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spk09: and welcome to the National Health Investors Second Quarter 2024 Earnings Webcast and Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Dana Hamley. Sir, the floor is yours.
spk08: Thank you and welcome to the National Health Investors Conference Call to review the results for the second quarter of 2024. On the call today are Eric Mendelson, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spade, Chief Financial Officer, and David Travis, Chief Accounting Officer. The results as well as notice of the accessibility of this conference call were released after the market closed yesterday and a press release has been covered by the financial media. 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 31, 2023, and Form 10-Q for the quarter ended June 30, 2024. 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 furnished on Form 8-K to 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 Mendelson.
spk03: Thank you, Dana. Hello, and thanks to everyone for joining us today. The second quarter exceeded our forecast and represents the fourth straight quarter of outperformance relative to our expectations. The drivers of the strong performance have been consistent as we once again had stable cash collections, steady deferral repayments, improving operator fundamentals, shop occupancy and revenue growth, and no unexpected rent concessions. While the recent outperformance has been driven primarily by organic measures, we're very excited about the recent investment activity and our growing pipeline. Year-to-date, we've closed on $56.6 million of investments at an average initial yield of approximately 8.4%. In addition, we have sourced investment opportunities totaling more than $1.8 billion. Of this amount, we have board-approved signed LOI investment opportunities of $155.4 million that we expect to close this year. We're also evaluating a pipeline of approximately 270 million. These investments target senior housing assets and fee simple real estate and loans with purchase options. We're also pursuing several large portfolio deals, including RIDEA deals, which are not included in our pipeline. We've patiently spent multiple years positioning our company to return to the level of acquisition growth we experienced prior to the pandemic. With ample dry powder and improved cost of capital and more realistic seller expectations, we expect that external investment activity will be a significant driver of cash flow growth in the foreseeable future. Regarding our quarterly results, Compared to the second quarter of 2023, normalized FFO per share and total dollar FAD increased 11.4% and 16.1% respectively. We received a $2.5 million deferral repayment in the quarter, which is a testament to our strategy allowing us to recapture NOI that would have been otherwise lost. The April 1st Bickford rent step-up also contributed nicely to our growth, as did their revenue-based $1.3 million deferral repayment. Including Bickford, we have $19.6 million in net deferral balances tied to senior housing operating revenue goals. The Senior Housing Operating Portfolio, or SHOP, NOI increased by 39.9% year-over-year to approximately 3 million. While the NOI result was slightly below our internal expectation, we're encouraged that occupancy continues to move higher, and we remain confident in our guidance growth rate for the year and the longer-term upside potential of this portfolio. Given the strong quarterly results and good visibility into the second half of the year, we're once again raising our 2024 guidance. Our updated guidance represents midpoint normalized FFO per share growth of 4.8% and a midpoint FAD growth of 7% when compared to 2023. The increased guidance continues to be broad-based with several factors contributing to the improved outlook compared to our original February guidance. Our growth profile is multifaceted, both internally and externally, and is supported by an increasingly bullish demographic environment characterized by favorable supply-demand dynamic. We believe that we position the company to succeed through all stages of the business cycle and are therefore generally agnostic to the short-term ripples in the economy. While we have a long history as a public company, we're excited about the future as we have ever been, and we are convinced that we're in the early days of exceptional growth for several years to come. I'll now turn the call to Kevin to provide more details on our operations. Kevin.
