Earnings Call: Q2 2019

Aug 9, 2019

Good day, and welcome to the LTC Properties second quarter 2019 analyst and investor call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Before management begins its presentation, please know that today's comments, including the question and answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC Properties filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K, dated December 31st, 2016. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note that this event is being recorded. I would now like to turn the conference over to Ms. Wendy Simpson, Chief Executive Officer. Please go ahead. Thank you, Operator, and welcome everyone to LTC's 2019 second quarter conference call. Joining me today are Pam Kessler, our CFO, and Clint Malin, our Chief Investment Officer. After a few introductory remarks, I'll turn the call over to Pam, who will discuss our financial results, then to Clint, who will discuss our portfolio, operator performance, and the pipeline. I'll come back to conclude our prepared remarks before the question and answer session. LTC has made significant progress in resolving the challenges we've discussed. We are confident that at the end of the year, the challenges under our control will be behind us, putting LTC in a great position to devote more focus on future growth from a base of a strengthened portfolio. I'll provide brief updates on Senior Care Centers, Thrive, Anthem, and Preferred Care. I'll end my comments with guidance. I'll start with Senior Care Centers, which is the one issue over which we have the most limited control as they continue to work through the bankruptcy process. Senior Care Centers recently filed a motion to assume the LTC lease. We filed an objection shortly thereafter. In the interim, Senior Care Centers remains current on their 2019 rent and escrow amounts. Coverage in the Senior Care portfolio was essentially flat on a quarter-over-quarter trailing 12-month basis. Moving to Thrive, the entire portfolio has been successfully transitioned. As previously disclosed, we transitioned three of the six properties on June 1st and completed the transition of two additional properties on July 1st. The final property has been transferred August 1st. Clint will talk more about this transition later. Now on to Anthem. Their operations continue to improve, and they are meeting our increased rent expectations as reflected in our 2019 guidance. As we have said before, we cannot appropriately establish formalized contractual rent levels associated with the Anthem portfolio going forward until we can realistically calculate rent once all of the properties have been stabilized for a period of time. As a result, it will likely be late next year before we have greater visibility on future stabilized rents. I'll finish my portfolio discussion with Preferred Care, which operates 23 properties for us. As discussed last quarter, we have been working to reduce the number of LTC-owned properties under their operation. We are in active negotiations for all of these properties. These negotiations continue to include both possible sales and leases. Before I turn the call over to Pam, I'll discuss guidance for 2019, which we are maintaining at $3.02-$3.04 for the year. Although we are receiving higher rents from the transitioned Thrive properties sooner than originally anticipated, as well as income from new investments, we are lowering our projections for income from unconsolidated joint ventures due to the non-accrual status of our preferred equity investment that Pam and Clint will discuss in their comments. Additionally, the timing relative to transitions around Preferred Care assets is not yet certain. While we have not included any sales assumptions in our portfolio guidance, it is possible that we will sell some or all of the Preferred Care portfolio prior to year-end. As we will have more visibility into the timing of net sales proceeds and/or future rents from this process next quarter, we are postponing an update to guidance until that time. Now I'll turn the call over to Pam. Thank you, Wendy. Since our last earnings call, the FASB has allowed two approaches for recognizing recoveries of previously written off straight-line rent under the new lease accounting guidance. Accordingly, we no longer show a contra expense for recoveries of previously written off straight-line rent. All such recoveries are in rental income, which increases the comparability and transparency of our results. Revenues increased $4.8 million for the 2019 second quarter compared with a year ago. $3.9 million of the increase is due to property tax revenue reported in accordance with the new lease accounting guidance that requires us to record the property tax escrows we collect from our tenants as revenue with a corresponding expense. Accordingly, 2019 revenue includes property tax income, while 2018 does not. The remaining $900,000 increase is due to revenues from acquisitions, mortgage originations, completed development projects, and capital improvements, increased rent from Anthem, and a decrease in lease incentive amortization, partly offset by decreased rent from Thrive in 2019 and property sold in 2018. Nareit FFO was $0.75 per diluted share for both the 2019 and 2018 second quarters. Net income available to common shareholders decreased $48.3 million from the prior year quarter due to a higher gain on sale of $47.8 million in last year's second quarter, a decrease in income from unconsolidated joint ventures of $598,000, $592,000 higher depreciation expense, and $194,000 higher transaction costs, partially offset by the $900,000 increase in revenue previously detailed. Income from unconsolidated joint ventures decreased $598,000. 