Colleen Sullivan - Director, IR Eric Mendelsohn - President & CEO Roger Hopkins - CAO John Spaid - EVP, Finance Kevin Pascoe - EVP, Investments.

Chad Vanacore - Stifel Juan Sanabria - Bank of America Jordan Sadler - KeyBanc Capital Markets Todd Stender - Wells Fargo Rich Anderson - Mizuho Securities John Kim - BMO Capital Markets.

Hello everyone. This is Colleen Sullivan, Director of Investor Relations. Welcome to the National Health Investors Conference Call to review the Company’s Result for the Third Quarter of 2016.

On the call with me today is Eric Mendelsohn, President and CEO, Roger Hopkins, Chief Accounting Officer, John Spaid, Executive Vice President of Finance and Kevin Pascoe, Executive Vice President of Investments.

The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were released this morning before market opened in a press release that’s been covered by the financial media.

As we start, let me remind you that any statements in this conference call 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 in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI’s Form 10-Q for the quarter ended September 30, 2016.

Copies of these filings are available on the SEC’s website at www.sec.gov or at NHI’s Web site at www.nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the NHI’s earnings release and related tables and schedules, which has been filed on Form 8-K with the SEC.

Listeners are encouraged to review those reconciliations provided in the earnings release, together with all other information provided in that release. I’ll now turn the call over to Eric Mendelsohn..

Thank you, Colleen and welcome everyone. We're glad you could join us today. It’s been another great quarter at NHI. I am pleased to say that we've completed the conversion of Bickford RIDEA to a triple net lease structure.

This conversion is locked in a stream of predictable cash flows for our shareholders and has decreased to NHI's exposure to operational risk. This accretive transaction has also allowed Bickford to pay off legacy debt unrelated to NHI, strengthening their credit and giving NHI a stronger partner.

We are very proud at NHI of our ability to work with our operating partners to create win-win solutions. This approach leads to growth and repeat business from our operating partners and ultimately results in creating shareholder value.

Bickford is a great example of that, beginning in 2009 with the purchase of five properties the partnership has grown today to a total of 37 stabilized communities with additional projects in the development pipeline, being a flexible financial partner making growth like that possible.

Our relationship with Bickford has been very successful and we look forward to working with them for many years to come. We were also delighted to recently expand our relationship with senior living community and Chancellor Healthcare.

Last week, we announced the acquisition of the CCRCs in Connecticut to be leased to senior living communities, bringing our partnership with them to a total of 10 communities. In September through the purchase of two senior living communities in Oregon, we've grown our relationship with Chancellor.

This partnership started back in 2012 with the purchase of one senior living campus and has now grown to a total of seven communities. The addition of these properties is another great example of our relationship-based approach and the growth that it leads to.

I'll now hand the call over to Roger Hopkins to walk through financial results for the quarter.

Roger?.

Thanks, Eric. Hello, everyone.

The third quarter of 2016 was period when our record high average stock price allowed us to opportunistically issue over 680,000 common shares on our ATM program, but on the other hand, this quarter, we included nearly 275,000 shares to our measure of weighted average diluted shares for accounting purposes related to our existing convertible senior notes.

As expected, the timing of these added shares affected our per-share metrics for the third quarter and year-to-date. Nevertheless, we are on plan for 2016 and have announced over $110 million in new investments since the last earnings call, plus the accretive conversion of our joint venture with Bickford to a triple net tenancy.

Compared to the third quarter of 2015, normalized FFO increased to $1.23 per diluted share. Normalized AFFO increased to $1.10 per diluted share and normalized FAD increased to $1.10 per diluted share.

We have announced over $447 million in investments in 2016 and have utilized a mixture of debt and equity to finance them with an intent on maintaining low leverage. Our commitments to fund ongoing construction, expansions, loans and new acquisitions totaled over $150 million as outlined in our form 10-Q and supplemental data report.

Our revenues for the third quarter increased 8.6% over the same period in 2015.

Interest expense increased to $10.8 million in the third, due mainly to terming out $100 million of borrowings on our revolving credit facility to higher fixed-rate private placement debt in the fourth quarter of 2015, an increased borrowings to fund their investments in 2016.

