National Health Investors' (NHI) CEO on Q4 2015 Results - Earnings Call Transcript

| About: National Health (NHI)

National Health Investors, Inc. (NYSE:NHI)

Q4 2015 Earnings Conference Call

February 18, 2016, 1:00 pm ET

Executives

Colleen Sullivan - Director, IR

Eric Mendelsohn - President & CEO

Roger Hopkins - CAO

Kevin Pascoe - EVP, Investments

Analysts

Juan Sanabria - Bank of America

Chad Vanacore - Stifel

Jordan Sadler - KeyBanc Capital Markets

Todd Stender - Wells Fargo

John Kim - BMO Capital Markets

Operator

Colleen Sullivan

Hello, everyone. This is Colleen Sullivan, Director of Investor Relations. Welcome to the National Health Investors conference call to review the company's Results for the Fourth Quarter of 2015. On the call with me today is Eric Mendelsohn, President and CEO; Roger Hopkins, Chief Accounting Officer and Kevin Pascoe, Executive Vice President of Investments.

The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were released this morning before market opened in a press release that's been covered by the financial media. As we start, let me remind you that any statements in this conference call that are not historical facts are forward looking statements. NHI cautions investors that any forward looking statements may involve risk or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-K for the year ended December 31, 2015.

Copies of these filings are available on the SEC's website at www.sec.gov or at NHI's website at www.nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables and schedules, which has been filed on Form 8-K with the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release, together with all other information provided in that release.

I'll now turn the call over to Eric Mendelsohn.

Eric Mendelsohn

Thank you, Colleen. Hello, everyone. We're glad you could join us today. I'm pleased to say that NHI has wrapped up another banner here. We recorded an 11.2% increase in normalized FFO per share and 9.3% increase in normalized AFFO per share year-over-year.

As we take a look back at 2015, we continue to position the company for creating shareholder value by expanding our financial tool box with more capability. Over the course of the year, we implemented an ATM, extended the revolver and turned out debt and extended maturities taking great advantage of the low interest rate environment. We also grew the portfolio with new and existing partners at over $310 million of investment activity, $83 million of which was from existing relationships. We consider repeat business a high compliment.

Before we take a deeper dive into the numbers, I'd like to take a moment to welcome John Spaid to the team. John will join us as an Executive Vice President of Finance. His extensive experience in real estate, senior housing, and finance will be a great add to NHI and will amply our ability to offer customers, investors and analysts an operational perspective.

I'd also like to welcome Jerry Taylor our new Director of Business Development. Jerry comes to us with a background in senior housing operations and has a wealth of industry knowledge, contacts, and expertise. He will be a valuable asset to NHI as we continue to grow with high quality operating partners.

I'll now turn the call over to Roger to walk us through the financials. Roger?

Roger Hopkins

Thank you, Eric. Hello, everyone. I am pleased to record exceptional financial results for the fourth quarter. For the quarter, normalized FFO increased to $1.17 per diluted share, our normalized AFFO increased to $1.03 per diluted share, which represents a 10.4% and 9.6% increase respectively over the fourth quarter of 2014. Normalized FAD for the fourth quarter increased to $1.04 per diluted share, which is a 9.5% increase from the previous year.

These results reflect the high volume of investments in late 2014, and over $310 million in 2015 related to acquisitions, loans and development activity. Furthermore, we have kept our leverage low and did not term out recent borrowings on our revolving credit facility with longer term fixed rate debt or with new equity on our ATM program until November and December as Eric will discuss later.

Our revenues for the fourth quarter increased 28% over the same period in 2014. Our interest expense increased to $10.1 million in the fourth quarter due mainly to our terming out of $225 million of borrowings on our revolving credit facility to fixed rate private placement debt in early January, 2015.

Our general and administrative expenses for the fourth quarter were $2.5 million or 4.4% of our revenue. Due to the immediate vesting of a portion of stock options granted during the first quarter of 2016, we expect our general and administrative expenses in the first quarter will be in the range of expenses incurred during the first quarter of 2015 which were $3.85 million.