77,000 of this decrease was due to a mezzanine loan that paid off last quarter, and 521,000 of the decrease was due to a preferred equity investment converting to non-accrual status. In the second quarter, an affiliate of Senior Lifestyle did not make the full contractual preferred return payments to us and became 60 days past due. During the third quarter, we received most of the remaining preferred return we had accrued, but as yet, we have not received second quarter amounts due, so they remain on a non-accrual basis. Clint will provide more detail on this investment. In the second quarter, we recognized a $500,000 gain on the receipt of escrow deposits related to the 2018 sale of six senior housing communities previously operated by Sunrise. Both interest expense and G&A were comparable between the two periods. We currently estimate that G&A will be in the $4.6 million-$4.7 million range per quarter through the remainder of this year. During the second quarter of 2019, we funded $7.5 million of additional proceeds under an existing mortgage loan with an affiliate of Prestige Healthcare, secured by two skilled nursing centers totaling 205 beds in East Lansing, Michigan. The additional proceeds bear interest at 9.41% for two years, increasing 2.25% thereafter. We also funded $6.9 million in development and capital improvement projects on properties we own, $781,000 under mortgage loans, and continue to fund LTC's $0.19 per share monthly dividend for a total of $22.6 million in dividend payments. At June 30th, we owned one property under development with remaining commitments totaling $10.2 million and two properties under renovation with remaining commitments of $4.6 million. We also have remaining commitments under mortgage loans of $14.9 million related to expansions and renovations on seven properties in Michigan and $1.7 million remaining under a preferred equity commitment. Subsequent to June 30th, we borrowed $12 million under our line of credit and repaid $8.5 million in scheduled principal paydowns on our senior unsecured notes. In keeping with our philosophy, we are maintaining a strong balance sheet to provide us with ample flexibility and capacity to fund current and long-term growth initiatives. We currently have $441.1 million available under our line of credit, $105.5 million under our SHOP agreement with Prudential, and $200 million under our ATM program, providing LTC with total liquidity of approximately $746.6 million. Our long-term debt maturity profile remains well-matched to our projected free cash flow, helping moderate future refinancing risk, and we have no significant long-term debt maturities over the next five years. At the end of the second quarter, our credit metrics remained well-matched to the healthcare REIT industry average with debt to annualized adjusted EBITDA for real estate of 4.5 times and annualized adjusted fixed charge coverage ratio of 4.8 times, and a debt to enterprise value of 27.1%. Now, I'll turn the call over to Clint. Thank you, Pam. I'll begin my discussion with the Thrive portfolio. As Wendy mentioned, the entire portfolio has been successfully transitioned with the final community in Jacksonville transferring operations to Affinity Living Group on August 1st. Affinity now operates two properties owned by LTC. The Jacksonville property, a 60-unit memory care community, was leased to an affiliate of Affinity under a new 10-year lease. The new lease provides the lessee 12 months free rent, increasing to $450,000 in year two and $600,000 in year three and thereafter. In year two, the lessee has the option to defer rent in an amount not to exceed $150,000. Rent may increase subject to a contingent escalation formula commencing in year three and annually thereafter. I'd like to update you on the progress of our newly developed and still-to-be-completed communities. Boonespring of Boone County, our 143-bed transitional care center in Kentucky, is now up to 67% occupancy as of July 31st, which is ahead of projections and is up from 45% as of our last quarterly call. Boonespring opened in February of this year. Hamilton House, a 110-unit independent living, assisted living, and memory care community in Wisconsin, is now at 16% occupancy as of July 31st, up from 10% as of our last