Sabra Health Care REIT Inc (SBRA) 2016 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to that Sabra Health Care REIT fourth-quarter 2016 earnings conference call.

This call is being recorded.

I will now turn this over to Tayla Nevo-Hacohen, Chief Investment Officer. Please go ahead.

Good morning. Before we begin I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our acquisition and investment plans, our expectations regarding our financing plans, and our expectations regarding our future results of operations.

These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties the could cause actual results to differ materially, including the risks listed in our form 10K for the year ended December 31, 2016 to be filed with the Secretary today as well as in our earnings press release included as exhibits 99.1 to the form 8K we furnished to the SEC earlier today. We undertake no obligation to update are forward-looking statements to reflect subsequent events or circumstances and you should not assume later in the quarter that the comments we make today are still valid.

In addition, references will be made in this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included at the end of our earnings press release and the supplemental information materials included as exhibits 99.1 and 99.2 respectively to the form 8K we furnished with the Secretary earlier today. These materials can also be accessed in the investor relations section of our website at www.sabrahealth.com.

With that let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thank you, for joining us. I chose the Beatles helter-skelter for our hold music today because I couldn't find a song called Finely Tuned Machine. So we dedicate it to 45.

Let me start with talking about the regulatory environment and the ACA. Repeal and replace at this point is completely up in the air, but in the event it that happens I just want to make a couple of comments. Relative to the ACA, the components of the repeal consideration or replace consideration that would affect the post acute sector of the Medicaid block grants. And the Medicaid block grants --they have tapped the house actually twice, a number of years ago it never got past the Senate. But we would make a couple of assumptions if block grants if were to occur. One, they would get spread out in terms of financial burden being put on the states over a period of probably around10 years. And we also think that there is a very high likelihood for a number of reasons which we can get into later if you're interested that long-term care would be parked out.

That is our view on block grants. In terms of everything else it is really CMS that's driving the train in terms of what affects the post acute sector, and the only thing we're hearing about this that may change is it that Secretary probably say, stop the mandatory bundling. So in the margin that's helpful it never affected material proportion of the field population, I think there was a bit of a over reaction to it. If it is mandatory bundling is, stopped it will help a little bit on the margin. That is our view of what is happening relative to the ACA and CMS.

I'll move on to our strategy and our investments. We closed $45 million in investments in the fourth quarter, and that included $23.7 million investment on a development project in Nevada, someone had a question as to why they came off the development list. We acquired it in the fourth quarter, which is why it came up the development list. For the year we did just under $166 million in investments. In 2016 we recycled $314 million in capital improving our balance sheet.

In 2017 we're proceeding with the sales of the real estate. It will be 35 Genesis facilities. And real estate are number of those buildings, because Genesis has determined that it is in their best interest to stay in three of those states because regulatory and reimbursement Outlook has improved, in one state in particular, which is the biggest date we have in that grouping.

From our perspective we made a commitment to getting our exposure in Genesis so we're continuing with the sales of those properties with the change, obviously, that Genesis on a number of those buildings will stay as the operators, and we still sell the real estate. We have buyers lined up. It just changes the timing, which affected our timing in terms of providing guidance that we thought would be really solid. So, we will continue down that process and Harold will talk a little bit more about that.

The benefits to us remains the same whether Genesis is in or out. The other comment that I will make relative to our divestiture program is historically we have been satisfied with reducing our Genesis exposure to growth at Sabra, and through our first six years we reduced that exposure by 70%. As we get bigger that becomes more difficult to move that number down more quickly and we were pleased that we came to an agreement to sell the assets that we have already talked about on this call and the last call.

But going forward, we are going to be more aggressive in reducing our Genesis exposure. So, as these sales near completion, we will be identifying other assets that we currently have with Genesis that continue to sell assets. And if Genesis was the operator, that is obviously fine. We think there are plenty of buyers in the private market that would be interested in real estate. Only then we will proceed down that path. That will allow us to not just depend on the growth, but combine our national growth with a very active divestiture program to reduce our exposure to Genesis.