spk00: Thank you, Eric. Last quarter, we said that we were starting to see more actionable deal activity, and the volume of new inquiries had significantly increased in the last several months across asset classes and financing solutions. That is all still true, and we're happy to refine that communication as we have now closed on $56.6 million in year-to-date investments at an average yield of 8.42%. As Eric noted, the size of our signed LOIs as well as the actionable pipeline of other investment opportunities has increased significantly from what we described last quarter. Further, I'll add that the deals we are looking at are primarily focused on senior housing assets and more skewed to fee simple real estate deals as opposed to the 50-50 mix of fee simple and loan opportunities we described in our first quarter call. As always, with the loan opportunities, we are looking for a path to real estate ownership For example, we closed on the acquisition of a newly constructed senior housing community in Sussex, Wisconsin for $32.1 million, which is operated by an existing partner, Encore Senior Living. The purchase price was partially funded with the satisfaction of a construction loan we had previously provided to Encore. We have originated two other mortgage loans so far this year with new operators. These both have purchase options, and we are already speaking with these partners about potential new opportunities. Turning to asset management, we had another strong quarter with positive year-over-year adjusted NOI growth across our asset classes. EBITDA coverage continued to improve, and we did not provide any unexpected rent concessions. The need-driven operators, again, had positive coverage trends with Epidarm at 1.38 times, representing the ninth straight period of sequential growth. The improvement was driven primarily by Bigford at 1.67 times. Adjusting for the April 1st rent increase, the Bigford coverage would have been a healthy 1.45 times. Bigford's occupancy declined by 50 basis points to 85.4% from the first quarter of 2024 to the second. They experienced a decline early in the second quarter, which flattened out and started turning positive near the end of the quarter. Their third quarter is off to a good start as average July occupancy increased 60 basis points from June to 85.8%. The need-driven coverage excluding Bickford dipped sequentially to 1.15 times from 1.16 times. This was entirely the function of a change in assets as we sold two mature buildings and added two recently constructed properties with much more upside potential. Referral repayments totaled $4.7 million during the quarter which included $1.3 million from Bigford and a $2.5 million repayment from a cash basis tenant. Bigford's repayment declined from $1.5 million in the first quarter as we adjusted the repayment formula in conjunction with the rent reset. We estimate approximately $1 million in quarterly Bickford repayments for the second half of 2024. Including Bickford, we still have $24.3 million in net deferrals, which we expect to realize in repayments and other value creating transactions. Our discretionary senior housing portfolio primarily includes our entrance fee portfolio, which has performed above our expectations since the pandemic began, and that continues to be the case. Coverage improved sequentially to 1.6 times from 1.54 times, driven by improvements at both SLC and our other entrance fee operators. The SNF and specialty hospital portfolio reported solid coverage at 2.98 times, which improved sequentially from 2.83 times. The coverage at NHC improved to 3.96 times from 3.8 times. As we reminded listeners last quarter, NHC's reported coverage represents a corporate fixed charge coverage and is not comparable to the EPIDARM coverage reported for all other asset classes and operators. During the second quarter, we completed the process of transitioning one SNF to Wisconsin to ChampionCare, which has a much greater presence in that state. The cash lease revenue is unchanged and the new operator has a purchase option on the property beginning in 2031, which will result in a 12% IRR if NHI if the operator exercised. Lastly, in shop, momentum continues to build throughout the portfolio. Second quarter NOI increased 39.9% year-over-year to $3 million. Resident fees increased by 13.5% year-over-year, driven by occupancy improvement to 87% from 75.5%, and contributed to 420 basis points of margin expansion to 22.1%. Compared to the first quarter of 2024, occupancy improved by 170 basis points, while the margin declined slightly by 10 basis points. The slight sequential margin decline was below our expectation, but occupancy continued to improve throughout the second quarter, ending on a high note at 87.7% in June. The preliminary July occupancy showed another uptick to 88.2%. As occupancy gets closer to 90%, we expect to start reducing move-in incentives, which should lead to an improvement in margin, given the significant operating leverage in the independent living model. Our current guidance for year-over-year shop NOI growth is unchanged at 25% to 30%, as is our long-term view that this portfolio can generate NOI dollars in the high teens and margins in the mid-30% range. I'll now turn the call over to John to discuss our financial results and guidance.
