National Health Investors, Inc.

Greetings and welcome to the National Health Investors' fourth quarter conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. I would now like to turn the conference over to Dana Hambly.

Please go ahead. Thank you, and welcome to the National Health Investors Conference Call to review the company's results for the fourth quarter of 2021. On the call today are Eric Mendelson, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spade, Executive Vice President and Chief Financial Officer, and David Travis, Chief Accounting Officer. The results as well as the notice of the accessibility of this conference call on a listen-only basis were released after the market closed yesterday in a press release that's been covered by the financial media. As a reminder, any statements in this conference call which are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks 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 and 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 31st, 2021. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhiread.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release, and related tables and schedules. which have been filed on Form 8K 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 our CEO, Eric Mendelsohn. Eric Mendelsohn Hello, and thanks for joining us today.

It has been less than a year since we announced to the market that we were ready to make more lasting decisions to fundamentally transform NHI into a stronger healthcare REIT by pruning underperforming assets, transitioning properties to new tenants, restructuring leases with partners with whom we can grow, and venturing into new revenue streams, including shop structures. To that end, we have completed the sale of 23 properties through January for net proceeds of approximately $244 million, which includes 19 underperforming senior housing properties for $195 million. The NOI cap rate on the senior housing dispositions was 2.4%, with EBITDARM coverage of 0.51 times. In our November call, we identified an additional 21 senior housing properties for disposition. From that group, we completed the sale of three properties, transitioned three properties to new operators, and decided to retain three properties under triple net leases. We expect that the repositioning of the remaining 12 will be completed in the first and second quarters. Since November, the Board has approved the sale of four additional underperforming properties. We expect that these dispositions will close later this year. In total, we currently target 16 housing property dispositions with estimated net proceeds of $125 million, representing an approximate 9% cap rate on contractual rent, but a very low single-digit NOI cap rate. shifting our focus to our Bickford relationship. We are disappointed that the pace of restructuring has slowed since we last reported results. This has been driven primarily by headwinds caused by Omicron that have weighed on Bickford's enterprise cash flow and impaired progress. We're evaluating scenarios in which more short-term financial assistance may be needed. That said, we are confident that our restructuring efforts with Bickford will create a more focused portfolio that significantly improves coverage, creates excess cash flow to service deferral balances, and enhances the overall quality of our relationship. You can see the results on page six of our supplemental, which details the improving coverage ratios following dispositions. We also continue to work diligently on the transition of the legacy holiday portfolio into a shop joint venture with Merrill Gardens and Discovery. Since our November update, we disclosed that we have filed a lawsuit against Welltower, so the timing of the transition has been delayed while the legal proceedings play out. We do have good dialogue with the existing manager, Atria, and believe that we'll be able to move quickly on the transitions as soon as allowable. We believe this will expand our avenues for long-term growth. The timing also looks optimal as industry fundamentals start turning in a more favorable direction, allowing us to capture meaningful NOI upside loss due to the pandemic. Our skilled nursing and CCRC portfolios, which currently account for nearly two-thirds of cash revenue, are performing well under challenging circumstances and have provided stability as we have been working to restructure other parts of the portfolio. The balance sheet is in great shape as we reduced debt by over $250 million during 2021 and maintained leverage within our target range of four to five times net debt to adjusted EBITDA. This is despite granting over $28 million in rent concessions and $11.4 million in holiday nonpayment. Given our favorable financial position, we see little need to raise new equity to fund our growth in the near term. We understand that there are many moving pieces which cloud visibility into our NOI growth. The timing of the holiday transitions and the headwinds caused by Omicron led us to postpone giving guidance at this time. But though the timing of our strategic actions has been elongated, the overall strategy to reposition NHI has not changed. We believe that we are at an earnings trough and look forward to better days ahead as the effects of the pandemic wane and our repositioning strategies are fully implemented. I'll now turn the call over to John.

