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Good day, everyone, and welcome to the National Health Investors Fourth Quarter 2024 Earnings Webcast and call. At this time, all participants have been placed on a listen-only mode. If you have any questions or comments during the presentation, 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 Hambly. Sir, the floor is yours. Thank you, and welcome to the National Health Investors conference call to review results.

For the fourth quarter of 2024. On the call today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, 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 in a press release that's been covered by the financial media. Any statements in this conference call, which are not historical facts, are forward-looking statements. National Health Investors cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent National Health Investors' judgment as of the date of this conference. Investors are urged to carefully review various disclosures made by National Health Investors and Asperia reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in National Health Investors' form 10-K for the year ended December 31, 2024. Copies of these filings are available on the SEC's website at sec.gov or on National Health Investors' website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in National Health Investors' 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 Mendelsohn. Hello, and thanks to everyone for joining us today.

We ended the year on a strong note as the fourth quarter results exceeded our expectations with contributions from across the portfolio. Our cash rent increased by nearly 9% year over year on solid organic growth from rent step-ups and deferral repayments as well as increased activity. Shop occupancy continued to accelerate through the end of the year, which helped to generate 12.5% NOI growth. We announced investments of over $150 million during the quarter at an initial yield of 8.5%, while our balance sheet leverage ticked down to 4.1 times from 4.4 times in the third quarter. Reflecting on the full year's results, we benefited from similar trends. Our hard work performed during the portfolio optimization contributed meaningfully to 2024. This included over $11 million in total deferral repayments and approximately 17% growth in Bickford's cash rental income. Shop NOI increased by approximately 32%, which was above the high end of our guidance, driven mainly by improved occupancy and 350 basis points of margin improvement. From a capital allocation perspective, we announced over $235 million at an average yield of approximately 8.6%. This was our most active year since 2019, and the momentum is clearly building. As a result, the company delivered growth in annual NAREIT FFO, normalized FFO, and FAD for the first time since 2020. And while that growth is not linear, we exceeded the high end of our original February guidance for the full year. John will provide more details in his comments. Looking forward to 2025, we expect growth to continue as reflected in guidance. As noted a moment ago, our 2024 results were bolstered by rent step-ups and deferral repayments resulting from the effects of COVID-era restructuring. While we still expect some benefit to accrue from the 2025 financial results, we are looking for other avenues to support internal growth.

Specifically, we are considering select opportunities to transition triple net senior housing assets to shop structures where we see excellent long-term potential with existing or new operators. The senior housing industry has exceptional tailwinds, so we believe this strategy is a capital-efficient way to improve shareholder value by increasing our overall exposure to senior housing operations and working with strong partners to generate greater cash flow and higher real estate valuations. We also continue to see significant organic upside with the portfolio operating at close to 90%. We plan to strategically increase RevPAR to further drive margin expansion. After 32% NOI growth in 2024, we're guiding to 12% to 15% in 2025. Turning to our outlook on external growth, the balance sheet is in great shape and very supportive of funding significant investment opportunities. We were able to be advantageous in the equity markets last year by raising net proceeds of approximately $262 million on a forward basis, of which approximately $119 million remains available to settle. As John will detail in his comments, we are including $225 million of incremental investments in our guidance, reflecting our high conviction in the near-term outlook. While we're not including any investments beyond that, I think it's safe to say that we'd be disappointed if we did not surpass last year's total of $237.5 million. We're off to a good start in 2025. We closed a $21.2 million sale-leaseback in January, have $152.3 million under signed LOIs, and in addition, have an active pipeline of approximately $190 million. In closing, I'm pleased with the execution in 2024, and I'm very optimistic that 2025 will be an even more productive year. While the interest rate environment has weighed recently on the cost of capital, we still have the capacity and ability to move more quickly than other capital providers to the senior housing sector who have either scaled back their exposure or exited the industry entirely. As operators rush to take advantage of the most favorable industry fundamentals in the history of senior housing, National Health Investors is competitively positioned as the partner of choice, which convinces us that we're in the early days of multiple years of exceptional growth. Before I turn the call over, I want to briefly comment on the recent filing which Land and Buildings nominated two candidates for election to our board of directors at the upcoming annual shareholder meeting. The company and the board take information received from shareholders very seriously. As such, the board has made significant changes over the last several years, which reflect its commitment to its fiduciary responsibility and in direct response to shareholder concerns. We appreciate everyone's interest and hope that you'll understand that we have no further comment on this matter. I'll now turn the call over to Kevin to provide more detail.

