Sonida Senior Living Inc (SNDA) 2008 Q3 法說會逐字稿

Please stand by, we are about to begin. Good day and welcome to the Capital Senior Living Third Quarter 2008 Earnings Release Conference Call. Today's conference is being recorded.

Any forward-looking statements made by Management in this conference call are subject to certain risks and uncertainties that can cause results to differ materially, including, but not without limitation to, the Company's ability to find suitable acquisition properties at favorable terms, financing, leasing, business conditions, risks of downturns and economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations, among others, and other risks factors identified from time to time in the Company's reports filed with the Securities and Exchange Commission.

At this time, I would like to turn the call over to Mr. James Stroud, Chairman. Please go ahead, sir.

Good morning, and welcome to Capital Senior Living's Third Quarter 2008 Earnings Call.

Despite a challenging operating environment, year over year results include an increase in resident revenues of 3%, and a 40 basis point improvement in EBITDAR margin. In the third quarter of 2008, resident revenue increased $1.3 million to $43.2 million, approximately a 3% increase from the third quarter of 2007. The EBITDAR margin for the third quarter of 2008 was 29.9%, an improvement of 40 basis points over the third quarter of 2007. These positive gains are evidenced in our [same] communities under management.

Excluding the four communities undergoing conversion, same-store revenue increased 2.9%, versus the third quarter of 2007. Average monthly rent increased 5.3%, while same community expenses increased 2.7%. The result was a 3.2% increase in net income from the comparable prior year period.

On May 29, 2008, the Company announced that a Special Committee of our Board of Directors had engaged Banc of America Securities as our financial advisor, to assist the Company in exploring and considering a range of strategic alternatives. The Company is still evaluating a strategic alternative, and at an appropriate time will advise the marketplace where the Company stands in the process. During this time period, the Company intends on executing its 2008 business plan.

Now, for further comments on the third quarter 2008, I introduce Larry Cohen, Chief Executive Officer. Larry?

Thanks, Jim, and good morning. I am pleased to welcome everyone to our third quarter 2008 earnings release call.

Our communities offer seniors quality housing in elegantly appointed buildings with supportive services at affordable rates. Despite a challenging economy and housing market, we made progress in the third quarter as we grew occupancies, implemented rent increases, and employed sound expense management. We continue to differentiate our communities as an affordable option delivering exceptional value to elder seniors in challenging economic times. Our communities enjoy solid, well-established reputations in their markets. Our accomplished marketing staff and first-rate sales directors are implementing effective marketing plans, including direct mail campaigns, telemarketing, increased events, and outreach. These effects are generating higher occupancies and revenues.

Move-ins and deposits increased for all levels of care, and move-outs decreased, resulting in a 50 basis point improvement in physical occupancy for the third quarter. Our attrition rate in the third quarter slowed to 37.3%, compared to 40.7% in the second quarter. Independent living attrition was 33.7% for the quarter, compared to 36.2% for the second quarter, and assisted living attrition was 47.4%, versus 58.2% in the second quarter. Deposits and occupancies improved in October, and we are cautiously optimistic that these improvements will continue in November.

Our disciplined approach to managing expenses and increasing [rents] is producing positive results. Average monthly rents in September increased 5% from a year prior, and 1.1% from June of 2008.

Community operating results were solid in the third quarter. 57 of our communities were stabilized with an 89% average physical occupancy rate. Operating margins before property taxes, insurance, and management fees were 47.7% in stabilized, independent, and assisted living communities. As communities under management, these include our consolidated communities, communities owned in joint ventures, and communities owned by third parties and managed by the Company, excluding four communities with units being converted to higher levels of care, same-store revenues increased 2.9% versus the third quarter of 2007, with a 5.3% increase in average monthly rent. Our expense management and group purchasing program limited same-store expense growth to 2.7% despite unusual increases in utilities expense in July and August, with 27 days of above-100-degree heat in Texas, as compared to one above-100-degree day in 2007. These achievements generated same-store net income growth of 3.2% from the comparable period in 2007.