Thank you, Eric, and good day, everyone. Beginning with our net income per diluted common share, for the fourth quarter ended December 31st, 2021, we achieved 14 cents compared to 83 cents for the same period in 2020. For the full year, our net income per diluted common share was $2.44 compared to $4.14 in 2020. The year-over-year 12-month decline in net income per diluted common share was due primarily to 51.8 million in impairment charges, 28 million in rent concessions, 11.4 million in five months of holiday rental non-payments, and a 5.4 million increase in non-cast stock-based compensation expense. These amounts were partially offset by 11.2 million in gains from the sale of real estate during the year. For FFO metrics per diluted common share for the quarter ended December 31st, 2021, compared to the prior year, NAERI FFO decreased 21 cents to $1.07 from $1.28, and normalized FFO decreased 31 cents to $1.06 per share from $1.37. For the quarter ended December 31st, 2021, our normalized FAD, F-A-D, declined by 13.1 million year over year and by 5.3 million sequentially to 45.9 million. The year-over-year and sequential quarterly decline in FAD was similarly driven by lower holiday rent, additional rent concessions, and dispositions. Reconciliations for our pro forma performance metrics can be found in our earnings release and 10-K filed yesterday at sec.gov. As Eric mentioned, we're not providing guidance today. We're disappointed with this result But the largest reason for today's decision continues to be the unknowns around the Well Tower litigation and holiday portfolio NOI commencement date. We do have a hearing this Friday, and we do believe that after the hearing, we'll have more clarity around these unknowns. It is our intention to provide guidance as soon as we're able. As detailed in our supplement, at the end of January, we have unfunded commitments totaling approximately $109 million. which have an average yield of approximately 8.5%. We expect to fund the majority of these commitments during 2022. Our fourth quarter dividend of 90 cents per share was paid on January 31st, 2022 and represents normalized FFO and FAD total dollar payout ratios at 84.8% and 89.9% respectively. As announced yesterday, our board declared our first quarter dividend of $0.90 per share for shareholders a record on March 31st and payable on May 6th. Turning to the balance sheet, for the quarter ended December 31st, we reduced our debt by approximately $43 million, including $18 million in secured debt and $25 million on our 2022 term loan. Our net debt to annualized EBITDA leverage ratio was 4.9 times. While still within our stated financial policies, we expect to see immediate improvements in our leverage ratios as soon as we are able to transition the existing holiday portfolio to new operators and recommence receiving NOI from those facilities. On January 31st, we had $10 million outstanding under our $550 million revolver and $16.4 million in cash. We did not issue any equity through our ATM program during the fourth quarter and do not expect to issue equity during the first quarter. We continue to have approximately $416 million available to us under our ATM program. Our $800 million revolver and term loan credit facility ensures in August of this year. We're in the syndication process for a new $700 million revolver and we're targeting closing the facility in March. With that, I'll now turn the call over to Kevin Pascoe to discuss our portfolio. Kevin.