Thank you, Eric. Since our last call in November, we have announced investments of $53.1 million at an average initial yield of 9%. This included $28.1 million in real estate acquisitions at an average yield of 8.1% and a $25 million loan at 10%. We have $152.3 million in board-approved deals with an average yield of 8.2% that are expected to close in the first half of this year. This includes a mix of senior housing sale-leaseback and real estate acquisitions as well as mortgage and construction loans with purchase options. We also have an actionable pipeline of approximately $190 million in investments, which have a reasonable chance of closing within the next twelve months. Not included in this figure are portfolio deals, including shop deals. Turning to asset management, I want to comment specifically on a master lease on six properties in a partnership with Discovery Senior Living. As you will recall, we amended this lease in November of 2023 with a scheduled May 1, 2025 reset to a minimum of a 5% yield on gross investment. While we have seen NOI growth, the buildings have not performed as expected, so we are evaluating several options, including transitioning the properties to another operator. These properties generated $4.5 million in 2024 base rent and approximately $1.2 million in deferral repayment. While no final decisions have been made, we currently model a slight increase in the base rent but not to levels contemplated in the 2023 amendment. We expect to provide a more detailed update on this portfolio as we continue our evaluation. Now turning to the results. We had another good quarter with improving EBITDARM coverage and cash collections as well as solid contributions from acquisitions and shop growth. The need-driven operators again had positive coverage trends with EBITDARM at 1.41 times. Bickford's coverage adjusted for the April 2024 rent reset was 1.63 times, while the other needs-driven tenant's coverage improved sequentially to 1.22 times from 1.15 times. We made good progress repositioning the SLM portfolio and expect that we will have recaptured a significant portion of that NOI by the end of 2025. Of the four leased properties, one was transitioned to the William James Group with cash rent commencing April 1. Two properties in Louisiana are now under triple net lease effective in January of this year. And the remaining property was sold for $9.7 million in net proceeds, of which National Health Investors provided $9.4 million in financing at 8.5% during the quarter. Earlier this month, we took ownership of the Florida property that secured our $10 million mortgage note and are leasing it to Mainstay. We are still evaluating options on the $14.5 million mezzanine loans, on which we carry a substantial reserve and will provide more details when available. Our entrance fee and skilled nursing portfolios continue to show great performance. The discretionary senior housing portfolio, which includes our entrance fee portfolio, had coverage of 1.7 times compared to 1.6 times in the sequential period. The SNF portfolio reported solid coverage at 3.05 times, which improved sequentially from 3.04 times. Recall that the SNF coverage is largely driven by NHC, which is calculated using a fixed charge coverage at the corporate level as opposed to a facility-level EBITDARM. Lastly, in shop, the momentum we saw throughout the year continued through the fourth quarter. NOI increased 12.5% year over year to $3.2 million. Resident fees increased by 8.1% year over year, driven by occupancy improvement of 620 basis points to 89.4%. The margin improved 90 basis points to 23.2%, which was the strongest result since the second quarter of 2022. With the portfolio occupancy approaching 90%, we are starting to strategically target RevPAR growth as the primary driver to margin expansion. For the quarter, RevPAR increased 60 basis points. While small, this was actually the largest RevPAR increase since we started operating the shop platform. We see plenty of runway for organic upside in shop and target NOI growth of 12% to 15% this year. And with the expectations for several hundred basis points of margin improvement over the long term, we expect elevated NOI growth for the foreseeable future. The portfolio is expected to show normal seasonal patterns with occupancy and NOI dipping in the first quarter and improving throughout the year. I'll now turn the call over to John to discuss our financial results and guidance.