During the fourth quarter, we had gains on the sale of marketable securities of $23.5 million, which Eric will discuss in a moment. As for our current investments, we continue to fund our mortgage and construction loans for Timber Ridge, a premiere entrance-fee community in Issaquah, Washington. We have funded $83.4 million thus far and estimate we will fully fund our $154.5 million commitment by the end of 2016.

As we have previously disclosed, we estimate that we’ll receive repayment on our construction loan in 2017, leaving a mortgage loan balance of $60 million for which we have scheduled a 10-year maturity.

I’m pleased to report a 5.9% increase in our quarterly dividend to $0.90 or $3.60 on an annual basis.

We currently estimate this will result in a FFO payout ratio in the low 70% range and an AFFO payout ratio in the low 80% range.

Moving on to guidance for 2016, the normalized FFO guidance is $4.82 to $4.88 per share and the normalized AFFO range is $4.29 to $4.33 per share. We do not include an estimate of investment volume in our guidance range. However, we include future investments with existing and new tenants for which we estimate are reasonably likely at the present date.

I will now turn the call back over to Eric to discuss the capital plan and balance sheet metrics.

Eric Mendelsohn

Thank you, Roger. Starting with our balance sheet metrics. Net debt to annualized EBITDA was a conservative 4.2 times at the end of the fourth quarter. Our weighted average debt maturity is 7.1 years, our existing weighted average cost of debt is 3.77%, and our fixed charge coverage is a healthy 6.1 times.

Turning to the revolver, as of December 31, we have $34 million outstanding with an available capacity of $516 million. On the ATM, in the fourth quarter, we sold 830,506 shares at an average price of $60.37 for net proceeds of $49.4 million. We also monetized securities held for investment. In the fourth quarter we converted our LTC preferred stock to 2 million shares of common and then sold 1 million of the common at an average price of 42.16. I’m happy to report that our taxable gain of $23.4 million was completely sheltered and retained for future deployment.

We also sold our positions in Ventas and its recent spin-off Care Capital Properties for a gain of $334,000 which was also sheltered. As of December 31, 2015, we owned $1, 293,000 shares of LTC common stock. The proceeds for both the ATM and the LTC transactions were used to fund our various construction loans of recent acquisition and to pay down the revolver.

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

Kevin Pascoe

Thank you, Eric. I'll start with our portfolio performance. The portfolio EBITDARM coverage is a strong 1.98 times. This portfolio coverage now includes our senior living community’s investment. The combined EBITDARM coverage would be consistent with the prior quarter if excluded from the calculation. Our skilled nursing coverage remained solid at 3.09 times and our senior housing portfolio is steady at 1.27 times.

National Healthcare Corporation which accounts for 18% of our cash revenue and over half of our skilled nursing revenue continue to perform well with a strong 3.91 times corporate cash coverage and has some of the strongest credit metrics in the public healthcare sector.

Our relationship with Holiday represents 16% of our cash revenue. The occupancy on the portfolio remains stable with an average of 90.9% for the third and fourth quarters. The EBITDARM coverage ratio was 1.21 times at quarter end. We have been in close contact with the management at Holiday as they have seen recent changes to their team and we are monitoring the portfolio closely.

We continue to believe the buildings and markets in our Holiday portfolio are premium quality in the portfolio metrics and steady so far in 2016. Senior living communities accounts for 15% of our cash revenue and is performing on par with our underwritten pro forma.

As expected, entry fees for the year were lumpy but outpace the prior year and we are encouraged by the activity to be in 2016. The SLC portfolio has an EBITDARM coverage of 1.24 times on a trailing 12-month basis as at quarter end and on average has increased occupancy each quarter during 2015.

The Bickford joint venture, which accounts for 13% of NHI's cash revenue, continued to provide year-over-year growth. The same-store EBITDARM is up 3.9% when comparing the year ended 2015 to the prior year and occupancy increased for the same time period.

