the original questions of how we're thinking about your long-term capital plans to term out the line, your debt to EBITDA is getting in the 5.5 times range and historically I think you like it inside of 5. Where do you look forward? Is it still going to be having a 4 handle on it going forward?

Well, if you actually do the pro forma of the EBITDA and take away the non-cash stock-based compensation, it's actually 4.8 times for the quarter. So it -- and we -- I actually have a reconciliation of that on the website. So we're within our 4 to 5 times, and as we've said before, as we hit 5, we're going to look -- if the equity market is available to bring down to stay in that range and do acquisitions.

Okay. Thanks. And just lastly, can you break out what you're budgeting for in your capital costs and maybe what the debt and equity costs look like?

Well, in terms of capital, we look at selling shares at north of 10 times FFO. So if we're not in that world, then we're probably not looking at selling stock. And our line of credit is at LIBOR plus, what is it, 250?

It's, yes, 250.

And then when you think about bonds, we would -- if we did a bond deal today it would trade at sub-6. But as we think about all that going forward, that decision is going to be made when it becomes apparent that we have needs based on the pipeline. And so that's a month away, 2 months away, and we'll look at the market then. But we're really not a trader of stock at less than 10 times FFO.

Sure. Is -- now that you reeled in your preferred, is preferred on the table as well?

It would have to be a very attractively priced -- I think we've never had a situation from our perspective where bonds weren't preferable to preferred in terms of just rate.

Okay. Thank you.

James Milam, Sandler O'Neill.

Hi guys. Thanks for taking the follow-up. Just really quickly, what's the spread on the new investments in terms of GAAP versus cash income?

(multiple speakers).

I mean, is the GAAP going to be 100 basis points higher?

It's about.-- Yes.

Okay. Perfect. And then I just wanted to ask kind of a bigger picture one and this is not even necessarily directly related to your portfolio, but the American Healthcare Association has their proposal out to try to -- on readmission rates and we've got the doc fix coming up, the payroll tax holiday, all that stuff. What are you guys hearing from your contacts in D.C. just related to any potential changes to the reimbursement environment or do you feel pretty secure with the cut that the skilled nursing industry has already received that you'll be spared at least for the next 12 months or so?

I think the view is generally the industry will be spared. I mean, it doesn't eliminate the possibility of reduction in bad debt reimbursement, which we can pro forma that into our coverages from where we sit. We feel okay about that. But when you think broadly, we had operators who cut -- our operator coverages were excellent and now, I'd say they're good. There's a lot of other pieces of this industry where cash flows are not so good, so I just don't think you're going to see any major changes. You know, maybe they tweak bad debt and the reimbursement of bad debt.

Okay. Thank you.

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

Thank you for joining the call today. Bob Stephenson will be available for any follow-up questions you have.

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