The number of communities to be consolidated in the third quarter increased to 50 from 49 a year earlier. Financial occupancy of the consolidated portfolio averaged 85.7% in the third quarter. Excluding the 4 communities with units being converted to higher levels of care, the average financial occupancy for the quarter for 46 consolidated communities was 87.6%. Average monthly rents increased 5.7% to $2,491, and that is also a 1.4% sequential increase from the second quarter average monthly rents.

Most of our consolidated communities are located in the more stable housing markets in the country, and offer seniors quality housing with supportive services at affordable rates. Occupancies have improved since June, and we are hopeful that the continuing demand and needs of an aging population, plus very limited new supply of senior living communities, will return our occupancies to higher levels. Every 1% in occupancy gain at our consolidated communities would generate approximately $2 in additional revenues. A 5% increase in average monthly rent at our consolidated communities would generate approximately $8.5 million in additional annual consolidated revenues. At stabilization, we typically achieve better than a 70% incremental EBITDAR margin, which would significantly increase the Company's EBITDAR and cash flow.

The average age of our residents is 85, and the decision to move into a senior living community, both independent living and assisted living, is need-driven. Residents typically move from their former residences due to health problems, difficulty in maintaining a home, loneliness, and the need for supportive services. Through assisted living or home health care residing in our independent living communities, residents can receive these services in all of our communities. The cost of living at a Capital Senior Living community is usually more affordable than living at home. This is even more compelling today, as many seniors living at home on fixed incomes are facing increasing costs and are seeking value. While we have seen the effects of the housing market impact certain markets, our move-ins, deposits, tours, and leads generated continue to be solid as we execute on the fundamentals, have the right people in place with the right focus and tools. In the few communities that have been impacted by the housing market, we continue to manage our operating expenses [to] occupancies through managing our staffing and food costs, and thereby maintaining good margins. In addition, we are converting units in many of these communities to higher levels of care, making the communities more compelling to prospects and permitting more residents to age in place.

Our 2008 business plan is focused on increasing capacity and levels of care to meet the needs of our residents with an average age of 85 through expansions, conversions, and new developments. These investments are expected to produce excellent returns on invested capital, and build shareholder value.

We are converting 213 independent living units in 7 communities to assisted living or dementia care. Of these, 80 were converted at the end of last year, 18 units were converted in May, 70 units are expected to be licensed as assisted living during this quarter and next, and 45 units are expected to be licensed as assisted living in the second half of 2009. The estimated cost of these conversions is approximately $2.7 million, and upon reaching stabilization, these converted units are expected to increase our revenues by approximately $4.1 million, with a (inaudible) incremental margin.

We have adjusted our expansion plans and are currently monitoring markets where two of our independent living communities are located, to evaluate the local economies over the next couple of quarters. These expansions would add 160 units for a total cost of approximately $23 million, and it would be funded with mortgage debt and cash on hand.

We have had excellent results in generating significant improvements at communities that have been expanded or have had units converted to additional levels of care. Adding higher levels of care at existing properties should enhance revenues and cash flows by improving occupancies, reducing attrition, increasing average monthly rents, and expanding margins.

We are pleased to report that we opened our newest community in Dayton, Ohio, at the end of August. This community has 146 units, of which 101 are independent living and 45 are currently being licensed as assisted living. We have two other communities under development in joint venture with Prudential Real Estate Investors acting on behalf of institutional investors, which are expected to be complete in the first part of 2009 and open around April of 2009. These developments will add 287 units, 197 independent living and 90 assisted living units.

We are continuing to look at additional sites in strong, various entry markets for a limited number of additional joint venture developments, assuming construction financing is available on acceptable terms. New developments of seniors' housing continues to be severely constrained, and construction activity is negligible in our markets. We expect building will continue to be restrained as the credit crisis has worsened in already difficult environments to build new senior living communities. This decrease in development, which may last for an extended period of time, should lead the seniors' housing industry, with favorable demographics and sound fundamentals, out of the current trough to a robust period.