Points for quarter and quarter-over-quarter were down in the second half of 2015 due to increased contract labor, wages increases overall, and higher cost on workers comp in health insurance. Bickford has implemented strategies to combat these pressures furthermore both occupancy and revenue per unit have improved. Lastly, during fourth quarter Bickford encounter non-recurring expenses associated with the integration at the Ohio communities in the focus portfolio.

The buildings are now back to running smoothly. Absent the onetime charges to focus properties continues to show improvement and four of the five new development projects are underway with the remaining one planning to break ground soon.

Moving on to new investments, in January we announced the acquisition of a 98 unit independent community in Chehalis, Washington. The community was lease to a partnership between Marathon Development and Village Concepts Retirement Communities. The lease is 15 years with an initial rate of 7.25% plus annual escalators.

The community is currently 95% occupied and comes with the available land for expansion. Our pipeline remains very active with a healthy level of senior housing and skilled nursing opportunities under review and we continued to receive off market opportunities from our existing client base.

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

Eric Mendelsohn

Thank you, Kevin. NHI is well-positioned as we enter into 2016 we remain low levered and poised to act on any opportunities this uncertain market may provide. We observed with great interest that other higher-levered REITs must dispose the real estate in order to de-lever. This may present opportunity for us given our balance sheet capacity.

Our focus remain on expanded relationships with our existing partners and creating relationships with new ones. In 2016 we will continued to focus on asset management of our existing portfolio. I’m very proud of the NHI team and our operating partners and look forward what 2016 brings our way.

With that, we will now open the line for questions.

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions]

And our first question comes from line of Juan Sanabria with Bank of America. Please go ahead.

Juan Sanabria

Good afternoon guys. Thanks for the time.

Eric Mendelsohn

Hey, Juan.

Juan Sanabria

Just quick on -- hey, Eric. On the RIDEA, could you just walk us through your expectations for '16 on occupancy, sort of RevPAR growth and on the expense side which I thought there was an issue this quarter?

Kevin Pascoe

Juan, this is Kevin. So far in the '16, what we've seen just from activity standpoint, the occupancy looks to be holding and shouldn't -- we hope improving based on the metrics we've seen so far, but they look solid. Revenue per unit should remain solid. The factor that is kind of little bit of wildcard is the expense side. Now, we've been working on that or looking at with Bickford, they've been working on it revising some of their practices just to make sure that they can keep cost at a level that is more commensurate with what they've experienced in the past.

One of those things is their prior experience was hiring certified staff with their newer knowledge opening up. The application process to those that are not certified and then giving the training and certifying them post hire. So things like that is what they're doing to make sure that they can keep those cost in check and that's what we're going to be working on over 2016.

Juan Sanabria

And would those increased certified staff that they'd hired, is that because of new supplies is making it harder to keep employees?

Kevin Pascoe

Well, there is an element of new supply. I would not point to new supply directly though. It's just a labor market where people have the option to go do other jobs and to be competing for a $10 to $12 wage purse and there is $10 -- in some of these markets we're seeing a shortage of those types of workers, and they just need to put practice in place so they can attract and retain talent at the facilities.

Juan Sanabria

Okay. And then, on the deal flow, I think Kevin, you kind of alluded that this is a little different. What are you guys focused on, what are you seeing is the most interesting opportunities? And if you can comment on roughly a range of what is included in guidance, it seem to be very opaque.

Eric Mendelsohn

This is Eric. One deal flow, we're seeing just as robust a pipeline as we always have. I think that there is some price discovery going on in terms of people's expectations. We've seen a couple of deals fall apart and show up again with lowered pricing, so I am heartened by that.

In terms of product flow I think that the higher acuity spectrum products like SNF and Memory Care and other hospital like products are starting to see some rising cap rates. But assisted living and senior housing in general is still pretty sticky in terms of pricing.

Juan Sanabria

Okay. Great. And just one last quick one for me. Guidance for '16 for G&A. I think Roger alluded to the first quarter this being similar to last, but you've hired a couple people. Any sense of what we should be expecting for the full year?