Our general and administrative expenses for the third quarter $2.2 million or 3.4% of revenue. Our general and administrative expenses for the same quarter in 2015 were abnormally low as they included a reversal of accruals for incentive compensation to our former CEO.

We currently expect G&A expenses will remain in the range of $2 million to $2.5 million for the fourth quarter of this year. Our non-cash stock-based compensation expense was $251,000 for the third quarter and is expected to be the same amount for the fourth quarter.

We incurred a loss of $754,000 during the third quarter on our share of the loss of the operating company in the joint venture with Bickford.

The loss includes approximately $290,000 in planned pre-opening and lease up operations of new facilities and development, plus seasonal factors and wage increases effective July 1, across the 32 property stabilized portfolio.

As we have explained in the past, the operating company may show losses for accounting purposes, the actual cash flows have been sufficient paid to schedule rent to the property company and support the operating deficits of new facilities until they reached stabilization.

Kevin will explain in a few minutes, the strategic shift in our business relationship with Bickford. The unwinding of the joint venture on September 30 resulted in a gain of $1.7 million on the sale of our interest in the operating company and the utilization and write off of $1.2 million in deferred tax assets related to net operating loss forwords.

These transactions are reflected in our normalized non-GAAP metrics. Our net income for the third quarter also includes the effect of a $1.1 million non-cash write off of a straight line rent receivable, resulting from the planned transition of a 126 unit assisted-living portfolio. The write-off is also reflected in our normalized non-GAAP metrics.

For the first nine months of 2016, normalized FFO was $3.60 per diluted share, our normalized AFFO was $3.24 per diluted share, which represents a 3.2% and 5.5% increase respectively over the same period in 2015. Normalized FAD for the first nine months of 2016 was $3.28 per diluted share, which is a 5.1% increase over the same period in 2015.

These normalized results primarily exclude transactions previously described, gains during 2016 on the sales of real estate and marketable securities and non-cash write-offs related to our lease transitions.

For our construction loans and real estate development activity, we are near completion of our loans to an affiliate of life care services for the phase 2 expansion of its entrance fee community in Issaquah, Washington named Timber Ridge.

We have funded $128.4 million as of September 30, and we estimate we will fully fund our $154.5 million commitment by the end of the next 90 days.

We estimate that we will receive full repayment on our construction loan by the end of 2017 leading our mortgage loan balance of $60 million for which we have scheduled a 10 year maturity in our $55 million development program with Bickford to construct five new assisted-living and memory care facilities, we have funded $43 million as of September 30.

As for our dividends, we typically announce our fourth quarter dividend in early December. We currently estimate our total dividends for 2016 will result in a normalized FFO payout ratio in the low 70% range and a normalized AFFO payout ratio in the low 80%. Moving on to guidance, our estimates for the full year have not changed.

We currently estimate normalized FFO for 2016 in the range of $4.84 to $4.88 per share and normalized AFFO in the range of $4.36 to $4.38 per share. We do not include an estimate of investment volume in our guidance range. However, our guidance includes the effects of expected transactions for which we have clarity, including financing transactions.

With less than two months to go in the year, 2016 has been an excellent year for investment volume and for accessing new debt in the equity capital markets to help us maintain a low cost of capital. These factors position us well and give us great optimism for 2017, just around the corner.

I'll now turn the call over to John Spaid, who will discuss the capital plan and balance sheet metrics..

Thank you, Roger. As of September 30th NHI's net debt to annualized adjusted EBITDA was 4.4 times, weighted-average debt maturity was 6.9 years, weighted-average cost of debt was 3.63% and our fixed charge coverage ratio was 5.8 times.

Our balance sheet metrics for the third quarter are illustrative of our commitment to keep a healthy, low leverage balance sheet and our commitments to position the company for future growth and value creation.

Looking at NHI's revolver, at the end of the third quarter we had $128.6 million outstanding with an available capacity of $421.4 million, including un-restricted cash, our available liquidity at the end of the third quarter of $425.6 million.