Thank you, Kevin, and hello, everyone. For the year ended December 31, 2024, our net income per diluted common share was $3.13, unchanged from the prior year. Our NAREIT FFO results per diluted common share for the year and quarter ended December 31, 2024, compared to the prior year periods, increased 3.6% to $4.55 and $1.24, respectively. In the fourth quarter, we recognized a non-cash non-operating gain of $6.3 million related to our forward ATM equity activity that is reflected in net income and NAREIT FFO. I'll talk more about this item in a moment. Our normalized FFO results per diluted common share for the year and quarter ended December 31 increased 2.5% and 2.8% to $4.44 and $1.12, respectively, as compared to the prior year periods. FAD for the year and the quarter ended December 31 compared to the prior year periods increased 8.7% and 10% to $204.2 million and $52.1 million, respectively. Sequentially compared to the third quarter, cash rent for the fourth quarter increased $2.6 million, largely attributable to $2.3 million in new rent associated with the Spring Harbor portfolio acquisition, but also due to higher sequential deferred rent collections. Those increases were partially offset by other changes, including $3,000 in lower cash rents attributable to the SLM default. NOI from our shop portfolio for the year and quarter ended December 31 increased 32% and 12.5% to $12.2 million and $3.2 million, respectively, compared to the prior year periods. Loan and realty losses for the year increased $3.9 million compared to the prior year. The increase was primarily due to the increased reserves on the mortgage and loans. During the fourth quarter, we disposed of two properties that were previously classified as held for sale and recognized $5 million in gains on sales of real estate. The company ended the year with no properties classified as held for sale. For the year, we made investments of approximately $237.5 million at an average initial yield of 8.6%. Our financing activities included forward overnight and equity transactions totaling approximately $103.7 million, $72 million in gross proceeds from common shares at a price of $72.54 before fees. We also retired $75 million in senior notes utilizing proceeds from our revolver. We additionally recast our $700 million revolver, extending the facility's maturity date into 2028. As we previously mentioned in our third quarter earnings call, after closing the Spring Arbor investment, we delivered 1.8 million shares under our August forward overnight equity offering, approximately $122.4 million in proceeds. As we previously mentioned, our investment activity continues to be very active. Subsequent to the Spring Arbor closing through January of this year, we closed an additional $53 million in investments. As a result of our investment pipeline during the fourth quarter, we activated our ATM and sold on a forward basis 989,000 common shares at an average price before fees of $76.14 per share. As we close the additional investment activity just mentioned at the end of the year, we settled 266,000 common shares of the ATM forward equity at an adjusted forward price of $75.22 per share after fees for proceeds of approximately $20 million. Including the remaining escrow August overnight equity forward proceeds, at the end of the year, we had total escrow forward equity proceeds of approximately $118.7 million available to us in exchange for the future delivery of 1.68 million common shares at an average price of $70.53 per share. I mentioned in my summary of operating results a $6.3 million gain on forward equity sale agreement recognized in the fourth quarter associated with our ATM equity activity. This gain is recognized because our forward equity arrangement was deemed not to satisfy all the accounting requirements for equity classification during the time we were raising equity during the quarter. The accounting treatment moves some of the equity from paid-in capital to retained earnings via the income statement. So it's more presentation and substance that should be viewed through that lens. Our balance sheet ended the fourth quarter and year in great shape. Our net debt to adjusted EBITDA ratio was 4.1 times for the fourth quarter, well within our stated 4 to 5 times leverage policy. We ended the year with approximately $45 million in available ATM capacity, and as I mentioned, we continue to have approximately $119 million in remaining equity forward proceeds available to us. At the end of January, we had $327 million of availability on our revolver. For 2025, we're focused on the company's liquidity needs as we continue to make investments and plan for the retirement of our maturing debt. We intend to exercise our right to extend our $200 million term loan's maturity date into 2026. And we will retire our other maturing 2025 debt totaling $125.8 million. We are monitoring long-term bond rates and continue to expect to tap the public bond market in 2025 to further improve our liquidity. Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.90 per share dividend for shareholders of record March 31, 2025, and payable May 2, 2025. Last night, we also issued our full-year 2025 guidance. Our guidance for NAREIT FFO and normalized FFO per diluted common share at the midpoint is $4.63, or 1.8% and 4.3% increases, respectively, over 2024. Our guidance for FAD at the midpoint is $221.7 million, an 8.6% increase over 2024. Our guidance this year includes the impacts from growth forward equity proceeds during the year. So because our confidence in our pipeline has led us to raise significant forward equity, today we are including in guidance our view on our future 2025 unidentified investment activity. Our 2025 guidance includes $225 million in new investments at an average yield of 8.1%. The timing for the investments is generally assumed incrementally over the year. In the future, we may discontinue giving guidance for unidentified investments should we discontinue obtaining equity on a forward basis. Our guidance includes shop NOI growth in a range of 12% to 15% over 2024. Our guidance includes the continued collection of deferred rents and the fulfillment of our existing commitments. It also includes our preliminary assumptions for the annual NHC percentage revenue rent increase and the Discovery PropCo May 1, 2025 rent step-up. We expect NOI from the Discovery base rent will increase this year, but we do not believe the portfolio will be able to meet the 5% target yield set under the lease. The anticipated Discovery lease modification will likely result in a change in the portfolio's GAAP revenues. Finally, guidance continues to include assumptions for additional costs and concessions related to normal asset management transitions, dispositions, and loan repayments. 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.