I would now like to introduce Ralph Beattie, our Chief Financial Officer, to review the Company's financial results for the third quarter of 2008.

Thanks, Larry, and good morning. I hope that everyone has had a chance to see the Press Release, which was distributed last night. In the next few minutes, I'm going to review and expand upon highlights of our financial results for the third quarter and first 9 months of 2008.

If you need a copy of our press release, it has been posted on our corporate website, at www.capitalsenior.com.

The Company reported revenue-- resident revenue of $43.2 million for the third quarter of 2008, compared to resident revenue of $41.9 for the third quarter of 2007, an increase of $1.3 million or 3%. The number of communities we consolidated under our income statement increased by 1 since the third quarter of last year, from 49 to 50, with the addition in January of one leased community.

Financial occupancy of the consolidated portfolio averaged 85.7% for the quarter, with an average monthly rent of $2,491 per occupied unit. Excluding four communities with units being converted to higher levels of care, financial occupancy of the consolidated portfolio was 87.6%.

Average physical occupancy for the 57 stabilized communities, excluding four communities with units being converted to higher levels of care, was 89%. Until these four communities with conversions again reach stabilized occupancy, we will continue to exclude them from our stabilized total.

Unaffiliated management services revenue decreased by $0.7 million in the third quarter of 2008, from an unusually high level in the third quarter of 2007. The third quarter of last year included the [true up] of an acquisition which took place in 2004, which had look-back provisions. We recovered $0.4 million of management fees, and wrote off a contingent note payable of $0.3 million.

Affiliated management services revenue included $0.4 million of development and pre-marketing fees in the third quarter of 2008, due to two communities being developed in joint ventures. These development fees are booked on a percentage-of-completion basis, and with construction proceeding ahead of schedule, the development fees on each project have largely been earned.

Revenues under management increased approximately 1% to $55.7 million in the third quarter of 2008, from $55 million in the third quarter of 2007. Revenues under management include revenues generated by the Company's consolidated communities, communities owned in joint ventures, and communities owned by third parties that are managed by the Company. There were 65 communities under management in the third quarter of 2008 compared to 64 communities under management in the third quarter of 2007. In these communities under management, same-store revenue increased 2.9%, versus the third quarter of 2007, as the result of a 5.3% increase of average monthly rent.

Operating expenses increased by $1 million or 4% from the third quarter of 2007, and an a percentage of resident and health care revenues, operating expenses were 63.2%. On a same store basis, food cost increased 3% from the same quarter in 2007. Labor costs were up 2% and utilities were up 7%, as Larry mentioned, largely in the month of July due to an unusually hot summer in Texas.

We also increased our provision for doubtful accounts this quarter in accordance with our accounting policy. Transitioning to a new system at one of our CCRCs resulted in some coding errors and some related billing delays, and we expect to be able to reduce this reserve by year end.

General and administrative expenses of $2.4 million were unusually low, at a level $0.5 million below the third quarter of 2007. One factor was the decrease of health insurance claims of $0.4 million in the third quarter of the prior year. The Company self-insured for the cost of employee and dependent medical benefits, and purchased stop-loss protection on an individual and aggregate basis. Claims during the quarter came back into line after an unusually high second quarter. We also reversed by $0.3 million the accrued bonuses for this year.

G&A expense, as a percentage of revenues under management, was 4.3% in the third quarter of 2008.

Facility lease expenses were $6.3 million in the third quarter of 2008, approximately $0.3 million higher than the third quarter of 2007, reflecting 25 leased communities this year versus 24 last year, along with increases in contingent rent.

Depreciation and amortization increased $0.3 in the third quarter of the prior year, as a result of capital improvements at some of the Company's owned and leased facilities, along with depreciation incurred on new information systems, which become operational on January 1, 2008.