We will continue to manage NHI's available liquidity resources that we are conservatively positioned to meet the company's future investing and financing needs. Since the first quarter 2015, NHI has maintained available liquidity of over $300 million in each succeeding quarter.

Excluding short periods to bridge larger acquisitions, NHI will strive to maintain similar available liquidity balances. Over the course of the third quarter we made use of NHI's ATM registration and issued 680,976 shares at an average price of $80.51 per share providing the company with $54 million in net proceeds.

Proceeds from our ATM were use to pay down our revolver and maintain our low leverage balance sheet. Also during the quarter we issued 75 million and eight year unsecured notes to a private placement lender with a coupon 3.93%. Maturing September 30, 2024, the notes fit well into our long-term maturity schedule.

The notes required quarterly payments to interest only and the proceeds were used to reduce NHI's balance on its revolving credit facility. Terms and conditions of the notes - of the new notes are similar to those under NHI bank credit facility, with the exception of provisions regarding prepayment premiums.

As we move forward we are planning for our future capital needs for Q4 in 2017, including capital acquired for the recently announced FOC investment, we are beginning to receive repayments on our $94.5 million mortgage to Lifecare Services or Timber Ridge project.

Phase 2 opened in October, and repayment of Timber Ridge construction mortgage will occur as resident entrant fees received. As of the end of October we've already received $20.6 million in repayments, proceeds were or will be applied to our revolver balance.

Timber Ridge presales are strong and we expect the majority of the mortgage to be repaid by the end of Q2, 2017. With that, I will now turn the call over to Kevin Pascoe, who'll cover portfolio details and new investments..

Thank you, John. 2016 is been very productive year as we have continued to build our existing relationships which will help bolster our portfolio and we continue to be pleased with the performance of our portfolio overall.

The portfolio EBITDA and coverage ratio is 1.9 times, our skilled nursing coverage is 2.86 times and our senior housing portfolio is 1.27 times.

Taking a closer look at some of our larger operating partners, our relationship with National HealthCare Corporation represents 16% of our cash revenue and provides a very healthy 3.76 times corporate cash coverage. Holiday Retirement accounts for 15% of our cash revenue.

Their EBITDA and coverage for the quarter was 1.19 times with occupancy averaging 92.5% which held steady through the third quarter. Holiday continue to make investments in the community and has spend over $11 million in CapEx over the last three years.

Our partnership with senior living communities represents 14% of our cash revenue and has an EBITDA and coverage ratio of 1.15 times on trailing 12 month basis as of second quarter end. Entry fees during the second and third quarter were very strong and third quarters was the highest in company history.

There are lot of updates to give today with our partnership with Bickford senior living, w which accounts for 14% of our cash revenue. Occupancy and revenue per unit continued to increase quarter-over-quarter.

EBITDA was lower sequentially due to pre-marketing and start up losses at three communities, as well as wage increases effective July 1 in addition to the continued wage pressure we have discussed over prior quarters. As Eric mentioned earlier, we've completed the conversion of the Bickford RIDEA into actual net lease structure.

NHI purchased Bickford's first 15% interest in the real estate for $25.1 million and Bickford purchased NHIs 85% interest in the facilities operations for $8.1 million.

The cash [ph] for the next 12 months of $26.3 million on the 32 stabilized facilities remains unchanged based on NHI's investment to date of approximately $298 million, of which NHI will now receive 100%. There an additional five facilities under development or on lease out with Bickford which are owned by NHI.

One opened in July, two opened in October and two were planned to open in 2017. Funded amounts will be added to lease basis during construction, as well as rent for up to the first six months after opening. Thereafter based rent will be charged to Bickford at a 9% annually rate.

Once the facilities are stabilized, rent will be reset to fair market value. Base rent on leases will continue to escalate by 3% annually 3% annually on the anniversary date of the lease. Future develop projects between the parties will be funded through a construction loan at 9% annual interest.

NHI will receive a favorable purchase option to stabilization with the rent being set at the time of purchase with floor [ph] of 9.55% on NHI's total investment.

On current and future development projects, Bickford part of the operator will be entitled for incentive payments based on the achievement of predetermined operational milestones, the funding of which will increase the investment on which the lease payment NHI has calculated.