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. Once again, if you have any questions or comments, please press star one on your phone. Your first question is coming from Rich Anderson from Wedbush. Your line is live.

Thanks. Good morning. So on the SLM, if you could just sort of triangulate that for me, John. How much rent and interest income did you generate in 2024, and how much are you expected to generate in 2025 inside the framework of your guidance?

So we're talking about rent and interest or just rent?

The whole the whole nut. Rent and interest. So, you know, we're rent and interest, including our mezzanine loan, would be probably closer to 55%. 2025 versus 2024. On a, you know, say, full year full quarter over full quarter basis when we get to the end of the year?

Okay. So run rate by the fourth quarter?

Yeah. Yeah. But, you know, the mezzanine loan, and Kevin can talk more about this, is still still in a state of flux that can improve materially.

Well, before Kevin chimes in, what about on just rent? Would it be Yeah.

Yeah. So it'd be about 70% of rent. Right. I was trying to get to that.

Yep.

Yep.

Okay. And can you guys comment on the on the mezz piece? I know it's TBD at the moment, but any more color there? Fourteen and a half million?

Good, Rich. This is Kevin. You know, as you said, it's TBD, but we're looking at several alternatives. We know that the company SLM is going through a sale process. We're negotiating with them on what a recovery would look like, assuming that they execute the sale. You know, financing right now is still not terribly easy to come by, particularly on distressed properties, but there are a few in there that are producing NOI. So we expect to my expectation is that we have some element of recovery. We're still in terms of dollar size, don't know. We're looking at alternatives in terms of, you know, what can we do? Is there a buy opportunity or for us to step in and help a prospective buyer if it's somebody that we want to work with? So we've got a lot of options on the table. So it's still to be continued.

Hey, Rich. Yeah. I got I got one more comment if I can make on this. It's a it's a little bit of an apples and oranges equation to As you think about it, what we're trying to do is collect our principal on the mezzanine loan. You know, and then, of course, we would redeploy it. But if we can collect that principal, you know, depending on how much we collect, we could, you know, recoup some of our credit loss reserve and then redeploy the proceeds. At the very least, you know, it would go to pay down our right now our 5.5% cost revolver.

Okay. Second question, you're not talking about land and buildings, so I understand that. But on NHC, that expires in 2026. I know it's not too soon to be talking about that. You know, it's over three times on a corporate level. I guess at the property level, it's got a two handle on it. You may not comment on that, maybe you will. But what's the market in your mind for those assets in their markets in terms of what would be appropriate market coverage should you get, you know, a fair deal out of that out of that lease expiration. Thanks.