Adjusted EBITDAR for the third quarter of 2008 was approximately $14.3 million, an increase from $14.1 million in the third quarter of 2007. Adjusted EBITDAR margin was 29.9% for the quarter, a 40 basis point improvement from the comparable period of the prior year.

Interest expense at $3.1 million in the third quarter of 2008 was $0.1 million less than the third quarter of 2007, reflecting lower debt outstanding due to principal amortization.

The Company reported a pre-tax profit of approximately $2.0 million in the third quarter of 2008 compared to a pre-tax profit of approximately $2.2 million in the third quarter of 2007. The Company reported net income of $1.2 million or $0.05 per diluted share in the third quarter of 2008 versus net income of $1.4 million, also $0.05 per diluted share, in the third quarter of 2007. Adjusted cash earnings (which we define as net income plus depreciation and amortization) were $4.3 million or $0.16 per diluted share in the third quarter of 2008, versus $4.2 million, also $0.16 per diluted share, in the third quarter of 2007. For the first 9 months of 2008, the Company produced revenue of $145.3 million, compared to revenue of $140.9 million in the first 9 months of 2007, an increase of $4.4 million or approximately 3%. Adjusted EBITDAR for the first nine months of 2008 was $42.9 million, an increase of $2.2 million or 6% from the $40.7 million reported for the first 9 months of 2007. The Company's results improved from net income of $3.1 million in the first 9 months of 2007 to net income of $3.9 million in the first 9 months of 2008. Cash earnings grew from $11.9 million, or $0.45 per diluted share, in the first 9 months of 2007 to $13.3 million, or $0.50 per diluted share, in the first 9 months of 2008. Capital expenditures in the third quarter were approximately $2.1 million. Of this amount, approximately $1.3 million represented maintenance spending at the property level. If annualized, this rate of spending would equal approximately $758 per unit. Cash increased by $2 million during the quarter and equaled $28 million on September 30. Mortgage debt was $186.7 million at the end of the third quarter 2008, a reduction of $3.2 million from a year ago. We have 25 mortgages, all at fixed interest rates averaging 6.1%, and with the exception of one small mortgage, all of our loan maturities are between July of 2015 and May of 2017. I would now like to open the call to questions.

The question and answer session is going to be conducted electronically. (OPERATOR INSTRUCTIONS) We will take our first question from Carter Dunlap at Dunlap Equity Management.

Can I-- you mentioned the impact of the real estate market on some of your communities. I've heard in the industry comments and other operators-- there's comments about discounting. But I don't think I heard that in any of your prepared comments. Can you make a comment about what role, if any, that's playing, and are you doing it or are you considering it?

Good morning, Carter. If you look at our results for the quarter, you can see that [for our old] properties under management, our average monthly rent actually increased 6.4% year over year, and our sequential growth is about 1.4%. We generally are not discounting. In some selected markets where it's competitive, what we will do is, we will take a unit that typically is the most difficult to lease because it may be the furthest from the dining room, it may have a poor view, or maybe it is just the wrong size, and we will work out a concession with the resident. But, in general, we do not discount, we have not had a need to discount, and we believe that that philosophy maintains the integrity of the lease structure to all of our residents, and, again, helps us focus on really driving the net operating income per unit and cash flow per unit.

Okay, thanks.

Thank you.

And we'll take our next question from Sam Miran at GEM Realty Capital.

Hi, Larry, how are you doing?

Great, Sam, how are you?

I'm okay, thanks. I jumped on this call late, so if you've already covered this, I apologize and we'll talk about it later. Did you talk about-- can you talk about the trends in October and what you're looking at in November in terms of occupancies and rents?

Yes, I'd be happy to, Sam. As we mentioned, our physical occupancy in the quarter improved by about 50 basis points. October was a good month, both in terms of deposits and move-ins. Our actual physical occupancy increased nearly 30 basis points in October, so we saw positive trends in October, and we cautiously optimistic that November will be good. That's the most current information we have, but we did see the improvements throughout October.