Thank you, John. As Eric noted, we see better days ahead, but we are not out of the woods just yet and expect that our first quarter rent concessions will be comparable to the fourth quarter. We're fortunate to be in a strong financial position that helps us withstand these headwinds, but we're more interested in and encouraged by the growth prospects we see coming out of our optimization. In discussing NHI's portfolio, I'll start with our entrance fee communities and SLC. The 13 CCRCs in our portfolio, which account for 30% of our annualized cash revenue net of deferrals, have consistently outperformed our needs-driven and throughstanding independent living communities since the start of the pandemic. EBITDARM coverage for our non-SLC properties was very comfortable at 1.75 times and improved from 1.66 times in the prior year period. Senior Living Communities is our largest operator at approximately 20% of annualized cash revenue. The SLC team deserves special recognition as they admirably kept the disruption of the pandemic to a minimum and are well positioned for continued growth. SLC's average fourth quarter occupancy of 81.7% was up 130 basis points from the third quarter. Occupancy remained flat in December and January at 81.7%, which are great results, and are also above pre-pandemic levels. Our needs-driven senior housing portfolio of 101 properties has experienced the most disruption from the pandemic. This group, which accounts for approximately 29% of our annualized cash revenue net of deferrals, generally experienced occupancy gains throughout the fourth quarter. That said, occupancy growth slowed towards the end of the quarter and into the first month of this year. which we attribute to normal seasonality as well as the more recent surge in new COVID cases. Fortunately, our operators have not reported any significant impact to resident health and safety as a result of Omicron. However, this has had an impact on labor and has resulted in the use of overtime and agency staffing, which is up 400 to 500 basis points in the last couple of months. EBITDarm coverage for the group was .84 times but declined to .76 times when excluding Bigford. The needs-driven assets have clearly been the focus of our restructuring and disposition activities, so we expect that coverage metrics will improve as a result given that the targeted dispositions are typically at .5 times or less. On a positive note, As we discussed last quarter, residents and their families have been sympathetic to labor issues, so we are seeing rate increases in the mid to high single-digit range with little impact on occupancy, which should help maintain NOI margins in 2022. Bickford, our largest assisted living operator representing 13% of our annualized cash revenue net of deferrals, increased quarterly occupancy by 90 basis points sequentially to 81.3% and was relatively stable at 81% in January. We are in the process of selling five underperforming Bigford properties and transitioning another to a new operator and are on track to complete our rent restructuring with Bigford in the second quarter. As noted, the pace of restructuring has been slowed, but we're still confident that the NOI generated from our right size portfolio will be sufficient to cover 28 million of annual cash rent. Turning to our independent living communities, this group accounted for only 2% of our annualized cash revenue net of deferrals, as our 17 holiday properties did not pay rent during the quarter. We are in the process of selling one additional holiday property and transitioning the remaining properties to Merrill Gardens and Discovery. NOI margins have declined significantly throughout the pandemic from the mid 40% range to the mid 30% range currently, and occupancy has declined by over 1,000 basis points. We view this as our opportunity to capture significant upside as these properties begin to recover. We estimate annualized NOI from the portfolio is currently in the low to mid teens, and that there is an incremental six to eight million of upside over the next several years as the portfolios achieve stabilized levels. The skilled nursing portfolio, which represents 35% of annualized cash revenue net of deferrals, is anchored by NHC and the Ensign Group, who contributed 16% and 10% of annualized cash revenue, respectively. Same-store SNF EBITDARM coverage was 2.85 times, including 3.94 times at NHC and 1.96 times for our other operators. While NHC and Ensign have delivered solid performances throughout the pandemic, some of our other smaller operators have been stressed due primarily to much-discussed labor issues. This may result in some form of financial assistance, though no decisions have been made at this point. Turning to our business development activities, we announced over 120.5 million of investments at a weighted average yield of nearly 9% in 2021. Activity with our partners at Montecito has picked up recently, and we funded over 10 million of new investments during the fourth quarter. We believe we will fully fund the $50 million commitment within two years. We also announced a new construction loan with Encore Senior Living, formerly known as 41 Management, for 28.5 million. This is a strong and growing relationship that now includes nine investments in the Midwest. The pipeline remains active across multiple asset classes and product types, but it has been a better seller's market, which has certainly worked to our advantage this past year. As we conclude our disposition program, we expect to be more active rebuilding the pipeline in 2022. As John mentioned, we currently have commitments of approximately $109 million, with a weighted average yield of 8.5%. With that, I'll hand the call back over to Eric.

Thank you, Kevin. When we last reported in November and presented a detailed framework for the most significant aspects of our portfolio optimization plan, we did not specifically anticipate a lawsuit against the legacy holiday tenant or the impact of Omicron. We did, however, understand that unforeseen events have been the norm since the pandemic started, And I'm proud of the way our team has responded under the circumstances. Our cautious tone sometimes is mistaken for lack of enthusiasm. That couldn't be farther from the truth. And we wouldn't have pursued such an aggressive restructuring if we didn't believe that the result would create a jewel box portfolio with the best operators position to participate in a long term growth of senior housing and skilled nursing. Our portfolio optimization efforts will be largely completed in the next couple of quarters, and we believe that the most difficult quarters will soon be behind us. We know that the recovery will take time and require that NHI continue to provide more support for operators, but we expect that progress will be steady, and we're excited by both our internal and external opportunities as we pivot back to growth in 2022. Operator, we'll now open the line for questions.