Roger Hopkins

Really -- we haven't really given any particular guidance on that. I think the first quarter of 2016 will be similar to 2015 for the reasons that I gave about. The immediate vesting of a portion of stock options which we will have growth in G&A as you mentioned for the year due to our recent hires and just normal expected increases in G&A inflationary type items, salary increases and that sort of thing. But we're not really projecting anything out of the ordinary for 2016.

Juan Sanabria

Thanks guys.

Eric Mendelsohn

Thank you.

Operator

And our next question comes from line of Chad Vanacore with Stifel. Please go ahead.

Chad Vanacore

Hey, good afternoon all.

Eric Mendelsohn

Hey, Chad.

Chad Vanacore

Okay. Just about your RIDEA portfolio versus your triple net, how should we be thinking about 2016 growth assumptions on those?

Eric Mendelsohn

This is Eric. I'll take the first part of that question. Keep in mind our RIDEA is where our development function resides. So last year, we had three new developments come online. This year we'll probably have four come online. And there is five under construction. The fifth will be 2017 first quarter. So there is a baked-in pipeline, if you will, in our RIDEA that will generate growth. And it's kind of darkly humorous, everyone is worried about oversupply. But in so far as our RIDEA is concerned, we are the new construction and we are the buildings that are shiny and new and fill up quickly. The three that we opened last year are now stabilized and part of the -- two of them are in the same-store under our length of time protocol and third one will come in next quarter. Does that answer your question, Chad?

Chad Vanacore

Yes, that's part of it. Thinking about just the RIDEA portfolio, on a same-store basis are there REITs that have larger sharp portfolios or thinking somewhere in the 1% to 3% range per growth next year? And would you say you're in that range above it?

Kevin Pascoe

I would say we're at least in that range. The -- with the new construction coming on, we should -- there should still be growth built into the portfolio plus there is some pretty traction that they're staying with, as I mentioned earlier with Juan, on the metrics that we're seeing so far in the year. So we're still encouraged by the profile of that relationship and the growth that it brings.

Chad Vanacore

All right. And then I noticed that you'd been using the ATM in the fourth quarter. Should we expect it to use more of that in the first quarter just to keep your leverage low or is -- will that be just more opportunistic?

Eric Mendelsohn

We're opportunistic. It has a lot to do with our share price and our capital needs. Part of the art and science of using the ATM is balancing that against our share price and against our leverage ratio, which we like to keep below five times EBITDA.

Chad Vanacore

All right. That's it for me for now. Thanks.

Eric Mendelsohn

Thanks, Chad.

Operator

And our next question comes from line of Jordan Sadler with KeyBanc Capital Markets. Please go ahead.

Jordan Sadler

Thank you. Good afternoon. I think you dodged Juan's question regarding the acquisition range that's embedded in guidance. How about taking another stab at that? Just the bit that you're saying is included with existing or new tenants in that range?

Roger Hopkins

This is Roger. Yes, this is Roger. As we stated, we have included what we presently see and have a great deal of clarity on. We obviously plan with our existing tenants and with new tenants potential transactions well in advance. There are certain conditions that affect the timing of those type of transaction, but we feel very good about those. And that's why those are baked-in, we don't give a volume. But as you've seen, as what we've done over the prior years and sort of our average volume per year, we were --

Jordan Sadler

Roger, is there a way to quantify in the contribution from those to the FFO guidance? So your $4.85, how many pennies are coming from new debt investment? I mean I don't care as much how much it is, I'm just kind of curious what the contribution is. How you're getting to basically 3.6% growth off of the normalized 4Q run rate.

Roger Hopkins

Well there is obviously investment activity built into this and so the growth that you’re seeing in FFO would include new dollars, new leasing comp and the depreciation of those assets which would be added back, and then you’re also seeing AFFO growth. We have typical AFFO growth through our escalators and then you’re seeing it through new lease revenue. So as I said, we don’t give a dollar amount that is impacting this but only to say that we have a good deal of confidence on the transactions that we’re working on and…

Jordan Sadler

Have you layered in a positive impact from that investment activity in the guidance? You don't want us --

Roger Hopkins

The positive impact of that?