Gotcha. And you've been able to maintain, at least for October, the occupancies increased by 30 basis point without having to discount, I think, as you just mentioned?

That is correct.

Interesting. Okay, thanks.

Yes, and going back to-- because, obviously, that was common theme in both Carter and Sam's questions, is-- we are typically in pretty sound-- relatively speaking, sound housing markets. I think the other aspect of our business is that we have a product that is affordable. If you looked at the average monthly rents in the Waterford buildings, which represent 17 of our private buildings, it's $2,089 a month, inclusive of meals, activities, security, transportation, utilities. All of our portfolios average about $2600 -- that's independent and assisted -- so, I think that our product has served well in the markets that we operate in, and I think if you look at the pricing and price (inaudible) we operate, it's still affordable to most seniors that are moving into our buildings.

We'll take our next question from Todd Cohen at MTC Advisors.

Good morning.

Good morning.

Larry or Jim, can you talk a little bit about the units being converted? I'm a little bit confused how that's working in and around the numbers-- I believe it's four properties?

It's actually -- we right now have conversions underway [or planned] for seven properties. Four of those are actually right now being converted. We have units out of service to accommodate the conversion. In fact, we have decided to delay the conversion at one building, Tesson Heights in St. Louis, where we had planned a 48-unit conversion. The reason for it is, the building is full, and we don't have the ability to create the vacancy or the licensure for those converted units. So we have delayed that, but in the other buildings--

So that's one of the seven, but not of the four?

That's neither. That's one that we had planned that we have delayed. So, seven-- we have Gramercy Hill, that was completed in the second quarter. We have conversions underway at Crown Pointe, Villa Santa Barbara, and Peoria. We are awaiting licensure for those buildings. In the meanwhile, we have units-- because we have converted, we have staffing-- those units are not released at this point.

So, how many units are there that have not been released?

We're talking about, generally-- roughly 115 units.

115 units in basically three properties?

In four.

Oh, in four. Okay. So, you said one was completed in the second quarter.

That's correct. That was 18 units.

Okay. So those are basically online now?

They are. And those are in our numbers. We have not [excluded that], those are in our numbers.

Those are in your numbers. Okay, so what's the potential opportunity from the 115 units kind of on an annual basis, at a proper-- ?

(inaudible) those 115 units are expected to generate approximately $3.9 of revenue, with an expected EBITDAR margin of about 60%, so that would be about $2.4 million.

So you said 64% or 60%?

60.

All right. And then you referenced another expansion of about 160 units? Or a new property, or-- ?

Those are two expansions that we are looking at. We have decided on those-- to continue to monitor those markets before we begin those. If they do begin, they will probably begin in the second half of 2009. Those two expansions would have 150 total units. Each expansion would have 60 units of assisted living, 20 units of dementia care, and those expansions are expected to cost about $23 million each. And that would be financed by mortgage debt and cash on hand.

Okay, and--

I'm sorry, the $23 million is total for both. I correct myself.

Total for both, okay, and then-- I mean, if you-- in this current credit environment, how do you go about getting financing on something like this?

There is financing from Fannie Mae for both of these projects, actually. What's interesting about the senior housing business in this current environment is that Freddie Mac and Fannie Mae are continuing to lend to the industry, both for our stable, existing properties, and-- Fannie Mae actually has program that is limited to a selected group of proven operators that they would finance developments, and actually Fannie Mae would finance, and is interested in financing, these expansions.

And, Larry, what kind of rates are you thinking about, or are available?

They are going to be roughly about 325 basis points over LIBOR. LIBOR right now is back down to around 2.25, 2.3.

Hey, that's not bad at all, if it's available. Okay, and then just one last question. It looks like the maintenance costs per unit are going up. Where-- why is that happening, and is there a way to get a handle back on that?