spk04: Thank you, Kevin, and hello, everyone. The focus of my remarks today will be around our improving revenues, which this quarter exceeded our expectations and positively impacted our net income, FFO, and FAD metrics. Kevin and Eric touched on our collection of deferred rents, but this quarter we also benefited from recent activity under our capital expenditure program, which increased the lease maturity for our existing leases with senior living communities and will also lead to additional rent as those CapEx dollars are funded. Finally, our improving outlook in our updated guidance reflects the additional contributions we expect this year from our other second quarter activities, including the recent transition property lease with a new operator, the new $9.5 million mortgage investment with Compass Senior Living, and the recent loan conversion to lease investment with Encore Senior Living. While our guidance doesn't reflect the future pipeline activity that Eric and Kevin just discussed, we feel confident that our pipeline will result in future investment activity. So I'll talk more about our capital plans as we look to meet all our needs for 2024 and 2025. Finally, I'll talk about our guidance, which we're very pleased to raise for the second time this year. But first, our results for the second quarter. Our net income for diluted common share for the quarter ended June 30, 2024 was 81 cents compared to 92 cents for the same period last year and sequentially up 14.1% from the first quarter. Our NAE REIT and normalized FFO results for diluted common share increased 12.4% and 11.3% to $1.18 and $1.18 respectively for the quarter ended June 30 compared to the prior year's second quarter. and were sequentially up 7.3% and 5.4% compared to our first quarter's results. FAD for the quarter increased 16.1% to $51.8 million from $44.6 million in the prior year's second quarter and was sequentially up 1.6% compared to our first quarter's results. Our FAD results for the six-month period into June 30, 2024, are up 11.3% compared to the same period last year. We're very pleased with these results. So let me go into a little more detail. Compared to the first quarter in 2024, cash rent recognized for the second quarter was up approximately $2 million. The improvement was primarily due to the higher deferred and other rents received from our cash basis tenants during the quarter. net of the annual NHC percentage revenue rent true-up recognized in the first quarter. As I touched on earlier, straight-line lease revenue improved $1.5 million as compared to the first quarter and improved $700,000 after excluding the straight-line receivable write-off recognized in the first quarter. Recall that the first quarter straight-line write-off was for a transition property that's now under a new lease which commenced during the second quarter. The senior living community's lease modification under our capital expenditure program was a primary contributor to the quarter-over-quarter increase in straight-line lease revenue. But the fall revenue impacts from the other second quarter leasing activities are included in our updated guidance. NOI from our shop portfolio was flat for the second quarter compared to the first quarter, but represents a 39.9% improvement in NOI compared to the prior year quarter. CAS G&A expense, which is our G&A expense excluding non-CAS stock compensation expense, increased $700,000 compared to the first quarter, primarily due to increases in business development and proxy-related expenses incurred during the quarter. During the quarter, we placed one property in assets held for sale, resulting in an impairment, and increased the loan loss reserve on another property's loan, resulting in loan and realty losses of approximately $1.1 million. As we announced last night, our Board of Directors declared a 90-cent per share dividend for shareholders or records September 27, 2024, and payable on November 1, 2024. If you've been closely following us, then you've noticed that today we disclosed a significant increase in our pipeline activities since our May earnings call. We've closed on $41.6 million in transactions during the second quarter, and we now have over $155 million in signed LOIs, plus an even larger pipeline fund. So let me discuss in more detail how we are approaching our capital needs. Our balance sheet ended the quarter in great shape. Our net debt to adjusted EBITDA ratio was 4.2 times, well within our stated four to five times leverage policy. We ended the quarter with $500 million in available ATM capacity. And at the end of June, we had $455.5 million in available capacity under our revolver. Our variable interest rate debt stood at approximately 39%. So should the Fed lower interest rates soon, we stand to immediately benefit. We have one maturity this year, a $75 million private placement loan due at the end of September, which we will retire with revolver proceeds. Our capital plans are focused on meeting our liquidity needs for our upcoming maturities this year and next year, in addition to providing capital for our increasing pipeline. We are also focused on our average debt maturities. Subject to changing market conditions, we continue to review all our capital options to meet our ongoing liquidity needs. We're reviewing our bank credit facility options, public debt, as well as equity options. While we have the option to access equity, we also have the option to deploy over $200 million in additional debt and investment yields just over 8% at our incremental borrowing costs, so just over 6%, without exceeding our stated leverage financial policies. we expect to execute on at least some of our options before the end of the year and not rely entirely on our revolver liquidity. Let me now turn to our full year 2024 guidance. Our updated guidance today as compared to our May 2024 full year guidance reflects an improved midpoint for NAERI FFO and normalized FFO of 13 cents and 14 cents or 3% and 3.2% respectively. FAD increased at the midpoint $3 million or 1.5%. As I previously mentioned, our improved Q2 revenues and our recent transactions are having meaningful impacts on our guidance. Recall that for our leases with minimum rent escalators, when we either enter into additional such leases or we modify our existing leases, increasing rents or extending maturities, then the results will positively impact our future gap revenue expectations, all other terms and conditions unchanged. As we noted, our updated guidance released last night maintains unchanged our year-over-year shop NOI growth range, includes effects from additional rent concessions, asset dispositions, and from continuing deferred rent repayments, and does not include the impacts from our pipeline. So once again, Thank you all for joining our call today. That concludes our prepared remarks. So with that, operator, please open the lines for questions.
spk09: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Juan Sanabrio from BMO. Your line is live.
spk02: Hi, this is Robin Hanelon sitting here with Juan. Just on Blueprint, will they potentially look at replacement tenants for NHC as part of their work?
spk03: Could you repeat the question, please? You're breaking up.
spk02: It's curious on Blueprint, are they going to look at potential replacement tenants or NHC as part of their work?