Jordan Sadler

Yes, so is investment activity accretive in 2016?

Roger Hopkins

Yes.

Jordan Sadler

Acquisitions versus dispositions, it seems you have some incremental FFO coming from net investments embedded in the guidance you have given.

Roger Hopkins

Absolutely.

Jordan Sadler

But you just don't want to say how much?

Roger Hopkins

That is right.

Jordan Sadler

Okay. That’s fine. Do you have a leverage target or average leverage that is embedded in this guidance or is that just assumed constant leverage?

Roger Hopkins

Well our leverage there is an ebb and flow to our leverage and based upon our deal activity, we also are funding two commitments, one to our client LCS and it’s called Washington and the other to the Bickford development. And so we are mindful of our leverage. If we get up to five times annualized EBITDA that is sort of a limit that we've set for ourselves. As we demonstrated in the past we’ve raised equity, we’ve also liquidated some marketable securities and so we’re very mindful of that as we layer in the past.

Jordan Sadler

Congratulations, by the way, on the LTC preferred. Do you have an timing on the date of that conversion just so we can figure out the impact from 4Q to 1Q?

Roger Hopkins

That was in November and then we were able to sell a million shares of LTC really just a little bit at a time. Fortunately that share price help up nicely in November and December and was a good source of capital for us.

Jordan Sadler

Is it safe to assume that other income would come down though as a – or that income comes in interest income or other income?

Roger Hopkins

Yes, and the common is actually paying more than preferred.

Jordan Sadler

Is that coming in the same line?

Roger Hopkins

Yes. Yes.

Jordan Sadler

Okay. Okay. And I’m sorry I don’t know if I got this, is it safe to assume that you would continue to liquidate the rest of the LTC shares, common shares?

Eric Mendelsohn

Hey, Jordan, this is Eric. We would be opportunistic about that, we would match fund it with a suitable investment if we needed equity. So we’re in no particular hurry to sell it but everything is on the table.

Jordan Sadler

Okay, last one, I’m done. Your marketable securities portfolio is actually now $73 million including the LTC common which you described that is probably a north of $40 million of it, if not more. But you got some other slugs in there some debt securities et cetera. Is all of that fair gain for sale or is this strategically or how are you thinking about that portfolio?

Roger Hopkins

This is Roger again. We have almost 1.3 million common shares of LTC. So that is the lion’s share of that. We’ve also got some other funds with one of our banks that has invested in some government-backed debt securities. And so we look at this, as a cool potential capital; we get a nice return on these investments now. We’re happy to hold them but, as Eric said, we’ll be opportunistic, as we need capital to fund our acquisitions.

Jordan Sadler

Okay, I’ll hop back in the queue. Thank you for the time.

Kevin Pascoe

Thanks, Jordan.

Operator

And our next question comes from the line of Todd Stender with Wells Fargo. Please go ahead.

Todd Stender

Hi, thanks. And thanks for the color regarding the LTC preferred. Can you guys talk to the decision to convert that it’s been a long standing holding, I believe 8.5% is a pretty good yield want to get your thoughts on with part of the conversion?

Eric Mendelsohn

Hey, Todd, it’s Eric. So, it’s interesting the way you can look at the LTC investment. The original face amount in the investment was $38 million and the interest rate on the $38 million was 8.5% but when you convert the preferred to common, that preferred is now worth between $80 million and $84 million and it’s paying a dividend of 5. something percent, which is an increase in your yield of over $1 million. So would you rather have 5% on $85 million or 8.5% on $38 million and, by the way, if I told you that you could convert it and sell it without any tax consequences or capital gains would that make your decision easier. So that’s the way we thought about that investment and we felt that it was a good time to pull the trigger on that given that we had a lot of depreciation available to shelter any gains.