Todd, it's Ralph. You know, you're right, because we've been reporting that for the last couple of quarters. Each quarter, if we take the maintenance spending at the property level and annualize it, the cost per unit has been increasing. We're presently running, in the third quarter, about $758 average that would annualize that spending over a 12-month period. We are going through a program of making sure that our properties are in absolute pristine condition. We are doing some cosmetic things primarily. It's not structural, but there are things to make the properties even more marketable in these tough times. We have a consistent program to spend that amount, so we maximize our marketability.

Todd, these are typically for carpets, coverings on furniture in common areas. As Ralph said, it's part of the marketing program that we are focused on, particularly in this environment, to make sure that our properties are very attractive.

That makes a lot of sense. I think it's money well spent. Thanks.

Thank you.

And our next question comes from Rick [Felterman], with [Felterman Index].

Good morning, everyone. Actually, with the exception of one, all of my questions have been answered. I was curious if you've gotten any indication on when this process with Banc of America is going to be complete.

Good morning, Rick-- Jim Stroud. No, basically, given the financial markets, we're still evaluating our alternatives, and whenever that has been determined, we will communicate with the marketplace.

All right, thank you very much.

You're welcome.

And there are no more questions in the queue at this time. I would like to turn the comments over to-- oh, excuse me. We have a question from Chris Doucet with Doucet Asset Management.

Hey, good afternoon, or actually, good morning.

Good morning, Chris.

This is actually David. Chris is here with me. Just a couple of questions. With the community opened in Dayton, Ohio, last call you expected that the overall cost per unit, when the building went into-- yes, $150,000 per unit was expected when the building was operational. Is that still the final total?

That's still the estimate. Actually, it may come in a little lower than that, primarily because interest rates are lower, LIBOR is down, and we actually built it a little faster than we expected, so the carrying cost was a little lower. The hard costs were very close to what we had budgeted. We have a little over-- we built it from below the budget, slightly. It's probably coming in close to about $145,000.

It is, David. It's coming at $145,000 a unit.

Okay, excellent. Second question-- your financial occupancy and physical occupancy has been improving, not only year over year for the last couple quarters, but sequentially. You said October-- you had a pretty good feel for October. Going forward, do you think we've bottomed in some of the macro factors that have been-- what we've been saying for a couple quarters has been affecting occupancy?

You know, it's hard to really forecast what will be. We have benefited in the third quarter from lower attrition (inaudible), we had an improvement from our move-ins and deposits. We serve a need-driven customer, and there's some pent-up demand, obviously-- there's only so long people can delay. And hopefully, a lot of the initiatives that are happening around the country to create better liquidity will help people move in a little more easily, but-- we're encouraged by what we've seen. So far, this year, it looks like we hit bottom in June and have recovered from then, and we're cautiously optimistic that we'll continue to see improvement.

And, David, on a macro basis, if you look at home sales, we've seen a turn nationwide in home sales, the reporting of it. A lot of people now realize that this may be the bottom of the market, are coming in and acquiring homes, so we've seen an upkick in the home sales. So we're seeing some positives on the macro level.

Okay. Well, good. I have one more macro question for you, and this may be a crystal ball question. We saw in October the whole sector get hammered, especially some of your more leveraged competitors. See if you-- also, you have the-- not the overhang, but the question about the strategic alternatives-- do you think what we've seen in the stock price over the month of October has more to do with the leverage assumed in the industry, and being basically grouped with someone like Sunrise or Brookdale, or do you think it's something else?