call. Hamilton House opened in May of this year. Weatherly Court, a 78-unit assisted living and memory care community in Oregon, is still under construction and remains on track to open later this year. The preferred equity investment on non-accrual status Pam mentioned includes two locations in Arizona. The first location is a 28-acre campus in the Phoenix Metro area with 432 units offering independent living, assisted living, and memory care services spanning three buildings. The second location is an assisted living and memory care community in Yuma with 148 units. LTC entered into this investment with an affiliate of Senior Lifestyle in 2015, and LTC's investment balance as of June 30th is $24.3 million. The two locations are under a letter of intent with a likely closing expected to occur sometime towards the end of the year or in Q1 of 2020. From the net sales proceeds, LTC expects repayment in full of its $24.3 million investment. Based on forecasts of net operating income for the remainder of 2019 provided by Senior Lifestyle, we anticipate additional income to be paid to us in 2019 of approximately $600,000. Given the non-accrual status, our guidance does not assume any such additional income. Moving on to the portfolio numbers, our coverage remains stable. Q1 trailing 12-month EBITDARM and EBITDA coverage using a 5% management fee was 1.43 times and 1.21 times, respectively, for our assisted living portfolio, and 1.77 times and 1.28 times, respectively, for our skilled nursing portfolio. I'd like to briefly comment on our pipeline. We have identified a few interesting opportunities, primarily where we can strategically add quality, growth-oriented operators and/or improve the average age of our portfolio. We currently have two signed purchase agreements totaling approximately $38 million. One is for the purchase of a newly constructed 90-bed skilled nursing center in the Kansas City market that is 90% occupied and is operated by Ignite Medical Resorts, the new operator for LTC. This transaction is expected to close in the current quarter. The other is for the acquisition of a land parcel and development of a new 90-bed skilled nursing center, also to be operated by Ignite in the same market. The land parcel acquisition is expected to close this quarter, with groundbreaking shortly thereafter. Completion of the project is slated for the fall of 2020. Both of these transactions were off-market deals sourced through a longstanding relationship we've built with Avenue Development, who will be handling the development and construction of the new property. Avenue is a well-respected, full-service development company that focuses on healthcare and senior living. We are reviewing other opportunities as well, spanning acquisitions in real estate joint ventures, primarily in the assisted living and memory care space, with operators new to LTC. We will update you as our activities progress. Now I'll turn things back over to Wendy. Thank you, Pam and Clint. Coming back to my opening comments, we have made significant progress in resolving the portfolio issues we have faced. I'm very proud of our team, who have helped bring these issues to resolution while also remaining focused on continually positioning LTC for future value creation. We are continuing to successfully execute our plan and are confident that the current portfolio challenges under our control will be fully resolved by the end of this year or early next year. At the same time, we have been working toward building a more diversified asset and operator base and positioning LTC to deliver long-term and sustained growth. Thank you for joining us today. Operator, we are now ready to take questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jordan Sadler of KeyBanc Capital Markets. Please go ahead. Hey, guys. Good morning. This is Katie on for Jordan. I appreciate all the color you guys gave us on your portfolio, I wanted to touch on, I think you guys have some Brookdale renewals coming up next year, if you guys could offer any additional color on that. Thank you. Hi. Good morning. This is Clint. We do have the current term for the Brookdale leases expires at the end of 2020. Brookdale is not yet in the renewal window. That would open up the first part of 2020. Given the performance and coverage, our expectation is that they would extend the lease to the renewal term. Thank you. You're welcome. Our next question comes from Chad Vanacore of Stifel. Please go ahead. Hi. Good morning. Good morning. All right. Now that you've transitioned all your Thrive, they had owed you some past due rent. Were you able to collect any of that, or do you expect to collect any of that in the future? Chad, this is Clint. We had they owed us rent from 2018, which we did collect in 2019. They did not pay rent in 2019. To facilitate the transition of the properties to new operators, we provided a note to them to assist in some of those transition costs. We have a guarantee and security interest to full repayment