spk03: That's certainly within their scope of work. Keep in mind that NHC has an absolute right to renew the lease at a market rate. So we're primarily concerned about determining what is a market rate.
spk02: Okay. I'll try guidance. The second half implies growth in the high single digits. Just curious what the the main assumptions are and what is driving the expected deceleration?
spk04: Well, I think we talked about it on the call. We were having a lot of improvements in terms of all the portfolio optimization work we've done. It's primarily coming through cash basis tenants, but we continue to think that we'll see some level of growth in shop NOI. We've told you what that range is for the year. But compared to last year, if that's what you're asking me, you know, we're continuing to, you know, forecast improvements over the prior year.
spk01: Got it.
spk02: On the LOIs, are they included in guidance at this point?
spk01: And could you maybe discuss timing and magnitude? Guidance, you'll see.
spk04: Well, remember, guidance doesn't include any of the effects of those LOIs. We've just included in our guidance what we've announced in terms of closed transactions. Timing is, you know, difficult for us to determine right now. And, you know, if we had a more definitive answer on timing and, you know, expected closing, we might have considered concluding that, but generally that's not our policy to do.
spk00: This is Kevin. Just to keep in mind, from a timing perspective, a lot of acquisitions, particularly if we're going through a lease scenario, it'll include a change of ownership or a chow. So the licensure will dictate timing a bit. So something we have to keep in mind.
spk01: Got it. Thank you.
spk09: Thank you. Your next question is coming from Rich Anderson from Wedbush. Your line is live.
spk07: Hey, thanks. Good morning and a nice quarter, of course. So in terms of the guidance, you mentioned 7% FAD growth as the new guidance. But is it fair to say in terms of, you know, the future of your FAD sort of cadence is a bit of a moving target because, you know, you have a fair amount of – rent deferral repayment in that that is lumpy? Or do you think that you'll be able to sustain that level of rent deferral from cash-based tenants so that your FAT is growing, but also maybe some of the growth this year will be replaced by external growth accretion next year? I'm not looking for 2025 guidance unless you want to provide it, but I'm just wondering about the recurring elements to guidance that you're presenting to us today?
spk04: Well, let's just go through all of the items that are helping us continue to, you know, quarter after quarter, you know, beat our expectations. So we have, you know, a variety of organic opportunities that we're trying to execute on. Shop is one. We keep talking about this CapEx program. The timing of those investments are still a little uncertain, so there's not a lot in guidance about that, so that's another upside. You know, we've talked a great deal in the past about the ability to reset rents in the future on several of our tenants. That's all going to depend on their ability to improve their NOIs. We have the ability also in about 33%, 34% of our communities to benefit from percentage revenue rents, which includes the NHC, and that was one nice surprise. So we can't really give you a lot of information there. I would just say keep an eye on NHC's public revenues. That might be a place that might give you some clues. And then finally, just exactly as you said, we're now pivoting towards external growth at the same time. So, you know, the future is looking very good for us.
spk07: Okay. So you mentioned, I think it was mentioned that you're assuming a million dollars a quarter from Bickford in terms of repayment of deferrals. Do you have a bigger number for the entirety of the portfolio of what you're assuming from a rent deferral repayment perspective?
spk04: Yeah, so let's unpack that, Rich. I know this has been difficult for everybody. So part of the deferral repayments are included in our GAAP revenue stream. Those are the scheduled repayments for our accrual tenants. We'll continue to collect on those for a variety of relationships. The Bickford component that Kevin discussed, those are not in our GAAP revenues. Those are just cash revenues. that are, you know, determined based upon their percentage revenue equation. But then we have some others as well that we're hoping to, you know, try to, you know, execute upon and increase that. But in terms of your analysis, you know, what Kevin used is sort of the incremental sort of non-GAAP sort of cash basis deferral recoveries that we have in our guidance.
spk07: Okay. In terms of your cost of capital, you talked about dry powder on the debt. But if you kind of just kind of back into an AFFO yield or a FAD yield, it seems like your cost of equity is cheaper than your cost of debt. Am I right about that? Or, you know, I'm just curious, you know, how you're thinking about future capital activity when you take, you know, what has happened to your stock, which is outstanding this year, into account.
spk04: No, we recognize that this is sort of an interesting time where our cost of equity is kind of revolving around pretty closely our incremental long-term cost of debt. So we recognize that.
spk07: Okay. Last for me, the $1.8 billion of sort of line of sight and a small portion of that you're actually considering. But where is that coming from? Are you just scouring the planet for data? for anything and you came up with $1.8 billion or is there a reverse inquiry component to this that people are coming to you with options? I'm just curious, what's the makeup of that $1.8 billion? Thanks.