Well, David, the whole market was awful in October. There were a lot of [redemptions], a lot of margin calls among various funds. If you look at some of the selling pressure from some the holders, as Ralph mentioned, we feel we have a very strong balance sheet. We are very fortunate that we refinanced our loans when we did, converted all of our flowing rate debt to fixed rate by May of 2007, so our maturities are [out to] basically 2015 to 2017, with good fixed charge coverages on those. Hopefully, if people get to analyze and differentiate companies, they can appreciate the fact that we don't have maturities in the near term, we're sitting with cash on the balance sheet, we have assets that actually -- with the Fannie Mae/Freddie Mac programs -- do have the ability to get sub-rental financing as well, so hopefully people will recognize that we have some of the least pressures, perhaps, than other companies. I also think there are some other factors in the stocks that relate more to the entire stock market last month, and a lot of what happened as far as outflows from funds and the need for some shareholders to sell their positions.

Yes, I think there is-- on a macro basis, there was a flight to quality. We saw it in the credit markets, we saw the movement to the larger-capped stocks, and that affect the small-cap and the micro-cap stocks. From a standpoint of our Company specific, as Ralph mentioned, we added $2 million cash to the balance sheet, for purchases third quarter on a diluted basis we're at $0.16 a share, annualized to be $16 million positive cash flow, even at the occupancy we're at. So we feel, given our product type, being the affordable, and the diversification, and being out of the markets -- we're not heavy into Florida, with just one asset -- in California we have three assets, but we're not in the areas where it's significantly undervalued and homes have just fallen by 50% to 60%. We're well-positioned for the uplift.

Great, that's helpful and that's good color coming from Management. I appreciate your time in taking my question.

Thank you, David.

And our next question is from Carter Dunlap with Dunlap Equity Management.

Hi, just another follow-up. There's been a lot of discussion about the change in the REIT laws and structures and what that might mean for deals going forward and possibly more creative opportunities. Have you-- you have very good relationships there, can you sort of comment on what you think that might mean for the Company and the industry?

I think that it does create more flexibility in structure with the REITs. We continue to enjoy very nice relationships with many of the larger healthcare REITs, and I do think that-- the REITS, I think, will be selective and judicious in how they use those rules as well as the concentration of joint venture or owned operating assets versus leases or mortgages by the REITs because of their investor profile. But I think that it's encouraging that it does create for some more flexibility and creative structures that could facilitate transactions with some of the REITs.

Yes, and, Carter, our Company has experience with joint ventures with Blackstone, GE, and Prudential, so we understand that, our Board is knowledgeable about it, and we know how it benefits the shareholders. I think we have experience in that area, I think that's going to be beneficial as we analyze it as well as the REITs, and what the right relationship is on a go-forward basis. So, we applaud that. The one thing that-- there was a genuine concern. Are we going to be heads-up competition with REITs? And we're pleased, because I think the REITs have recognized that they don't want the operational liability. That has weighed heavily on their decision. And hence, the balance of joint ventures in their portfolio, we generally see will be between 20%, maybe, to 25%. We're not going to be heads-up competition on a massive basis with the REITs. So we're please about that. We think, for [capital and operating Company], it gives us, as Larry mentioned, it gives us additional flexibility and with our background in joint ventures, we can [right size] it for the right opportunity.

Presumably, it would mostly impact you on go-forward opportunities, not anything in the portfolio?

Exactly. It would be go-forward opportunities.

The other comment I've heard-- comment and analysis is that it might give the REITs opportunity to do more short-term deals. I wasn't quite clear why that would be good thing.

Well, I would say from my conversations with the REITs, they're all looking long term. The REITS are long-term owners, and whether they use this new REIT tax law, or whether they use their [traditional] mortgage finance on leases, every REIT we talk to is looking long term.

Yes, the short term that we've seen has been more in the retail REITs, and the REITs focused on MOBs, Medical Office Buildings, where they'll build -- they become merchant builders, effectively -- where they'll utilize it to build and sell. The problem with it is, once you start to build and sell, you have to continue to have velocity in order to maintain your distribution rate.

Okay, thanks.

Thank you.

And, there are no more questions in the queue at this time. I would like to turn the conference over to Management for any additional or closing remarks.

We appreciate everyone's time, and have a good day. Thank you.

And that does conclude today's conference. We appreciate your participation, and you may now disconnect.