The new agreement does not change the terms previously disclosed of 15 year triple net lease entered into between the parties for five assisted-living and memory care facilities acquired by NHI pursuant to a purchase option Bickford in May of 2016. Moving on to other new investments for the quarter.

At the beginning of September NHI purchased two senior living facilities in McMinnville, Oregon for 36.6 million and leased then Chancellor Healthcare. The lease has term of term of 15 years with annual lease rate of 7.5% plus annual fixed escalators. The first facility opened in 2008 and expanded in 2015.

It consists of two buildings and includes the total 16 independent living unit, 29 assisted living units and 54 memory care units. The second facility opened in 2015 and this comprised of 35 memory care units. In place EBITDA and covered exposing was 1.35 times.

Last week, we announced the $74 million purchase of a 299 unit C-share-C [ph] in North Branford, Connecticut that will be leased to senior living communities. This community has occupancy in the mid-80s and EBITDA and coverage of 1.35 times.

This acquisition expands our relationship with FLC to 10 communities, including our previously announced mezzanine loan on the Daniel Island, South Carolina project which NHI will have a purchase option on the community at stabilization. As for our pipeline, we continue to focus on communities and markets with solid local market fundamentals.

Cap rates in the top end assays are still very low and in general, there seems to be abundance of competition for market transactions. We have seen some cap expansion in the smaller markets, which plays to our strength and aligns with our customers.

Despite the competitive marketplace we've been very busy reviewing opportunities with both our existing customers, as well as working on adding new relationships. Except for a handful markets we are not seeing the adverse impact of oversupply. We remain vigilant in monitoring our portfolio for competitive impacts.

Furthermore, we remain selective to make sure we are adding high-quality operators and communities and feel our portfolio is well-positioned to continue to grow. With that, I will hand the call back over Eric..

Thank you, Kevin. We will now open the line for questions..

Certainly. [Operator Instructions] And our first question comes from the line of Chad Vanacore with Stifel. Please go ahead..

Hi. Good afternoon, all..

Hello..

Morning..

Hi, there.

So I'm just thinking about [indiscernible] right there right conversion impacts you went through the charges real quick, could you just reiterate that for me?.

Chad, on the RIDEA that was unveiled on 930, and so going forward NHI will be receiving 100% of the rent. So the minority interest deduct will not grow in respect to PropCo, we did have a gain of $1.6 million on the sale of the OpCo, we normalize that gain.

We also have the utilization of the NOL carryforwards, I deferred tax asset, we normalize that as well. So we filed….

Roger, how much was that, on the NOLs?.

That was $1.2 million and that was normalizing adjustment..

Got you..

And so as I said, the important thing going forward we will no longer be increasing the deduction of our net income in respect to the minority interest in the PropCo..

Okay.

And that goes to what you expect in the fourth quarter with it?.

Well, we recently filed pro forma statements with the SEC upon closing that transaction and those pro formas cover 2015, as well as 2016 and you know, the implied accretion to AFFO as a result of those pro forma was about $0.08 in 2015 and $0.06 in 2016..

Okay.

And then just to confirm did you expect little over $26 million in rent and then new developments coming online over time?.

Yes, the rent is unchanged and about $26.2 million of rents going forward..

Okay.

And then just a belief that you delivered - the coverage of the lease is underwritten on I think last quarter it was 1.3 times EBITDA is that what it finally was?.

Chad, this is Kevin. Just make sure we're looking at the same number. You are asking for EBITDA on the Bickford relationship or an….

On Bickford relationship?.

Yes, that we've described that was – its consistent with what our senior housing portfolio is, so it will be in that range that you just described..

Okay.

And then just on the pipeline, looking forward, I guess, pretty strong 2016, do you expect some more in the fourth quarter or could end up particularly put all to guess?.

Hey, Chad. This is Eric. As you know acquisitions are lumpy and the timing is subject to regulatory approvals and loan assumptions. So, frankly, you know I hesitate to give any predictions.

We had we had a great year thus far and if this was the last acquisition, I'd call it a good year, but we're always trying to do more and we have what we have two months left, so stay tuned..

Okay.