Thank you so much, sir. To queue up for a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press 1-3. One moment, please, for the first question. Once again, to queue up for a question, please press 1-4 on your telephone keypad. First question comes from the line of Jordan Sadler, KeyBank Capital Markets. Please go ahead.

Thanks, guys. I wanted to just touch base on the guidance here, so, or lack thereof. I know, as you mentioned, the holiday portfolio is a – you know, a significant uncertainty going forward and on a runway basis. So it's difficult to predict, but I don't believe there was really any contribution in the fourth quarter related to holiday. So could, could, would you say that the fourth quarter would be a good jumping off point or run rate, uh, holiday notwithstanding?

Jordan. Hey, this is John. Um, Yeah, you can start there. I think you heard Kevin talk a little bit about expectations for deferrals in the first quarter. Keep in mind that all of our swaps matured, so we're going to have some benefit on the interest expense side. You don't know a lot about what's going on in terms of other expense items which are up, like legal, so you'll have to think about that. And we are continuing to kind of dispose of a few properties, which will have both an impact on debt, lowering debt, and then also a loss of NOI. But because of this situation with our holiday assets, we're in the middle of taking control of things. And control is a very sort of esoteric gap discussion, and we could end up with some interesting results, and we just don't have a definitive resolution on that just yet. And what I mean to say when I say that is, you know, we could come to the conclusion that we have control while the assets are still in the hands of Atria. So it's really difficult for us, you know, to give you a really good guidance right now that doesn't have just a massive amount of swing in it.

Got it. What are the implications of you guys having control, John?

Well, it's a consolidation question. And then, of course, then we have to have the information to pull into our financial statements. And then, you know, at the end of the day, the NOI, who does it belong to? And, you know, does it belong to the non-controlling party? In this case, Wall Tower? Or does it belong to us? So we got some big questions there. And we got some big questions about that date and what moves forward from that date. And of course, then we have really an unknown regarding the outcome of this Friday's hearing. So as I said in my prepared remarks, we expect to have a lot of clarity after that hearing that we'll be able to come back and provide to you.

And the NOI, I think Kevin alluded to it. Did he say it was in the low to mid-teen millions right now on a run rate basis with 68 million of upside?

Hey, Jordan. Yes, that's correct. This is Kevin.

Okay. And then one other for you, John, while I have you, the – there, uh, there was an additional lease amendment, uh, that was announced, I think on January 10th. And, um, that amendment, um, I was, was, uh, I think effective in November. It was basically, you know, $5 million of, you know, deferral and abatement, and then four dropped, stepping down to $4 million starting next November. So upcoming November, Can you give us any additional color, number one, on that tenant, meaning how big was that reduction as a percentage and what type of tenant was that? And then are there any other additional lease amendments contemplated?

So, Jordan, this is Kevin. That would be for senior housing. So that was the nature of the underlying product type that we're dealing with. As you can see, when our disclosures where we're seeing coverages. So we're trying to get people back to a level where they're at or approaching a one times coverage and that was the justification for it. We do have some dispositions that we're working on which will help in specific case, help that customer get back to the one times or better approaching it. So I think you could probably go in and estimate or maybe do some math in there and estimate the order of magnitude there. But the goal then is to try and get them back to a place where, like Bigford, approaching a 1-0 cover, and then as cash flow improves again, they can start to pay back any deferral balances that we have with them. So it was a similar process that we went through there.

Okay. I mean, I don't know what I would apply the math to only have the $5 million reduction. I don't know that I have the starting and ending coverages.

Well, we're just using the – we haven't announced outside of our top three customers' individual coverages, but you could look at – what I was saying is you could look at the portfolio coverage and see where our non-Bigford customers are. and use that as kind of a proxy. Gotcha. Gotcha.

Okay.

Thanks, guys.

Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Thanks. Good afternoon. I know you didn't provide guidance for the year, but where do you think investment activity will be this year versus the $121 million this year?