In terms of our pipeline we're really active right now. We are getting numerous books every week that we're signing Fee-As on -- the results in terms of actually acquiring assets, but we haven't seen this much activity this early in the first quarter actually in a long time. Last year was light throughout the year, but typically most first quarters are light. This is been very active. We have an excess of $500 million in our pipeline. And just remind everybody when we talk about our pipeline this is the stuff that comes across our desk. These are deals that we're actively working on, and we're doing underwriting analysis to see if we want to bid on these. Of the $500 million about 50% is skilled nursing and 50% is senior housing. And you saw that activity starting to pick up at the end of the year it has just really accelerate since then. So we actually go pretty good about that.

In addition to anticipating more active year on the acquisition front, this is the year the proprietary development pipeline will start showing some real tangible results and we expect to acquire $130 million, or exercise our options on $130 million in assets that are currently in the development pipeline some time in the second half of 2017, which will obviously just improve our Outlook for what the year looks like. In terms of operational results we have a really strong quarter. Our skilled transitional care portfolio EBITDA coverage improved sequentially from 1.49% to 1.52% that is an all-time high for us.

Our skilled transitional care occupancy was up sequentially 90 basis points from 87.3% to 88.2%, and our skill mix picked up slightly to 43.8%. That is a also a high for us. Our senior housing EBITDA coverage was up sequentially form 1.13% to 1.22%. Sequential occupancy was steady at 89.4% from 89.5%. Our Genesis and holiday picks coverage remained flat at 1.24% and 1.17% respectively. Our coverage with the tenant hospital improved to 1.29%.

With that I will turn the call over to Harold and then we will go to Q&A.

Thank you, Rick. I will provide an overview of our results for the fourth-quarter and our financial position as of December 31, 2016. As well as provide some details on the Genesis asset sales and some initial insights into earnings expectations for 2017.

In the three months ended December 31, 2016 we recorded revenues of $61.8 million compared to $66.8 million prior year. A decrease of $5 million primarily due to the exit from the fourth Park investments earlier in the year, which provided $7.6 million of rented interest during the fourth quarter of 2015. This reduction in revenue was offset primarily by incremental rental income from our acquisitions.

FFO for the fourth quarter 2016 was $4.7 million and on a normalized basis was $40.6 million, or $0.62 per diluted common share. Normalized to exclude the recognition of $3 million of lease termination fees, $3.2 million of provision for dopple accounts and low losses in excesses of related revenues recorded during the quarter, and non-recurring or unusual acquisition costs of $0.5 million associated with an acquisition close net quarter.

AFFO, which excludes from FFO, acquisition pursuit costs and certain noncash revenues expenses, was $38.8 million, and on a normalized basis was $35.7 million or $0.59 per diluted common share for the fourth quarter 2016, compared to $36.2 million, or $0.55 per diluted common share of the fourth quarter of 2015. 2016 AFFO normalized to exclude the same lease termination fee and other insignificant items reducing AFFO by $0.1 million. 2015 AFFO was normalized to exclude the same excess interest income impacting normalized FFO in 2015 and $0.6 million of provisional full cash inflow of revenues.

Net income attributed to common stockholders was $20.6 million, or $0.31 per diluted common share for the quarter compared to $22.5 million, or $0.34 per diluted common share for the fourth quarter of 2015. I'd like to briefly point out that we have changed our accounting policy to the early adoption -- [Audio difficulty]

We're allowing people to rejoin the conference. It does appear that we have most of our participants that have rejoined if you are standing by to be answered.

How about we resume.

Very well.

Thank you for your patience. We have no idea what happened; we'll find out. Other than the fact that as soon as Harold started talking about the change in accounting policy you all seemed to drop off. That is where we will resume, nevertheless.

At the risk of losing you again I will start right back what I was talking about.

We've changed our policy to the early adoption of accounting standards update 2017-01 business combinations, which clarifies the definition of a business combination. Under this new standard acquisitions subsequent to October 1, 2016 were considered asset acquisitions and we have capitalized acquisition costs associated with the investments rather than expensing them as we have in the past. We expect future acquisitions pursuit costs will be capitalized when associated with the completed real estate asset acquisition, thereby reducing our G&A costs going forward.