of those funds, which we've made the line of credit available. At this point, we feel confident we'll be able to collect on those amounts that are due to us on the note relating to the transition. Okay. Thanks, Clint. Thank you. Out of the properties that you transitioned in the past six months, how are they faring so far under their new operators? There was Frontier, there's a few with Thrive. There's some here or there. In general, what's the direction? Should we expect the NOI to really be a slog for the next 12 months? Have some shown some kind of improvement really on a short basis? Some have been stable, improving. There's been some decline in others. It's been a little bit of disruption when you have a transition, but the operators we've brought into these communities were excited about the opportunities. I think that it takes a while to change culture and build a presence under that brand in the marketplace. We feel confident that the operators that we're working with that have now taken over those communities will be able to make progress. How much time it'll take is to be seen, but I think we've been encouraged by people's interest in these communities, and we think over time that will grow. I think basically, Clint, the operators that are now in the transitions properties are better capitalized than Thrive. They have a base of that. The most challenged property, as you can intuit, was Jacksonville. We gave a year's worth of free rent, and I expect that that will do very well. The operator, Affinity, is a very well-known and established operator, and they're very excited about having that property. I think we are very comfortable with the operators that have transitioned. In fact, the people who took over the Bakersfield Portfolio from Brookdale had some deferred rent opportunity, and this current period, they haven't used that deferred rent. That's doing better. All right. Hey, Wendy, just on Jacksonville, why'd you end up re-renting it rather than selling it? Yeah. The prices we were getting were not indicative of the value of the property because of the feeling that we were up against a wall. Everything that came in relative to the market in Jacksonville and the growth in Jacksonville and all of the forward-looking information was very positive. We decided that for our future portfolio, it made much more sense for us to keep it and get the right operator in there. That's why we did it. It wasn't an easy decision. It's easy to say, "Let's just take the loss and walk away." It was just such a badly run property that we had a lot of faith in the market and the property. All right. Thanks for taking the questions. Sure. Our next question comes from Rich Anderson of SMBC. Please go ahead. Good morning out there. Good morning. On Thrive, can we aggregate this all up? I tried to do the math. It looks like the new cash rents, once you get to the cash paying story for all six, is call it $3.5 million-$4 million per year. I don't know if I got that right. I did it quickly, but I think that's right. Does that compare to cash rents prior to all this starting of $7 million? Could we say that the change from pre and post transitions was $7 million to $3.5 million in annual rent? Good question, Rich. Right now, we're phasing in rents on the property. Right now, when we get to the third year, we're at rents of about $5.2 million compared to the $7 million-ish with Thrive. That does not include the percentage rent that we have on one of the buildings that we transitioned to Veritas. Plus the other two buildings with Veritas, which are assisted living and memory care properties, one in Georgia and one in South Carolina. It's a two-year lease, we have the ability to reset rent at that point in time. That was born out of looking at could the operator reduce costs on those buildings, and we thought they should be able to reduce costs, and the easy solution for us and Veritas was to enter into the two-year lease and then address appropriate rents once they've been able to operate the communities and make appropriate rent or expense reductions at the time. We're hopeful that $5.2 million increase going into year three after we can reset the rents hopefully on the two buildings that are in the two-year lease with Veritas. Got you. That's helpful. Thanks. You're welcome. Anthem, the big story there is 45% increase in rents this year. Now you have to wait it out to see what a real stabilized rent will be, as you discussed, Wendy. I'm curious, is the bent towards rent going up or down versus what you see today? Oh, it'll go up. Okay. It'll definitely go up. They're beating their projections. They're even beating Well, they're beating our projections, definitely, because we haircut their projections in order to establish rent, but they are beating their projections, which were higher than ours. We have a lot of hope relative to the Anthem properties. I figured that was the answer, but you didn't explicitly say it, so I figured I'd give you a chance to do that, so