So what we're looking at from a new business perspective, we talked about we have a little over $100 million in commitments that we expect to fulfill. And then last year we had, even in kind of what I'd call a very tough year, still did $100 million of investment. While we haven't set very specific goals around new investment, I'd like to think that's a lower watermark for us. and that something like that is achievable. I feel like we have a good handle on the market right now and are seeing the prospects that are out there. As we talked about, it's been a better seller's market, and between that and the repositioning of the holiday assets, that's been on the forefront for us. But we do expect to get back to growth and would think that if you look at that as kind of a lower watermark for us, those are things that we expect to deploy the unfunded commitments and, you know, some level of investment in line with that.

And John, I was going to say, you can get a lot of detail about what those investments look like. And as I said in my prepared remarks, we expect to fund the majority of those during this year. And you can see what the rate is on them and what the amounts are remaining and make some assumptions there.

My second question is on Bickford, and I know you're a partner with your operators through thick and thin, but I'm wondering if it's been contemplated internally about just kind of moving on from them. Bickford's been a multiyear drag on coverage and more recently earnings, and it's not really clear how strong they're going to come out of this once they go through the restructuring. I'm just wondering how serious those discussions were internally.

Hey, Jonathan, this is Eric. Good question, fair question. There's an old banking phrase that says if you lend somebody a little bit of money, they're a customer. If you lend them a lot of money, they're a partner. And I would put Bickford in the partner category. We have certainly tried to make Bickford a more independent organization. They have other capital partners now. They have a portfolio that is funded by bank debt. They have a standalone pharmacy operation that we're not involved with that is very profitable. And certainly we have been selling buildings, some back to them, some to third parties. And we have a purchase option that is a conduit for new stabilized product that we're reconsidering to lessen our exposure. So at this point, I would say that we're in the category of lessening our exposure and limiting future business. We have not looked at selling the entire portfolio. That's, in my opinion, they're good operators. may have gotten in over their head in some markets. And we believe that if we help them financial engineer a solution that they can get back to being a good operator and a profitable company.

And on some of those transitions that you've discussed, how confident are you the new operator will manage them more effectively versus the assets that might have their own individual challenges.

Good question. We're actually selling the majority of the Bickford buildings that we're disposing of. There's really only one that's transitioning to a new operator in Pennsylvania. The rest are being sold to third parties. you're on the right track there. Gotcha. Okay.

Thanks a lot.

Thank you.

Our next question comes from the line of Taiyo Okusanya with Credit Suisse. Please go ahead.

Yes. Good afternoon, everyone. I wanted to go back to Jordan's question, which, Eric, I think you kind of answered 80% of it there, but I think that the one thing he was asking about was it does feel like over the past few quarters, you know, there's always kind of been like this, some new tenants that also requires help. I think we kind of started this process with like two tenants and now it seems like they're like five of them that are receiving deferrals. So it's back to this question of when you guys stress test the portfolio today, again, kind of given some of the low rent coverage you still have on the, on the need side, um, How confident are you that you don't get yet another tenant that you have to kind of give help to? It's one thing to keep giving help to the current group of tenants that have been identified, but what about, again, another new tenant or another new tenant showing up and the list just grows?

Hey, Tayo, this is Eric. That's a good question. I like to say that there's always part of our portfolio that needs assistance. I used to say it was 5%, but these days it seems to be more. And every year it's a different 5%. So a couple of things we're dealing with are different tenants have received different types of government assistance. Different tenants have exhausted their personal resources or deposits. And other tenants are dealing with the labor difficulties in different ways in different markets. So I'm not here to tell you that we're done offering assistance. I said in our prepared remarks there still could be some assistance as we work our way out of the effects of the pandemic. But I'll also say this, Tayo. It is hard to find competent operators, and you can see that in the landscape of operators that are disappearing. I would point to Eclipse, which closed for business last year. A very large operator with a very large portfolio, all of that had to be transitioned. A lot of operators are feeling stress and pressure, and you never know where it's going to show up. The other issue we're dealing with is character. People under stress do interesting things, and we have to deal with that as well. And then finally, I'll tell you, senior housing will come back. We're seeing that in select markets where buildings are full and running without any difficulty. Their margins are lower. But people are coming back to senior housing, and I believe 2022 is going to be a turning point in our recovery.