G&A cost for the fourth quarter of 2016 totaled $4.4 million and included stock-based compensation expense of $1.4 million. Excluding these costs, our recurring G&A cost were 4.9% of the total revenues for the fourth quarter. Interest expense for the quarter totaled $15.7 million compared with $16.1 million in the fourth quarter 2015, and included the amortization of the free financing costs $1.3 million in each quarter.

Based on debt outstanding as of December 31, 2016, our weighted average interest rate excluding borrowers, borrowings under the revolving credit facility was 4.55%, taking our interest rate swaps into a consideration, only interest on a revolver remain subject to interest rate fluctuations, which currently represents 2.2% of our total debt. Borrowings under the unsecured revolving credit facility bear interest at 2.77% as of December 31, 2016. During the quarter we recorded a $2.3 million provision for dopple account in loan losses compared to $6.2 million in the fourth quarter of 2015. The current quarter provision is primarily related to straight-line rents.

During the quarter we reported other income of $5.3 million, primarily consisting of $2.6 million lease termination fee associated with a $10 million amounts previously paid by Genesis, $1.6 million other income related to earn out liability estimate adjustments and a $0.4 million lease termination fee associated with SW-one's skilled nursing facility sold during the quarter.

Finally, we recorded a $2.9 million loss on the sale of real estate associated with two skilled nursing assets the one partial of land, which were to sold during the fourth quarter and provided $12.6 million of aggregate net proceeds.

Investment activity for the third quarter included senior housing assets with an aggregate purchase price of $43.7 million and is indicated brings our total investments $165.7 million with an aggregate initial yield of 8%. The acquisitions during the fourth quarter were funded with cash on hand and proceeds from our revolver.

Looking at the Statement of Cash Flows for the year and our balance sheet as of the end of 2016, our cash flows for operations for the year totaled $176.7 million compared to $121.1 million in 2015. This is an increase of 46% year-over-year and was driven by strong growth of our them investment portfolio over the last two years and collection of amounts due on Forrest Park investments.

2016 was a year of significant capital recycling, resulted in combined proceeds from loan repayments in real estate assets sales of $314 million. Such proceeds were used to finance our investment activity as well as provide us the ability to reduce our outstanding revolver balance by $229 million during the year. As of December 31, 2016 we had total liquidity of $499.5 million consisting of currently available funds revolving credit agreements to $474 million in cash and cash equivalents of $25.5 million. We're in compliance with all of our debt covenants under a senior notes our credit agreements as of December 31, 2016 and continue that strong credit metrics as follows. Net debt to adjusted EBITDA 5.22 times, interest coverage of four times, fixed charge coverage of 3.2 times, total debt to asset value of 43%, secured debt to asset value of 6%, and unencumbered asset value to unsecured debt of 247%.

In January 2017 both S&P and Fitch affirmed our current ratings of the BB minus and BB plus respectively, both with a stable outlook. S&P indicated consideration of a positive rating action if we successfully disclose the Genesis assets currently in the market and reinvest the proceeds in a leverage and neutral manner. Fitch identified the path way to positive momentum on the ratings which include the sale of Genesis assets. We are pleased the agencies have confirmed our ratings and we will continue to pursue our objective of achieving an investment grade rating for Sabra.

On February 3, 2016 our Board of Directors declared quarterly cash dividend of $0.42 per share and $0.44 per share on our series aid preferred stock. Both dividends will be paid on February 28, 2017 to stockholders of record as of the close of business on February 15, 2017. The common dividend represents a 77.8% for the fourth-quarter 2016 normalized FFO per share.

Quickly an update on the Genesis asset sales; as Rick mentioned Genesis has decided to continue to operate up to 21 of the 35 facilities that we're selling. This change by Genesis has slowed the process a bit for us, but will not result in a significant change in the outcome, which again is as follows. We expect total estimated proceeds of between $200 million and $220 million and $185 million to $205 million net of debt assumptions. We expect net proceeds will be used primarily to fund acquisitions and to pay any outstanding amounts on our revolver. Estimated aggregate rent reductions from Genesis upon sale of the assets of approximately $15 million to $17 million.