Hey, Rich. This is Eric. The market is very robust for these buildings. They're in good markets. A market coverage, in my opinion, would be 1.3, 1.4, and, you know, with a with a new operator, you'd have to account for transition trauma, and NHC under the lease, and this is all publicly in their publicly listed lease. NHC does have the right to retain personal property, so you'd have some capex or FF&E costs on a transition. But, you know, there's there's room to maneuver there, and, you know, we're having active discussions now with NHC and other interested parties.

Okay. Sounds good. Thanks very much.

Thanks, Rich.

Thank you. Your next question is coming from Juan Sanabria from BMO Capital Markets. Your line is live.

Hi. Good morning. Just with regards to shop, hoping you could talk about the piece parts to guidance with regards to assumptions behind occupancy and rate behind the 12% to 15%. And then maybe as part of that, if you could expound upon the comments made by Eric at the top of the call about considering some transitions. It sounded like it of existing operators from TripleNet to shop?

Hey, Juan. This is Kevin. In terms of how we're looking at performance for shop over the year, we had good momentum throughout 2024. Feel like we ended the year on a high note. As we also talked about in our prepared remarks, we have some seasonality in the first quarter. And then we're looking back at getting momentum on occupancy throughout the balance of the year and being able to push RevPAR over the over that period. So when we take in those pieces, we think that we can continue to grow it at again, the 12% to 15% that we mentioned on a year-over-year basis. There might be some opportunity, you know, there where we're evaluating some more operational structures and how there might be some cost savings here and there. Overall, though, it is going to be more of a revenue play, and a lot of it is just reducing the incentives. And as they continue to burn off, we'll see the RevPAR climb a little bit higher. We talked about it going up a bit quarter over quarter. We're looking to see that continue to improve throughout the year. So I think we've pushed our operating partners to, you know, be able to continue to deliver better performance. We're still continuing to put CapEx into these buildings, which the delivery of that will also help as we look at RevPAR performance. We've got some more work to do on that. I mean, I think that's just how we were building the forecast for the year, thinking about where we can go with this portfolio.

Great. And then I was just hoping you could comment on Bickford. It looks like the second half of the year from the late summer I saw deterioration in the occupancy from the same store pool that you disclosed in the press release. Just what's driving that? Any pause or thoughts or concerns around that loss of momentum? Excuse me?

I think there's a little there's a couple things in there. One, they pulled forward their rate increases. So you had a little bit of move out just from a price point standpoint. On the whole, though, it's still a net positive for Bickford from an NOI look at the portfolio. And then you have some seasonality as well that I think started creeping in there in some of the winter months. So I think they can still be successful throughout the year. They are known for delivering, you know, higher acuity care, it's going to be at a higher price point. Some of the people that moved in that were maybe on the edge in terms of affordability, decided to move out, but they've done a really nice job. We're continue to do a really nice job of selling the care that they deliver, but I think that's part of the the occupancy piece that you're seeing there.

Thank you.

Thank you. Your next question is coming from Omotayo Okusanya from Deutsche Bank. Your line is live.

Yes. Good morning, everyone. Kevin, hoping you can help me understand the acquisition guidance a little bit better. It's $225 million built in. But it sounds like you have $150 plus already in LOIs and a pipeline of $190. So could you help us reconcile a little bit $340 versus guidance of $225, especially when you still have another kind of ten months to go in the year.

Sure. Hey. This is John, Tayo. How are you doing? Let me take that one. Yeah. So in our guidance is our expectation to close a number of those properties in the LOI. But, you know, they're under LOI, so they're not definitive agreements just yet. So we have a high degree of confidence that we're going to be able to hit the number in our guidance. Our guidance is a combination of sale-leasebacks as well as additional mortgage loans. That's how we got to the weighted average yield. We expect to, you know, underpromise and overdeliver on that number. And you're right. We have quite a bit more in our pipeline than in our guidance. So there's there's some upside there, clearly.

Okay. That's helpful. And then second question also on deferred rent collection. If you can help us through that as well. It's you know, the balance is $21 million or so. You collected about $11 million in 2024. Just help us understand what's kind of baked into 2025 and if there's any potential upside there as well.