Gotcha. Okay, that's helpful. And then going back to the comments about holiday and the hearings on Friday, I guess, you know, what do you guys kind of see, again, as a positive outcome from that hearing, and what would you consider kind of a negative outcome from that hearing?

Sure. This is Eric again. A positive outcome would be a ruling in our favor. A negative outcome would be a ruling against us.

Yeah, but when you say a ruling in your favor, that's kind of like the final... kind of decision around this thing, a ruling in your favor means that, you know, well tower and an atrium on the hook for the missing rents and all that. You would get like finality to that nature on Friday? No, no.

The nature of the ruling on Friday is our ability to foreclose on the membership interests of the tenant entity and therefore control the transition of the buildings. And that's, the only issue that is at controversy on Friday.

The conversation around control of the buildings on Friday. Okay. All right. That's helpful. Thank you. Thank you.

Our next question comes from the line of Rich Anderson with SMBC. Please proceed with your question.

Thanks. Good morning. Where is the money right now, physically, from the holiday portfolio that's been collected from residents and so on?

I don't know that we can answer that definitively, but we've got some information that says it exists, and that's in the form of some financial statements that we've been given.

Okay. That's mysterious.

The other question is... This whole thing, Rich, this whole thing has been mysterious to us. You got to realize, you know, three days, four days after we gave consent to close this transaction, the other side of the party said, well, we have a different, you know, we're going to head in a different direction and not pay you anymore and, you know, come back and retrade you. So, you know, this whole thing has been sort of that way, right?

Yeah, it doesn't look great. I'll say that for the record. So as far as the timing of the lawsuit, would it not have been a better process to complete the transitions to Merrill and Discovery and get the process done with and then pursue legal action? Is there a reason why you went in front of that? Or maybe you can't comment. I'm not sure.

Well, it's not that simple, Rich. You need a lot of cooperation from the other side to transition a building. You need information and you need someone to pay out vacation pay on employees. You need to transfer property tax escrow accounts. You can't just do a one-sided transition without the other party's cooperation. So I can't really talk about more, but no, that wasn't possible, and the timing was carefully analyzed and strategic.

Okay. It's certainly not my field of expertise, so I'll trust you on that one. As far as I think, Kevin, did you say sort of from fourth quarter to first quarter, just to sort of get our bearings about the future of this year, it's sort of a wash from a concession and deferral and abatement perspective? Is that the expectation for first quarter?

That's correct. We said that the first quarter would be in line with the fourth quarter in terms of the deferral amounts.

Okay.

That's all I got. Thanks.

Thanks, Rich. Our next question comes from the line of Daniel Bernstein with Capital One. Please go ahead.

Hi. I just wanted to ask, you know, occupancy in January was, you know, seasonally strong, I would say. And so I just want to kind of understand kind of your outlook for occupancy of those top three tenants for 2022, or maybe you want to talk about it on an industry level. And then what kind of rate increases were pushed through in January for those operators? And, you know, are they on an annual basis or are they kind of on a rolling basis for rate increases? Thanks.

Sure. Hey, Dan, Kevin. As occupancy, as I mentioned, we saw it hold relatively speaking from December to January. We did see a little bit of degradation, about 30 basis points with on a month-over-month basis. Saw some with the holiday buildings. We do attribute most of it to seasonality and some of it to Omicron. So I would say that it's not out of the norm to see a little bit of degradation right now. Looking to see our operators build back their lead and tour volume pipelines. Still a little bit low at this point. Where we go from here, I think that where we have good selling months coming up in April, May, June generally is pretty good. So it's getting a bridge from here to that point to where we can start to get some more people moving around, come out of winter, and a little more tour and sales volume. And then as we mentioned, we did see it hold flat at SLC, which is good news and above pre-pandemic levels. As it relates to rates, we saw it in the mid single digits to even high single digits. We heard some people passing through double digits. We didn't really see that with our operating partners as much. But I would tell you it's in that probably 5% to 8% range that did get passed through with relatively small pushback. Some of that was done at point in time. A lot of it is done on anniversary dates of... the resident so it's going to take a full year to get implemented in some cases so and then other people that have been in there of course less than a year wouldn't experience the full rate increase so again it's going to take a full year to get that implemented I think you'll see that help on the margin side if nothing else preserve margin I'd also tell you though that these rate increases really are only helping stem the impact of the overtime agency and just general wage increases. So I'm not expecting to see a bunch of expansion, but it should help offset those increased costs. But again, it's going to take a little bit of time to roll through. Okay.