Genesis exposure after the sales are completed estimated at 27.9% and 26% after the proceeds are reinvested. Similar modifications of the remaining leases and guarantees with Genesis, as previously disclosed, resulting in flexibility to sell additional assets in the future.

The estimated impact on our annual AFFO per share of two sets after elimination of debt and a reinvestment of proceeds we don't expect any dilution on an FFO basis due to straight-line impact of lease extensions with Genesis. Again we expected the sales will now be completed by the third quarter of 2017.

Now a couple of comments regarding our 2017 financial performance expectations. Given the uncertainty surrounding the timing of the Genesis asset sales and related timeframe required to redeployed in proceeds from those sales it is not practical to provide a full-year earnings Outlook for 2017 at this time.

Our fourth quarter supplemental includes pro forma information that indicates net income, normalized FFO, and normalized AFFO purchase with common share with $0.31, $0.62, and $0.54 respectively for the fourth quarter of 2016. This pro-form gives a full-year affects to all investments and disposition activity completed during the quarter thereby providing an annualized run rate of $1.24 per net income, $2.48 for normalized FFO, and $2.16 for normalized AFFO.

We believe these pro forma amounts are a reasonable starting points for operating results in 2017. However they do not reflect the impact on FFO and AFFO or net income from Genesis asset sales. The expected Genesis rent reduction of $15 million to $17 million represents more than $0.20 per share for FFO and AFFO on an annualized basis. So the uncertainty around the timing of selling of these assets, as well as the timeframe for these redeploying these precedes makes it difficult to estimate the impact on our 2017 net income FFO and AFFO.

While we don't expect to hold these proceeds for an extended time it is very possible some portion of these funds will not be redeployed immediately resulting in some short-term impact on 2017 earnings that is not known at this time. Also this fourth quarter 2016 run rate does not take into account an acquisitions that we may close in 2017 or any changes to our corporate overhead costs. I will say this we do not expect our ongoing cash corporate overhead cost to increase materially over 2016 levels and expect goings to average about $3 million per quarter, excluding stock-based compensation expense and any expense acquisitions pursued costs.

And finally in January 2017 we filed the shelf registration statement with the SEC to replace the shelf registration statement that expired in 2016. We expect to implement a new ATM program utilizing the shelf registration in the latter part of 2017, whereby when appropriate we can access the additional equity capital to max fund our investments. Use of this ATM will not been necessary until such time as we redeployed the available proceeds from the Genesis asset sales. In the utilization of this ATM we will take into consideration the liquidity levels, the amount of investment opportunities we expect to close, as well as our goal of keeping our leverage above 5.5 times.

With that I will open this up to questions and answers.

(Operator Instructions)

Chad Vanacore, Stifel.

Good morning. Thinking about the non-guidance, guidance that you put together, what went into those? What should we factor besides the timing of dispositions in there?

It is just the timing of dispositions. We had a pretty good line on when everything was going to close before Genesis decided to stay in those assets and we were faced with making the decision to either stay [with] Genesis and not sell or just to sell the real estate. We are committed with a couple other comments to aggressively getting Genesis exposure down.

That just meant that we had to start from scratch and go to a different buyer pool. That buyer pool is there and we're making progress on it. It is a big enough issue that the timing changed -- caused us to contemplate whether it made sense to put out guidance that was absolutely going to have to be changed before we do our first-quarter earnings call anyway. So just decided to go with the run rate. And then we are confident at this point will be able to give much more solid guidance, and real guidance, on the first quarter call.

So thinking about the dispositions with Genesis. The three states that they are staying in. How much do you think that backs up the timeline you put out there -- by 3Q but what factors could push that back even further?

We don't think he will get pushed back even further. We said prior to the change we would get the 35 sales done by the end of the second quarter if not sooner and this just pushes it into the early third quarter. At this point we don't see any way it gets pushed past third quarter.

Okay. And then just thinking about fundamentals across skilled nursing, we expect pressures in 2017, how do you think that ultimately impacts your coverage on the SNC portfolio?

Obviously we have a different [SNF] portfolio because our coverage continues to get better. Seriously this is a reflection of who we're buying and in combination of the [things] that we've sold. So you look at our portfolio coverage that is a really true indicator of the who have as our tenants now and we have been very selective about picking tenants were focused on getting ready for bundling their focus on high acuity.