Yes. There is upside. Recall, though, that some of the equations on that $21 million include some deferral credit that if the operators perform or exceed performance, they might get some credits. But our generally, our guidance is still in line with what you saw on fourth quarter for the collection of deferrals and are primarily Bickford. Let me back up a minute. Actually, they're a million a little over a million dollars a quarter. The fourth quarter was a little ahead of what we forecasted.

So you have about $4 million baked in for 2025 relative to the $11 million from 2024.

That's right.

And the reason for the big slowdown is?

Well, it depends on the source of the deferrals. Right? And there were quite a few, you know, extraordinary collections in 2024. That looks very difficult to repeat in 2025. You know, for example, Chancellor, you know, paid a $2.5 million number. There were some others, including some from Discovery that we don't we don't think that are going to be repeatable in 2025. So that's just that's just our guidance right now.

Gotcha. Gotcha. Gotcha. Then one more for the road. Discovery How ultimately do you expect that to play out? If you just kind of help us kind of go through kind of different scenarios for that, just kind of given some of the earlier comments about the profitability not quite getting to where you need to kind of get the direct reset you were expecting.

Hi, Tayo. This is Eric. Is your request regarding the future of the collectability of deferral payments?

It's a combination of both things. It's the future of the deferral and also, you know, if you couldn't you couldn't get the or you're not going to get the the direct reset you were expecting at the reset date. I think there was some conversation of you are expecting a step up in rent anyway, but longer term, this idea of where you're going to is there you're going to continue to get an operator, e potentially see, you know, you guys trying to to someone else? What could that look like? Just kind of trying to, you know, think about ultimate scenarios for the backup for you.

Right. Okay. So your question is deferrals and then rent resets and then operators who aren't able to make rent reset hurdles. What we do at that point? Yeah. So at that point, you know, we would investigate either re-tenanting the building. Sometimes it's one building and a group of buildings that's the problem. Maybe you sell that one building or re-tenant that one building. And as we said in our prepared remarks, we're also doing an analysis to see if converting it to shop or RIDEA would result in greater NOI. So everything's on the table in that instance.

Sounds good. Thanks, Tayo.

Thank you. Your next question is coming from Austin Wurschmidt from KeyBanc Capital Markets. Your line is live.

Great. Thanks, and good morning, everyone. Eric, commentary continues to be very positive around investments. But I guess when you kind of break out the investment pipeline, from the $350 million last quarter and then kind of what's you know, under LOI in in in that future pipeline, it's really unchanged. So just curious what your confidence level is that you can continue to backfill that pipeline and what kind of the right size that we should be thinking about you know, on a future pipeline basis, you know, where that the right level is.

Hey, Austin. This is Kevin. I would tell you that when we're looking at the $350 million that you quoted, you're right. It's a similar size, but it's a different opportunity set. We continue to look at a bunch of different opportunities. I can tell you that if we looked at the total funnel, it's a couple billion dollars in terms of what we're looking at at any given time. Which, again, continues to churn week over week and month over month. So I feel pretty good about opportunities that we're seeing in front of us. It's really just whittling it down to the ones that we think are executable. And then moving on from those that are not. So it may look like a stagnant number, but I can tell you with certainty that it's a pretty new opportunity set each week to month, and we just kind of whittle it down to the ones that we think are actionable. So as the market sits today, I feel pretty good about our outlook.

That's helpful comments. And then with respect to the larger portfolio opportunities outside of that pipe I mean, would you care to size up, I guess, the number of opportunities or investment volume that that includes and what your confidence level is that maybe you know, you're able to to close one or more of those opportunities?

Well, I don't know that I can say anything different than other than what we talked about in the prepared remarks, which is our portfolio deals are not or shop deals are not included in what we talk about from our investment pipeline, as I just mentioned, you know, we're looking at, you know, a couple billion dollars worth of stuff at any given time. So I feel good about the opportunity for us to be able to get down the path on some of those, but we're not at a place where we want to give you guidance, you know, based on something that would be, you know, a pretty meaningful change to the company. So, you know, we're holding back on that. Hey, Austin. This is John.