And then just one more, just you tap the ATM in the third quarter, you tapped in the second quarter, do you think where you need to be right now or do you think you would fund more for whatever acquisitions you do by issuing equity on the ATM?.

Well, we're at our historical leverage point where it’s for four and we're looking at some things like Bickford's construction pipeline is going to be generating some capital needs and sign - building that we have a purchase option is going to be generating some capital needs, but at the same time we've got Timber Ridge mortgage paying off.

So it may be that the Timber Ridge mortgage payoff dovetails with our existing capital lease and don't forget we still have some LTC stock in the cupboard that we can liquidate if we need to.

So we're probably good on the ATM thus far and we had a good run, I mean, were able to sell it in the in the low 80s, that’s a great price for our shares and right now at this level mid-70s we would certainly think about it if we needed to..

That's right. I'll hop back in queue..

Thanks, Chad..

Our next question comes from Juan Sanabria with Bank of America. Please go ahead..

[Technical Difficulty].

Hey, Juan could you speak up, we can't hardly hear you?.

Sorry about that.

Is that better?.

Yes, that’s much better..

Could you just expand the Bickford, I was just looking at the press release, and it said cash trends of 25.3, is it now 262, just curious on if that’s changed?.

We've had some escalators, but its 26, 260 going forward..

Okay.

And how should we think about the cap rate for that, because if you gave like the investment value relative to that rent kind of the kind of the mid to high 8% cap rate, is that how you guys think of the value or is that correct way, not the correct way to look at it from your perspective?.

Hey, Juan. It’s Kevin. The way we've describe that was kind we'll get some of our other transactions using even the other Bickford deals we have that will get the first option as proxy for it, it would be consistent with that..

And what are the purchase options, sorry?.

We bought those for a seven a quarter lease rate and they had coverage of I think 1.35 times is what we announced..

EBITDA….

That’s correct..

Okay.

And just kind of CCRCs, what's your guys comfort level, kind of continuing to increase that particular asset class and if you could let us know roughly what AL IL split of your CCRCs will be with this latest acquisition at Connecticut?.

Juan, its Kevin again. So as it relates to CCRCs we remain opportunistic, we want continue to be able build with our customers. We still have the purchase option on Timber Ridge.

So it's something that we're going to continue to evaluate, as you think that we have a fair amount now, so its going to be something that we are - we scrutinize very heavily on a go forward basis, just what the opportunity is, but we going to make sure that we continue to grow with our customers and service their needs.

And as it relates to the assets, they are all a little bit different, predominantly independent living units, I have to go back and check my math, but they would be – they should generally be consistent with what you saw with the one in Connecticut that we just announced with senior living communities that was 200 plus units of IL and [indiscernible] AL units, but similar percentage to that..

Okay. Just last one from me, on Holiday, I think you said the EBITDA was 1.19, as far as EBITDAR kind of low 1, just over 1 to 1.1 and that’s pre CapEx, I mean, what's comfort level there any discussions about necessarily rent adjustments or how are you guys thinking about that into '17.

And maybe if you could comment on how those assets are exposed to supplier or maybe just any color would be great?.

I am sorry, Juan, which….

The Holiday portfolio?.

Holiday, yes, so you know no discussion around rent concessions at this point in time. The coverage is been consistent since we purchased the portfolio - from a NOI standpoint its grown, but we have had some escalators that were 4%, those will taper down to 3.5% after next year.

So we expect – or we would plan anyway to see some coverage increase over time. I do feel like there's still some opportunity within the portfolio, there are 92-ish percent occupied. So there's a lot of NOI that can drop to the bottom line for every percentage point of revenue that they can operate with percent or occupancy that they can generate.

So we still feel good about those communities. Clearly we were – something we focused on to make sure we you understand what's going with their business model and make sure that were in tune with any change that may happen.

From supply standpoint, we haven't really seen a lot come online from an independent living stand point, the competition really is kind of existing competition in those market – in markets they compete for a lower or mid price point, share the markets.

So feel like they have most customers if you will available to them or they appeal to the most the biggest base within their markets. So again, still feel good about their prospects, but always sometime we continue to monitor..