spk00: Sure, Rich. This is Kevin. I mean, the $1.8 billion is the universe of things that we're looking at at the moment. Some of that stuff will get screened out pretty quickly. There is an element of over the last few years, we never were dark. We were out there Building relationships, meeting with people, trying to understand their needs. I think now we just have a confluence where capital is looking better for us and the opportunities are looking better where people are able to, or I guess exploring sales. And then in addition to that, we do have the broker community that we have good relationships with. So it's a mix of operator relationships that we've been building, real estate sellers that we've been working on over the last year or two. and then just seeing what's in the market right now. And then we refine that down, and we talk about a much more, what we think is a more actionable number than the 1.8. But I think deal flow has been pretty strong over the last few quarters. It continues to remain robust, and we feel good about our prospects.
spk07: Okay. Thanks very much.
spk09: Thanks, Rich. Thank you. Your next question is coming from John Kilchowski from Wells Fargo. Your line is live.
spk06: Thank you. Could you talk about or just help us understand the breakout of the $270 million of investments that you're looking at today in terms of just what's fee simple versus loans and how that's been progressing throughout the year?
spk00: Sure. Hey, John. This is Kevin. As we talked about on the call, last quarter it was more 50-50 in nature. Now it's definitely more skewed towards fee simple. We didn't give a direct percentage, but it's probably... 70-ish percent or more is more fee simple in nature. There are still some loans out there where we think it would be a good opportunity for us to convert into long-term real estate ownership. So we're keeping that line of business open. Our preference is always going to be to own. And I think it's, again, as we talked about, skewing that way. It's more need-driven senior housing in nature. That said, we're looking at all asset classes right now, including specialty hospital, behavioral, um, you know, some, some more independent type communities. So it's, it's a good mix for us right now and skilled for that matter too.
spk06: Okay. Okay. And then, uh, just kind of circling back to the last, uh, question on just the, the 1.8 billion line there. What differentiates those assets? And maybe does that include some larger portfolio deals or maybe is it more levered towards the shop side? And I guess, you know, what keeps you from putting it in the 270 bucket? Is it just the ability you think you have to transact on it, but you're interested in them? Is that the right way to think about it?
spk00: I think that's fair. You know, one point is, again, more the universe of what we're looking at right now. Some of it, again, will be screened out. It might not be the market we're interested in or it might have negative cash flow and it's not a newer building or something where we have the right operators. So that'll screen it out. Those are the things that we still need to work on and make sure that they fit or not. It does include any of the joint venture type relationships we're looking at, which tend to be bigger portfolios. So we don't want to signal that we're doing you know, a lot of new business without having better line of sight to its execution. Redia is a new business line for us in some respects. We have the shop portfolio now, but we want to make sure we get it right, which we've talked about before. So if we're going to take a big swing like that, you know, it takes a little extra scrutiny.
spk06: Okay. And then last one for me here on the shop side, You know, I understand the strategy. We're talking about hitting that 90% occupancy number before you start to really drive rents here. But I guess, how should we think about it relative to your peers who are reporting some pretty strong pricing power and the ability to drive occupancy here? Have you been testing out those waters or have you not, like, is there a reason why we're seeing that red port decline other than you're not even testing it? Like, is, I guess... Sorry, try to synthesize this here. Do you think you have pricing power, but you're not testing the waters because you're just trying to get to 90% occupancy? Or have you tried to realize that you're having trouble then getting to 90% occupancy and hoping that you'll have a little bit more room there to push?
spk00: I think the pricing power aspect is going to be market by market. There are some where you're just not going to have as much capacity as in others. That said, the strategy has been let's get to 90%. We are starting to see some individual buildings get to that level and the incentives are falling off. That's a handful of probably three or four buildings are there. Good news for us though is all of our shop buildings are at 80% or more. So we've made significant progress there. So we would expect to see Once those get, you know, kind of mid-80s, closer to 90, to see those incentives start rolling off, and then we should expect to see, we would expect to see margins jump a bit more, again, as we stop offering some of those incentives and some of the short-term incentives fall off. So we wanted to stay with the strategy. I think it's been effective for us. Our operating partners will be, you know, pushing the market where they can on rates, but we've been just kind of dedicated to the strategy first.