you're welcome. Thank you. Thank you, Rick. I'll send you the questions for next quarter soon. On the preferred equity issue, so does the $600,000 that you're not assuming from the sales over and above your investment, that is sort of tethered to the fact that it's a non-accrual status. The impact on guidance has nothing to do with the $600,000, correct? Well, it kind of does. If we put the $600,000 in guidance, we'd be up another $0.02. We don't have it in guidance. Okay. Maybe I'll take that offline because I understood that to be a sales proceed, but maybe I'm misunderstanding that. No. It is. It's how much interest they can pay on the $24 million balance for this quarter. Oh, okay. based on their projections. For the remainder of the year. Yeah. For the remainder of this year. Right. Interesting. Gotcha. $600,000 interest that is not in guidance now. Correct. Okay. Thank you. Thanks for that. Lastly, I heard you say that you used the line of credit to pay off principal balances this quarter. Is that common practice, or was all the moving parts from things going on, did that kind of require you to go and do that, to make those commitments? Well, cash is fungible. We used cash to pay our development commitments, pay for developments we have undergoing and renovations. You could say we used cash to do that and pay down debt. It wasn't a one for one. No, that's not a common practice. Okay. If you look at the cash flow statement. Yeah. The most important statement in the financials. Look at the cash flow statement. Yeah. We had investments, quite a few investments. Okay. You say we borrowed for the investments, and we used our free cash flow to pay down our debt. Yeah. Yeah, I understand. Okay. I just wanted to make sure I understood. Thank you very much. That's all I got. Thanks. Thank you. Our next question comes from Daniel Bernstein of Capital One. Please go ahead. Hi. Good morning. Hi, Dan. I don't know how much you can talk about Preferred Care, but I was trying to get a sense of, at this point, whether you have any kind of idea of kind of the split of what you might sell versus what you might re-lease. I think, Dan, at this point, I'd say the majority of the portfolio is probably likely to be sold, as we indicated on last quarter's call. We're actively involved in the process and getting offers in. I think the majority is likely to sell. Things could change in the case of Jacksonville. You just never know what transpires out of this, but it's likely the majority would be sold. Preferred Care has indicated they'd like to stay in a few of the properties, and we're looking at the best option available to LTC, whether that's leasing those buildings to Preferred Care, another tenant, or selling it. We're actively engaged in the process and trying to bring conclusion to it as quickly as possible. We think on next quarter's call, we'll be able to provide that to you. Okay. Great. I appreciate that. On the pipeline, it seems like you have some level of investments that are picking up. Can you talk about a little bit about that activity in terms of, are you seeing more flow come in that you're evaluating, the quality of the assets, the pricing of the assets? I was trying to get a sense of where your investment level might go, because, in the past, you've kind of alluded to maybe pricing not being where you want it to be and quality maybe not being where you want it to be. I was trying to understand if something has changed in terms of your investment pipeline. I think we're being very selective, Dan, on what we invest. Pricing is still very strong. A lot of interest from private equity. We're looking at finding unique opportunities, such as the opportunity we found with Ignite, to invest in newer skilled nursing, as well as a development project. We are seeing a few select opportunities from a price point on the private pay side that we are opportunistic about that we can convert to transactions. It's trying to find needles in the haystack that are priced appropriately, and that has been a challenge, which we talked about throughout the year so far. I think, Dan, what we've seen recently is that we've seen older properties, not ancient properties, but older properties maybe in the '90s, built in the '90s, where to buy them and to bring them up to a standard that our operators and we would like, we generally have to add a CapEx component to our price. We're finding that some of the other buyers are fine operating them as they are and maybe for the next five years or so getting the cash flow that they can. I think what we're finding out in our underwriting is that we are looking at putting cash in addition to our purchase price and might be not making the final cut for people who are just willing to take them the way they are and operate them for the current cash flow. That's, I think, one of the things that's hurting our opportunities. We are finding opportunities from other REITs who are looking at their portfolio and finding one or two assets that