Okay. Thank you, guys..

Thanks, Juan..

Our next question comes from Jordan Sadler with KeyBanc Capital Markets. Please go ahead..

Thanks, guys. Good morning..

Hey, Jordan. Good afternoon..

I just want to follow up initially here on the pipeline I know you guys don't like to give tremendous insight into anything that’s not locked up or done.

But is there anything incremental in the 2016 guidance related to acquisitions?.

Well, Jordan, this is Roger. We include in our guidance those acquisitions and financing transactions for which we have clarity. We don't give specific and details and the timing of those. Eric is properly said the acquisitions are lumpy and so are the financing transaction.

So - but we think we have clear over next two months and therefore we reaffirmed our guidance..

Okay. And so that's a non-answer, whether or not do you have anything in there. Okay. You don't feel comfortable letting on as to whether or not there's anything in guidance related to non-unidentified acquisitions, is that….

Hey, Jordan, this is Eric. I'll try and take another swing at that. You know in the past we haven't announced acquisitions prior to closing. We kind of stepped out of our comfort zone on this evergreen deal that we just announced, you'll notice in the press release that it has not closed, yet its closing in the next couple of days.

So we have shared as much as we can with you, so you have that visibility and so that we could talk about on this call..

Evergreens in there though, right?.

Yes..

Okay, okay. So and then I guess, because I am just trying to figure out how my numbers stack up against yours, and I am sure ever body else is on the call is doing the same.

But Bickford in particular, from your comments Roger it sounds like it should be to $0.02 a quarter of accretion?.

Yes, but penny and half in 2016..

Okay.

Year-to-date, you said it was $0.06, was that through the third quarter?.

It’s for a full year..

That’s the full year. Okay, great.

So your - so and I noticed the tweet from 2Q guidance to 3Q guidance now incorporates the Bickford transaction taking place, so the guidance stayed the same in terms of the range, but you're now incorporating a penny and a half of accretion for 4Q?.

We anticipated. We anticipated that accretion in our second quarter guidance in the first part of August..

Well, you anticipated, but you explicitly said in your press release that it was excluded?.

That's correct..

This is John. You are right, you are absolutely, Kevin us stated this correct..

Yes..

Okay. Thank you. And then I guess Kevin coming back to some your prepared remarks, you said you're not seeing an adverse impact of oversupply and I don't know if that that was just a generalization as relates to your overall properties. But I'm kind of - I was looking through sort of the performance of the Bickford portfolio.

And I noticed that in the same-store portfolio, the expenses year-over-year were up quite a bit and you did speak to the wage increase, which I would imagine would hit the same-store portfolio and maybe that's an increase a bigger of your spend in 2Q year-over-year.

The Bickford portfolio saw a 6.8% increase in same-store expenses and then 3Q was about 13.5% increase.

I guess is there anything else in there you might be able to share with us besides the expenses or besides the wages, or do you think that’s just the wages?.

Well, a lot of it is wage and related items.

Its the competition for staff communities in specific market is getting more competitive and that just – that’s not necessarily with new competition from senior housing, that’s you know pressures from minimum-wage increases going often from - people in these communities have alternatives to go work at fast food restaurant or big store, which is a much easier job then taking care of senior.

So there is a wage pressure there to continue to attract talent and retain talent that these communities are experiencing and that’s part of what you're seeing and its not just some way open it up down the street, and then trying hire the employees, its even larger issue than that..

So this is unlike executive director executive directors being pushed away.

This is just the normal caregivers?.

A lot would be the turnover and the caregiver job, you know, Bickford has a tremendous track record of attracting, retaining talent particularly at the ED level. So they are not seeing a churn of turnover there, really is more in your line stuff..

Okay. And then one last if I may, just on the cap rate expansion I think you touched on in some your markets, can you maybe expand on that a little bit, we've heard some others talking about markets being - we sort of in a mixed messages I should say, this earning season on sort of what we're seeing in cap rates.

So curious what you're pointing to?.

Yes. Sure, what we're point to is kind of just the deal activity, I think you've seen from us over the course of the year where we're able to purchase communities at a level where we can get a rate of return that we're pleased with and still be able to give coverage to our customers.