Todd Stender

Got it. Thank you, Eric. And then you gave a target of five times debt-to-EBITDA kind of a ceiling, if you will. Can you talk about what sources of debt capital you’re looking at right now, and on the past you’re happy on secured term loan market of upwards of 12 years, and with benchmark rates down may be spreads might be little bit higher, can you just talk about where your debt capital sources could be and for how long you looking out for?

Eric Mendelsohn

Sure. As you know we’re very mindful that as a REIT and should to be rated by a bonding agency, you need to have less than 15% of your debt secured. So, even though we’re not rated, we do keep that in mind and like the optionality of knowing that we would qualify for bond rating if need be. In the mean time what we’ve noticed is that, the private placement market and dealing with the life companies offers a better value their lower closing costs, there is no ongoing rating subscription fees and there is no annual opinion letters and there is no risk of being downgraded if something should happen that would result in a downgrade.

So for the time being, our focus would be on the private placement market as long as that's still cost effective and as our portfolio grows, we would certainly consider HUD debt or other secured debt similar to what we did last year with Fannie Mae I think we got a interest only 10-year loan at 4% or less than 4%. So that’s good debt in my opinion.

Todd Stender

That’s helpful. Thanks Eric.

Eric Mendelsohn

Sure.

Operator

And our next question comes from the line of John Kim with BMO Capital Markets. Please go ahead.

John Kim

Thank you. Your full portfolio coverage, rent coverage dropped 9% to 1.98 but you didn’t acquire anything in the fourth quarter. So what is this attributable to?

Kevin Pascoe

Hey, John, this is Kevin. It’s not attributable to any change in the portfolio just the methodology. Prior to this quarter senior living communities which was our new investment beginning in the first quarter of 2015 would have been the first [performing] period was held out for the last couple of quarters. It is now included in that calculation. So, because of its size relative to the portfolio it’s that coverage now is 1.98 times including that. Excluding it, it would be similar to the coverage that you saw last quarter. So really no change to the portfolio, just a change in the methodology to make sure all of our investments are included.

John Kim

Okay. And then can you provide us a rough guidance converting EBITDARM to EBITDA coverage?

Kevin Pascoe

It varies by portfolio based on what your assumptions are for management fees and CapEx. Roughly speaking it's 0.1 to 0.2 on coverage.

John Kim

Got it. Okay. Your lack of acquisition this quarter, is there anything that we should read into this? Are you trying to be more conservative on your balance sheet? Are you seeing widening bit that asset spreads or how should we interpret this?

Eric Mendelsohn

We're pretty picky about what we buy and who we buy it with. So there is no lack of deal flow and there is no lack of dialogue concerning acquisitions, it's just finding the right fit for us. And I also feel like we're in the midst of a repricing events in the market. I think that some of the large players that have been buyers in the past are going to be sitting on the sidelines for a while, while they digest and solve for bigger issues and that that will lead to better pricing and more opportunities.

John Kim

Okay. I'm not sure if it's fair to put John Spaid on the spot at this moment. But if I can, can I just ask what your views are on Brookdale, the integration history that it has had with Emeritus?

Eric Mendelsohn

John's start date is March 8.

John Kim

Okay.

Eric Mendelsohn

So I'll make sure that he responds to your question then.

John Kim

All right. Then maybe I'll -- may last question then will be on the LTC preferreds.

Eric Mendelsohn

Sure.

John Kim

On your answer to Todd's question I think that make sense that it's not necessarily anything new. So is decision a board driven decision or this is, Eric, a particular goal of yours?

Eric Mendelsohn

It's been a topic between management and the board for quite some time, so I can't take full credit for it. But it certainly appeared to make good economic sense and the timing worked out wonderfully in terms of the market and in terms of something that I could affect during my early tenure.

John Kim

Okay. Great. Thank you.

Eric Mendelsohn

Thank you.

Operator

[Operator Instructions]

Our next question comes from the line of Rich Anderson with Mizuho Securities. Please go ahead.

Rich Anderson

Thank you. And good afternoon.