Our skilled mix must be the highest in the industry. It is no different than what I said before, there are operators that are well-equipped to deal with the changes and there are operators who are not and it will take them longer and some of them won't make it.

The other factor for us is all of our acquisitions we acquire smaller operators that are run by really sophisticated guys, guys that used to be with Genesis or Manor Care or any of the big guys. And so you've got a real A team in place and that has been our focus. And when you only got 3 to 5 buildings you are really nimble. So it is really just a simple as that.

When we think about Genesis I think they are doing all the right things, they are just really big. There's only been one company in the history of the space that has been bigger than Genesis and that was Beverly way back in the day and they had to downsize and that was a much simpler business then. They are big, it just takes more time.

We can go through other companies out there and I can give you some very specific reasons why certain companies are going through things that other companies are not as opposed to it being a sector phenomenon because it is not. The problem for you guys, as I said in the past, you don't have enough data points. You got a few publicly held post-acute companies and then all your other data has to come from us. So I get the position that you're in. It definitely puts you in a disadvantage from an analytical perspective but we're not seeing these things that these larger companies are experiencing.

All right thank you for taking the questions.

Yes.

Tayo Okusanya, Jefferies.

This is [Austin Cato] on for Tayo. Thank you for taking my call just a few questions from me. First I just wanted to clarify that you said the acquisition pipeline is somewhere above $500 million for 2017 split half and half between skilled nursing?

Correct.

The second question deals more with the Genesis and why did they change their course regarding the proposed asset sales? Did something change? Any insight would be appreciated.

At the 21 facilities that they are there going to stay in the bulk of those are in one state and that state historically has been one of the worst states in the country from a liability perspective. Based on what happened in that state with the elections in November it looks like there is some meaningful tort reform in that state. And with meaningful tort reform in that state changes the economics and pretty dramatically in favor of the operating environment there. The facilities there weren't facilities that were losers they were just facilities that did pretty well but they had a target on their back from the plaintiff's [bar] so that was a big driver. I know, for that one state in the other states, I think, it was less material. There aren't as many facilities. There has been some favorable changes in the climate there as well. I don't want to speak to them -- I'm just trying to fill in some of the gaps based on my conversations with Genesis and my understanding and knowledge of what is happening in those states.

Okay great thank you for that. Just last question for me, we are thankful that you provided the certificate of occupancy timing to the development pipeline, but just for modeling purposes which of the two dates should we be looking at when determining when that development will start to generate revenue?

There is a range of dates because there are multiple assets within each of those categories. So I hope that clarifies I'm not sure I follow the question. We will be exercising the options [since it's a] function of closing, so there's going to be some lag between exercising the option at closing but it is not much.

I think that's a point to keep in mind is the certificate of occupancy is something that is easily estimatable given that you can estimate a construction timeframe. What is difficult to estimate in some of these deals is the lease up period and stabilization which many of these are based on a stabilization date versus a C of O date. So the C of O date is designed to give at least some sense of where those projects are but doesn't necessarily indicate the timing of exercising our options.

I would say however you model it you're not going to be off by very much. That is key because a lot of the options that we have to exercise are actually based on that stabilization dates, so to Harold's point while we may be off a little bit on what those stabilization dates are we are not going to be off by months. The difference between the estimates and when it actually happened should be relatively immaterial

Thank you guys that's it for me.

Josh Raskin.

Hello, Rick. Just on the $130 million of development, you have not given formal guidance but you run rate of $0.62 on an annual basis et cetera. The development I would assume would be additive to that in some way, shape, or form or is that coming in too late in the year to have an impact? Juxtaposing that, is that half of the offset to Genesis in terms of timing?

I think a couple of things. It's clearly is a 2018 event, it will have some impact in 2017 but it won't be material. But certainly in terms of reinvesting Genesis proceeds we may have a lot of other options to reinvest those proceeds but we know that were going to have $130 million there that we always can count on to reinvest the proceeds. So there is a back stop in terms of how long it will take us to actually reinvest.