they might. It's not that they don't want to keep them, it's just that it doesn't fit their profile. We're finding some smaller operators who these assets fit nicely into their portfolio. That's a source of acquisitions that we hadn't really seen in the past. It's not a huge amount of assets that we're looking at, but I'm very happy with the ones that we are looking at, and I think they would be really good additions to our portfolio. Okay. You have a number of turnaround assets in your transition in your portfolio now. On some other recalls, we heard opportunities and value add, and I guess maybe you alluded to that, where you take an asset, you put CapEx in, you think it could be a viable asset. How much risk do you want to take on value add and turnaround today, given maybe the perspectives that seniors housing or skilled nursing fundamentals might trough in the next couple of years? Do you want to take on any kind of value add or additional risk, or would stable assets be preferred at this point? Dan, since we only have $746.6 million to take risks. I would say virtually zero of that. That's not true. If we found an opportunity with a really established operator, we would do that. To, in this environment, fund another Anthem or something like that, it just wouldn't be in our wheelhouse. We kind of are with the Ignite. We're going to build a property with Ignite, we've already seen a property that we're going to buy from them. It's already 90% full. It's a high-end rehab sort of resort community, building one with them is kind of a development type of thing. No, I don't see us putting $50 million-$100 million in a property that we're hoping will turn around by putting another $5 million into it. Right now, we're seeing some, not a lot, but some stabilized. Whatever we're buying now, other than the Ignite thing, is stabilized and cash flow positive. Okay. I appreciate that. I'll hop off. Thank you. Thanks, Dan. Our next question comes from Todd Stender of Wells Fargo. Please go ahead. All right, thanks. Just back to the transitioned portfolio. Is it Veritas? Are they the ones taking over the Georgia and South Carolina properties? I know it's got a two-year lease. Correct, Todd. Okay. Todd, this is Bob. They also took over a building in Texas, which we've added to their master lease, which includes other properties they operate for us in Texas. Okay, that's going into a master lease, I guess the Texas one. How does a two-year lease work? Was this your call? Was it theirs? Was it kind of a combination? That was a combination between us. The occupancy was strong at these communities. It was really a cost issue. We felt the cost under Thrive's operation was higher than it probably should be, and Veritas wasn't certain they could drive down the cost as quickly. The idea of having a two-year lease really gave both of us a point in time to look at this and give them a chance to get in and see where staffing ratios are, where salaries are, to make an assessment of where they feel they could operate long term. Veritas liked it was basically two new communities that we've been involved in, either bought it CFO or developed with Thrive. Veritas was encouraged and excited about the buildings and the locations. It was really looking at can they reduce the cost? That was a decision that we collectively made, to be able to look at setting a rent long term. Given the events I discussed already on the call, we want to obviously make sure that we can get an appropriate return on this. We thought it was in our best interest to be able to let Veritas get in, establish their operating model, and then assess what the appropriate rent should be on those two buildings. Do you have any operating expense exposure on this, or this is all triple net? Triple net. Okay. They can defer some of the rent. Do you book it all upfront? How does that work? No, they're not deferring any rent. Not on that one, no. No. On Princeton Cap, we did give them a- Yeah. Oh. We gave them a small amount of deferred rent just to get through the transition and get started. There's a little bit of deferred rent on those two buildings. Okay, got it. Thank you. Yeah. Can we hear about Trilogy Management? We know Veritas, but I don't think we know Trilogy, if I have that right. Trilogy is a very large operator based in Louisville, Kentucky, of which one of the buildings that we have leased to them is located in Louisville. The other building is in the Cincinnati market, where they have a strong presence already. Trilogy is a sizable operator, both of skilled nursing and seniors housing properties. That was an ideal fit, I think, from a presence standpoint, where they're already in the marketplace, they knew the buildings. It's an organization that we've talked with over a number of years to look at investment opportunities. It just happened this to be the right opportunity for them to come in. We felt confident with their knowledge of the local markets, that they could drive performance and improvements