spk04: Hey, John, this is John Spade. Can I just add to that question that you're comparing apples and oranges a little bit because our portfolio is independent living, and if our portfolio was like a lot of our peers who are more AL memory care, I don't know that we would be pursuing quite the same strategy because of the care component.
spk01: Understood. Thank you.
spk09: Thank you. Once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Your next question is coming from Austin Worshmith from KeyBank Capital Markets. Your line is live.
spk05: Great. Thanks. Good morning, everybody. Just want to go back to some of the RIDEA opportunities in the investment pipeline and just curious what the economics are. of the deals that you're underwriting and kind of where they are in their recovery from an occupancy and margin perspective. And kind of given your comment on being selective and sensitive to how much, I guess, you know, how much, you know, are you willing to take on at any given point in time? Because it sounds like there's a mix of both singles and doubles as well as maybe some portfolio opportunities in front of you. Thank you.
spk00: Sure, I'll start with maybe the kind of profile of the communities and then let John kind of weigh in on the capacity piece. But as it relates to what we're looking at, generally speaking, they're going to be not quite stable, but approaching stable. We want something where there is good line of sight to cash flow with some growth, similar to John's prior comments about healthcare delivery and pricing for that. What we've been looking at is a little more skewed towards the need-driven senior housing side. We think there's good pricing power there as it relates to the needs-driven side. The margins, I think, are a little lower than what we've seen in prior years, but that also gives us meaning kind of 2019 and before, which gives us thought that there is still some upside here, but we're also entering in at a good entry point where we're not paying a huge price per unit and margins are at a reasonable level that have fully stocked labor numbers with, again, power to increase over time. I think that's really going to be the profile of the deal that we're looking at. Again, a little more stable in nature. We're not looking for big value add. And the other thing that I think is a differentiator for us now and our interest in Radia is just a few years ago, they were looking at you know, mid single digit cap rates on some of these portfolios. Now we believe we can purchase at a rate that is in excess of our cost of capital and not just rely on growth to get to what would be a reasonable yield. So we can enter in at a much better yield today and still have a little bit of upside over time.
spk04: So Austin, in terms of capacity, you know, There's all kinds of things that we're looking at out there, but if you go look at our history in the past, you can see that we've executed on multiple hundreds of millions of dollar portfolios in the past. So some of these larger transactions we're looking at, some of them come with secure debt that we could assume. So we've been very mindful to manage our... capital structure so we could absorb secure debt without, you know, creating issues on our investment credit rating. Some of the properties, you know, we'd like to enter into joint ventures. So there's an equation there regarding non-controlling interest that we have to properly think through. So there's a lot of things that goes into these RIDEA structures that we're thinking through. They're all very different. But in terms of capacity, we feel like we have quite a bit of capacity to transaction on some of these larger deals.
spk05: And maybe just, you know, we've talked a little bit about this in the past, but from a corporate infrastructure perspective, I mean, can you take on a good bit more of the RIDEA and still have kind of the people you need in-house to, you know, monitor and sort of, you know, help build out, you know, the RIDEA portfolio?
spk03: That's a fair question, Austin. This is Eric. No doubt that if we execute on the larger pipeline, we'll need to hire some extra accounting and asset management horsepower, and we're always on the lookout for new talent to help with that.
spk05: And then just last one for me, John, you know, in the balance sheet, certainly in great shape today, but you know, how are you thinking about managing leverages? The pipeline continues to build and you continue to see more deals come your way. I mean, you willing to kind of go below the lower end of that range if, if your cost of capital continues to improve. And even though, you know, you talked about the fed and the benefit of, you know, the cost of your variable rate debt coming down, but would you pay some of that down ahead of time?
spk04: if you could and just build additional debt capacity that you can use you know down the line if need be well let's let's just approach it this way we try not to allow our balance sheet to be to be a headwind to any of our any of our transactions so we try to stay well ahead of you know what we need to do to take care of our liquidity needs to maintain our investment grade credit rating So we just really work hard to make sure that we're ahead of the game here. In terms of our liquidity right now, it's in great shape. We have ample sources from our ATM capacity as well as our revolver. But we've got a lot of things getting better for us, and we also have to be mindful that I do have maturities. So, you know, there's just a lot of things that we're going to try to stay ahead of, and that's why in my prepared remarks I said that we're not going to rely entirely on a revolver, and it's just going to be a market-driven decision as we move forward.
spk05: Understood. Thanks for taking the questions.
spk09: Thank you. There are no further questions in the queue.
spk03: Thanks, everyone, for your time and attention today, and we'll look forward to seeing you at NARIT or some other conference.
spk09: Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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