Eric Mendelsohn

Hi, Rich.

Rich Anderson

As I often do -- hello. As I often do like the start off with a potentially basic question and that is with the LTC conversion, was the conversion a taxable event or was the settling of the shares the taxable event?

Roger Hopkins

Well, no it was not a taxable event at that conversion.

Rich Anderson

Okay.

Roger Hopkins

And the sale of the common would ordinarily be a taxable event except we were able to shelter that. And because of our dividend and return of capital and depreciation which goes into the calculation of taxable income we were able to retain 100% of those proceeds.

Rich Anderson

Yes. Okay. Got it. But I mean -- and I guess the question is how much was -- how much of the fact that you REIT -- you still own 1.3 million shares of function of just protecting your taxes or if you could have done it or could you have done it without incurring a special dividend type of scenario? Just curious how much of it is motivated by raising capital, how much of it is motivated from a tax perspective?

Roger Hopkins

Well, we did want to spread the sale out over two different tax years, because the amount of shelter we have is about as much gain as we realized. So there was some of that going on. And I couldn't help noticing that in January LTC stock appreciated a little more. So it's a good thing we held some dry powder and still have that capability.

Rich Anderson

I’m sure they appreciate that. And so turning to the next topic on asset sales, Eric, you mentioned the advantage of not having to sell assets to de-lever like some of your peers, are you meaning that they are kind of out of the market or are you meaning that you might be a buyer of assets from other REITs or both?

Eric Mendelsohn

Both. I’ve noticed that some of their earnings calls REITs are talking more about dispositions and acquisitions and I don’t know that a price sweet spot has happened yet but it could happen soon and we would be interested in looking at distress situations where other people have to sell when they need to raise capital. That’s usually a good time to be a buyer.

Rich Anderson

Have you approached or been approached as a potential candidate to pick up some assets from your peers?

Eric Mendelsohn

I’m calling peers daily, yes.

Rich Anderson

Okay. You're calling HCP?

Eric Mendelsohn

I talked to HCP all the time. So I have had a number of things.

Rich Anderson

Okay. And then leaves me to my last question understanding your strong coverage with NHC, I’m curious what you’re kind of the NHI view and appetite might be in opposed to [QWorld] today given some of the real and maybe sentiment pressures to that business, line of business. Where do you stand and how the things shapes out and how does that translate into your interest in building a greater position in this space rather than reducing it?

Eric Mendelsohn

Sure. Yes, obviously, we’re watching the Manor Care and the Genesis situation with great interest and I’m concerned that their market disruption will infect operators who have nothing to do with Genesis or Manor Care. Our operators and NHC, Legend, HSM, Discovery, they’re not having any of the types of problems that you’re reading about, they’re not being investigated by the Department of Justice, they’re getting the correct amount of reimbursements and they have no such problems.

So we would like to do more business with our existing operators and there are some other operators out there who we believe are also high quality and worth investigating doing business with. Does that answer your question?

Rich Anderson

Well do you think it gets worse just as a general rule, may be not your world but just generally in post-acute you think it gets meaningfully worse before it gets better or do you think this is a lot of sensationalism around something that is a necessary part of the healthcare delivery system long-term.

Eric Mendelsohn

Well, it does seem to be wrapped up in a whole other basket of lows, you look at what’s happened to REIT prices of their stock overall and I think interest rate worries have something to do with that, I think macroeconomic pressures have something to do with that, and then the settlement can flip to a glass is have full mentality or half empty rather and I think we’re seeing some of that now that it could be an overreaction and that things may not be as bad as they seem.

Rich Anderson

All right, we’ll keep an eye on it. Thanks for the color.

Eric Mendelsohn

Sure.

Operator

And there are no further questions at this time. I will turn the call back over to you for any closing statements.

Eric Mendelsohn

Thank you everyone for joining us today and we look forward to seeing you on investor road shows and conferences soon.

Operator

And ladies and gentlemen, that does conclude our call for today. We thank you for your participation. Have a great rest of the day. You may disconnect your line.

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