I would add to that, not only do people talk about the timing of the asset sales, and that is obviously a portion of the reason why we're uncertain as to the impact for 2017 numbers, but the flip side or additional piece to that is how long it takes to redeploy that capital because if we get out of these assets by third quarter we -- certainly by the end of the first quarter we will have more visibility on acquisitions that we are looking to close or maybe have closed so we will get more clarity on redeploying that capital. But that is really the biggest difficult part of putting out guidance right now is the deployment of capital, less so the timing of the sales.

Right, but you potentially have half that covered.

Exactly.

Is just a matter of when that will happen.

On a [basis] it's more that half of it covered.

I guess the development's higher. The second question broadly in the SNF market you have got Kindred and your block of Genesis and other blocks and Genesis. There seems to be some big buckets of SNFs in the markets and I do not know if that makes it a buyers market? Is that impacting the way do you see cap rates? You seem pretty confident that you will get this done by third quarter but how are you thinking about proceeds and I know you gave the [2 to 220], should we be thinking about the lower end now or do you really think very market specific and there is plenty of buyers to absorb all of the potential sales?

There are plenty of buyers. Here's really how to think about it I know it sounds like a lot because you got portfolio's that you noted, you have got Golden Living out there. Golden Living is about 75% done on selling their refunds and those [aren't] prime assets either. So here's the way to think about it. Think about 15,000 facilities over 50 states and you spread these portfolios that are out there over a bunch of markets. It is really a drop in the bucket on a market specific basis.

So for every facility that we are involved in marketing we are seeing tremendous [net at] competition. We have not seen cap rate expansion but we're also not seeing cap rate compression, prices are where they have been and that is where our estimates are based on. It is really robust out there.

As I noted before there's [always a huge] difference now more than ever I think between the private market and the public market and the private market, where these are operators, they're strategic buyers, they're finance sources are used to being in the space aligned with operators that they feel good about so they have a much different perspective on some of the positive outlook of the SNF space. Particularly when you think about most of these guys are smaller operators, they're incrementally adding a couple of buildings to their portfolio. It's a nice add on to them, they've the infrastructure to handle it and they can upside a number of those assets and all of those portfolios have been under managed. That's really their point of view.

Got you. Just one more, you piqued my interest in your prepared comments around if there is a repeal bill and then if there is some sort of replacement, that long-term care would get carved out in the replacement. I'm curious under the auspice of block grants for Medicaid -- I'm just curious is it an easy answer if not we can take it off-line.

We can take it. That is always been part of the dialogue, even the past couple of times when it passed the House. There are a couple of specific reasons. One, Medicaid was designed to address the needs of the blind, elderly, and disabled. All the growth or the majority of growth of Medicaid expenditures has been all the expansion of public community services. It is not long-term care that is driving the growth in Medicaid.

That is part of the answer, the other part of the answer is access. There is a growing pool of eligible beneficiaries who are going to need skilled care. We [don't] know what those numbers are and there is a declining pool of facilities and beds available to take them in. If LTC were not to be carved out and if you were to assume -- and I think this is a reasonable assumption -- that at the end of the year 10 give states dealing with 30% less Medicaid in their budget than they had before then you're carving out services and you're basically going to have people on the street.

On that access issue has always been a critical issue and its been exacerbated by the fact that there is less and less product out there and the demand is going to be greater and greater. So that is really the single biggest driver.

The other point I would make them in terms of home and community services, when a lot of these programs first started taking off --I saw it as an operator in all the states we operated in, there was a flawed assumption on the part of the policymakers that by [thinning] home- and community-based services they basically save money by having reduced occupancy and therefore [expenditures] in skilled nursing facilities. That never happened because acuity, even on the Medicaid population in skilled nursing facilities, has continued to increase. So home- and community-based services simply can't take care of those people.

What has happened from a budget perspective at the state level is you have [state] Medicaid nursing home expenditures which have not gone down but have gone up but now you've got this whole other piece of expenditures that didn't exist before because your assumption was flawed to begin with. If the operator knew it was a bad assumption [the pod could make the stand out that it was].

That is helpful, thank you.