at these two communities. All right, thank you. Just last question. With the loan that you're making, the mortgage loan, it's at 9.4%. It's got escalators on it. How long is that going to stay outstanding? Just with interest rates so low, how long do you project that to be outstanding? Todd, these loans are the ones with Prestige Healthcare, which are on properties located in Michigan. Given Michigan reimbursement, most investments in Michigan are done via a mortgage as opposed to a triple net lease. These mortgages, as we've said in the past, embody many elements of a long-term lease. The duration on this is approximately a 30-year term. It's similar to all the other loans we have with Prestige. Got it. Thank you, Clint. Thank you. Again, if you have a question, please press star then one. Our next question will come from Michael Carroll of RBC Capital Markets. Please go ahead. Yeah, thanks. I appreciate your comments on the investment activity, and I know that LTC typically is pretty conservative on our underwriting, and that's what makes it a little bit more difficult to acquire assets because you're looking for the right deal. Is the competitive landscape getting more difficult to find those types of deals in this marketplace? How are you looking at that? Sure. No, we've talked about during the course of this year, it is very competitive, and I think we've seen where it is more challenging to grow, and we've made a decision not to be aggressive at this point in time to overpay for an asset. We've been actively engaged in finding unique opportunities like we have with Ignite, it's a very competitive marketplace today. Yeah. Then how are you thinking about, I guess, Wendy's comments earlier about taking some portfolios or maybe a few assets from other REITs? Is that the transition type opportunity where you'll be buying the assets and transitioning the operations to one of your existing operators? Yes, correct. Okay. How do you underwrite those types of deals? Is that the operators currently in those specific markets, and that's how you can get comfortable about their ability to do that? Exactly. It's finding operators that have a presence in those existing markets where they see an opportunity where we can partner with them. Do you typically get better valuations on those types of deals? I'm sure the competitive landscape for those projects are not as steep. I think on those types of deals, the seller will look at what the execution risk is, and if we have a relationship with an operator, we have a lease in place, and obviously we're a known capital provider that doesn't have to have a financing contingency. I think that's an enticing part of the sellers looking at trying to mitigate their risk and actually closing deals. Just like as we're looking on selling buildings, we're looking at maybe not the highest dollar, but the best execution. I think that we provide that to some of the other larger REITs that are looking potentially at selling assets. Okay. I guess last one from me, just kind of talking about Senior Care Centers. I'm not sure how much you can really mention, I guess, what's the next steps? If you're filing your motion to object to Senior Care wanting to affirm the lease, what's the outcome there, or what should we be looking for? Wendy mentioned in her comments, it's a situation where we have the least amount of control, and as we found out, bankruptcies doesn't always make the most business sense as far as the process, the duration, and decisions that courts make. The main concern that we have in looking at the Senior Care Centers' potential plan of reorganization is just understanding who is that management team that is going to continue to operate those buildings if they're successful in being able to emerge from bankruptcy. That's one of the biggest challenge and concerns that we have looking forward at this. If Senior Care Centers was successful in emerging and assuming our lease, but which we have objected to that, we would be able to get paid our rent that we have not recorded for the month of December of 2018. We're positioned right now. We have another operator that we've been working with that's prepared if we can get court approval to transition those buildings to another operator. We recognize that it's subject to court approval. We'll have to wait and see. We have objected, as Wendy mentioned, to that lease assumption in the court process right now. The date in which the motion to assume is scheduled now to be heard has been moved to August 30th. We'll see how things play out on August 30th when that motion is heard in court. Okay, great. Thanks, Clint. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Wendy Simpson for any closing remarks. Thank you, Andrea. We look forward in the third quarter to having more updates about Preferred Care and hopefully Senior Care Centers also, and look forward to talking to you then. Thank you very much for joining us today. Have a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.