And then, you know, some of your REIT peers have converted or maybe are looking to convert some of the struggling assets they have into behavioral assets as well as reinvest sales proceeds into the behavioral space. Kind of wanted to get your thought on behavioral and are you looking at anything in your pipeline, whether that's redevelopment or acquisitions for 2022?

Sure. This is Kevin again. We've been very vocal about our interest in behavioral and continue to explore those avenues. We did a pretty good-sized deal with Vision, a new partner for ours for NHI last year, and looking at opportunities with them and several others. well so we'll continue to look at that Avenue and expect to have some more deal flow as it relates to behavioral least investigating it in terms of conversion we've not done a ton around that we've investigated it some but I would say some of our dispositions have been for that where there's a behavioral customer where it makes sense for them to convert a building from assisted to or and I think we've heard publicly about skilled is the same. So those are avenues we've looked at from a disposition standpoint and making sure we're catching those groups as a part of the marketing process. We would look at it in the right circumstances for if we found a good customer and there was an overlap of their product offering versus where we have a fit like that and a geographical need. Haven't really found that to date, so it's not off the table. I do think it's a space you'll see us continue to invest in.

One last question I have. I guess I'm still a little unclear on the timeline to potentially transition those legacy holiday assets to new operators and to the joint ventures. Let's say you get a positive result here on the hearing on Friday. what potentially could be the timeline to transition the assets? Is it one quarter or two quarters, three quarters? Just trying to get a better handle on that. Maybe you can't answer it, but just trying to understand what you see as what might be a reasonable timeline.

Ideally, this is Eric. Ideally, Dan, it would be within 30 days of that hearing. So same quarter. Okay. Okay. Everything is set up. Everything is ready to go.

What would be the holdup? What would be the holdup? Let's say you get a positive, again, result from that hearing. What would be the holdup on that stretched at 30 days to 60 days or something like that?

There's a million things that could happen. So I'd rather not speculate. Okay. Okay.

All right. Appreciate the call. Thanks. Thanks, Dan.

We have a follow-up question from the line of Rich Anderson, SMBC. Please go ahead.

Yeah, I'd like to ask the dog a question. Is he available?

Sorry.

He's into behavioral health, apparently.

one bark if we get out of this two bark if we no anyway uh you know what is what is plan b if you if uh friday does not go to fruition uh or does not turn out well for for an hi is is that just mean a much longer delay or what what is what is that what is the outcome there if you don't win uh rich we still have options i'm not going to speculate on an earnings call where

Our adversaries are certainly able to listen, but we have options.

Okay.

I'll take it. Thanks.

All right.

Once again, please press 1-4 to queue up for a question. One moment, please. We do have a question from the line of Jordan Sandler, KeyBank Capital Markets. Please go ahead.

Hey, quick follow up on the holiday payment. I think you previously released that you would recognize the security deposit in the first quarter. Can you just remind us, you know, if that's still going to happen and what the amount is exactly?

Hey, Jordan, this is John again. Yes, that's our intent. It's, you know, being sort of reviewed for audit, let's put it that way, and the amount's $8.8 million. But right now, I don't see any reason why that won't happen.

Okay, and that would be booked right into income as rent?

Yes.

Okay, thank you.

And we have no further questions on the phone lines. I'll turn the call over back to you.

Thanks, everyone, for your interest in attending, and we'll see you all at Mayreit or one of the many conferences we're attending.

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.