Let me add another two cents to that. You know, in the fourth quarter, and a little bit recently, you know, there's been a lot of movement in everybody's cost of capital. And we're very sensitive to deploying capital that's accretive. So if you think about it, you know, we're always, you know, looking at the opportunity set and then the long-term interest rates and our stock price. And so despite, you know, some of the, you know, increased cost of capital that we've seen here recently, you know, that opportunity set is still still penciling out well on an accretive basis.

And that's all helpful. And then just the last one for me. This, I think, got asked, but maybe looked over a little bit from an earlier question. But the presentation last night did highlight potential shop conversion opportunities. And I'm just wondering if you could size up, you know, how big that could be from a gross investment or, you know, in-place NOI perspective and whether or not the discovery, triple net assets are a consideration for, you know, conversion with a new operator.

Hey, Austin. This is Eric. Yes. Discovery portfolio is definitely a possibility, and so are others. You know? We have other operators that are currently running RIDEA portfolios for other REITs have a strong back office, which is one of the criteria we're looking at. And would be, you know, a good partner for us to start our RIDEA journey.

Understood. Thanks for all the comments.

Thank you. Your next question is coming from John Kilichowski from Wells Fargo. Your line is live.

Thank you. Good morning. Maybe just, you know, going back to that last question, talk about sizing the opportunity. How about the earnings impact of any shop transitions here? I know that there's probably some elevated CapEx and some transition time associated with those. So I'm not sure if there's, you know, maybe upside to 2025 guide or if this will likely roll through to 2026.

Hey, John. This is John Spaid. Yeah. We're very sensitive to that. As a matter of fact. And it ultimately comes down to, you know, earnings growth, NOI growth, transition trauma, and, like you said, CapEx requirements. So, you know, the opportunity sets vary depending upon the current coverage ratios over the current rent. So obviously, if we convert something that's well covered, you know, suddenly all that EBITDAR, if there's no transition trauma, could be very accretive. But there's, you know, whenever there's a transition to a new operator, there's going to be some trauma. So we'll have to, you know, work through that and communicate that properly to you. And then, of course, you know, we'll also communicate to you what our expectations are for the, you know, CapEx requirements as well. So every opportunity sets a little different.

Okay. And then how about when, you know, when might you all start including, you know, shop acquisitions in your, you know, in your pipeline guide. And then maybe help us understand what the total opportunity set. What does the end of 2025 look like in terms of total shop exposure in your portfolio?

This is Eric. I could see it being 5% to 10% of our portfolio by the end of this year, early next year.

Okay. Great. Thank you.

Thank you.

Your next question is coming from Farrell Granath from Bank of America. Your line is live.

Hi, thanks. Good morning. Eric, can you speak to the rationale behind the dividend at this point in time? Given the improvement in the balance sheet and outlook, why not increase the dividend to improve the yield and potentially attract more investors?

Thanks for the question, Farrell. We carefully evaluate our capital allocation strategies, including dividends, to ensure they align with our long-term growth objectives and current market conditions. Maintaining a prudent approach allows us to sustain a strong balance sheet and support potential investment opportunities while returning value to our shareholders. While an increase in the dividend could be considered in the future, we believe our current approach supports our goals effectively for the time being.

Understood. And just a last one from me. On the topic of potential acquisitions, especially given the dynamic environment in the senior housing sector, how are you balancing investment in existing operations versus potentially entering into new markets or with new operators?

That is a great question. We are indeed navigating a dynamic landscape, which necessitates balancing reinvestment in our existing portfolio against pursuing new opportunities. Our strategy is primarily focused on enhancing the performance of current assets, optimizing operator partnerships, and exploring selective new markets where we see strong growth potential. This balanced approach not only strengthens our portfolio but also positions us to capture new opportunities as they arise, maximizing shareholder value.

Thank you for the insights. Appreciate it.

You are welcome, Farrell. Thank you.

Thank you. There are no further questions in the queue at this time. I would now like to turn the call back over to Dana Hambly for any closing remarks.