(Operator Instructions)

Paul Morgan, Canaccord

Good morning. Going back to Genesis, Rick, you said you had the buyer pool all lined up. Is that the new buyer pool based on the changes in what Genesis decided to do or is that where you were before?

We're lining up the new buyer pool now so even though we switched to selling the real estate we got pretty good responses. It's just way earlier in the process than we were before.

Right, okay. Now I guess with the change in the timing it would seem like given the size, what is going on in your pipeline at this point in the year, you could end up with less dilution than you had anticipated even though wasn't not necessarily your intention.

How would you think about funding first half of the year investments that come up in light of the anticipated proceeds that you'll get in the third quarter? Is this stuff the you'd finance short-term on the line? It would be short-term even more accretive or would you think about it differently?

That's exactly how we would think about it. We've got plenty of liquidity on the revolver. We will use that revolver or we will use the cash that comes in as that cash comes in. And if we spend money on the revolver and the cash comes in then we will use those proceeds to pay the revolver back down.

Okay. Great. Lastly on the pipeline could you characterize maybe what the mix is between organic growth with your existing operators versus new relationships?

It is all new relationships. [I should not say all] -- about 80% new relationships.

Is that a reflection of your operators are not looking for the same amount of growth? Or is there a lot of new stuff coming in?

It is a combination of both. One of the things that we've come to see is that our operators, the ones that currently exist for us, they want to grow very slowly. They are very focused both on the skill side and the senior housing side. Acuity is going up. There are new models that are being implemented and they don't have very many facilities to begin with. So they don't want us to bring them five buildings, they want us to bring them a building at a time.

So organically we are not going to grow with our existing tenant base at the pace that maybe we originally thought we might and I'm actually not being critical of our guys because in a dynamic environment the fact that they're being cautious and making sure they have everything together before they move on to the next building I think is one of the reasons that you see the results that you see in our portfolio. I appreciate that but it has caused us to also be focused on adding additional relationships. So it is really a combination of the two.

Okay, that is helpful thanks.

Eric Fleming, SunTrust.

Just a couple of quick number questions I missed, Harold, what did you say -- the net proceeds for the Genesis sale, what was that number? After debt?

Between $185 million and $205 million. And the difference obviously is there is some HUD debt that goes with one or two of those assets. That is [partly] the gross proceeds.

And another question, you were talking about overhead expenses. So you're saying run rate going forward -- you're talking about a $3 million number plus stock comp? [Respectively?]

That's right, plus stock comp which is difficult to predict [because it's tied to] the share price. And then there will still be some residual acquisition pursuit costs that get expensed but it will be much less than it has been in the past.

So rough numbers would it look like your [JA] line comes in flat to down from 2016?

It will be down because of the capitalization with [amortization pursue] costs. That is correct. So if you take took our historical stock comp that fluctuates quarter to quarter but it will be somewhere in that same range on an annualized basis. And then you take the $3 million run rate per quarter of the cash corporate G&A. And in some small amount for transaction costs typically -- historically would run around $600,000 a quarter, I would say would be around a third of that going forward plus or minus. That gives you the full picture.

Eric, I also want to make sure that our messaging is clear on Genesis (technical difficulty). We are going to continue to be aggressive on possessing assets once we certify or once we actually see that they're going to be closing. We will be mindful of balancing our growth with that but for us it is important that we address that exposure even more aggressively than we have in the past.

I just want to sneak one last one in. In terms of the development pipeline, you have the certificate of occupancy timeframe. Do you have a general timeframe in terms of certificate of occupancy to stabilized? Is that a 6 months, 18 months, do you have a range?

Eric this is Talya. It really varies, and primarily varies with the type of facility and the size of the facility so it is no surprise a small facility would have a shorter ramp-up period and a much larger facility would have a much longer ramp-up period. If you think about 24 months from C of O to stabilization, that is a good rule of thumb and gives a plus minus around that.

Okay. Thanks a lot.

I would like to turn the conference back to Rick Matros for any additional or closing remarks.

Thank you for your time today. We are available for additional follow-up. Have a great day and we'll look forward to talking with you. Thanks.

This concludes today's call, thank you for your participation.