I would say that in prior years its been a little more difficult to give at least in a marketed transaction or one where may not be marketed but the operator is leaving the operations to be able to find a community that you can still get coverage for your tenant.

So that's where I'm really kind of the implied cap rate expansion, particularly in the real end, the secondary end tertiary markets where I think the sellers are being a little more realistic about what their asset is if you will, and willing to - they're not necessarily pointing to some of the larger markets and saying well, I want that cap rate as well.

They are little more realistic on the price expectations and looking for more of certainty of close which we can deliver..

Okay. Thank you for the color..

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

Hi, thanks. Just to start with you, Kevin. I think for the first – or for the two senior housing facilities you acquired in Oregon what were the occupancies for those buildings. I think you said one of the might of been opened in 2015.

Just wan to get a sense of how that is leased up?.

Yes. So those were from the contract in the low 80s. So there's still some meat left on the bone me if you will for those communities.

There - now its part of the attraction for the investment is you have, what we characterize as like I just mentioned a reasonable seller and you are able to install a new operator that can go and add value and increase occupancy over time, they have a number of independent living units which really won't even leased yet.

So there is revenue to be had at these communities through the marketing processes that Chancellor can do and be able to increase coverage over time and be a nice investment for both of those..

And what do the escalators do for these, so you could participate in the upside or not all?.

They are fixed annual escalators consistent with our – rest of our portfolio..

Okay.

And then when you get combination facilities like these for the units mixed, is that something that Chancellor could adjust over time, whether they add to the IL component were move it to the other direction and convert some to memory care, how does that work?.

Well, it varies by investment. This one I would characterize that there's a little bit of flexibility in that – there is potential for in this case IL units to become AL units. It probably doesn’t go the other way, because there is a little bit of build out that would have to happen to make that conversion.

So again its just different by opportunity, but in this case there's a little bit of mixing if you will that could go into the asset and be able to move around a little bit, but generally we like the asset - the components of the community and for them to have that kind of smaller continuum of care I think is traction for the local marketplace and something that will serve them well..

Thanks.

And then, not just look at the new Connecticut deal, the CCRC, I don’t know if you want to add much disclosure or details around this, but three – in reverse the 4% rent escalator comes down to 3%, it sounds kind of like a Holiday level, is that reflection of the large IL component, is that where you can really get the inflation?.

That is kind of a component to the investment, that’s one where we - this harkens back to where we started with senior living communities in our initial transaction where this lease mirrors our relationship with them. So will have that 4% escalator that actually hits January of 1.

So it is really just more fitting it into the relationship we have with them then saying we think we can get more on independent living. We do believe that there is upside at this community, the operator that is moving on with a solid operator, but entry fee communities were not there expertise per se.

So I think there is an opportunity for them to continue to improve the performance of this community, potentially improve occupancy and NOI contributor, solid contributor to the portfolio that we have with them..

Okay.

And just finally, just what were the in-place entrance fees and what will if they go to just kind of - just as a reminder what those, if what a Connecticut entrance fee is?.

I am sorry, you're asking for the dollar amount?.

Yes for the dollar amount, what were they and where you think they will go to?.

We have not disclosed individual entrance fee amounts for our community. They typically, and I'll just say this kind of a macro, what they try to do is make it a percentage of the home price in the area.

So it's an affordable measure for someone to be able to sell their home and move in into the communities, so it’s consistent with that, kind of overall view on entry fee. So I would look at the home prices and you can make an estimation based on that would be a percentage of that number..

Okay. Thank you..

Thanks, Todd..

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

Thanks. Good morning.

So what's the reason slow down to LTC, I mean, is there a tax issue about selling them or you just haven’t gone around to it or why is still private?.

Hey, Rich, it’s Eric. Frankly, we try and be smart about selling it and not pay any taxes. So we look at the return of capital on our dividend. We look at depreciation and we make a decision about how much we can sell based on that. So thus far we think we've sold as much as we can this year and will continue next year..

Okay. Fair enough.

Kevin, a lot of EBITDARM with an M coverage’s obviously is your MO, what is the difference between DARM and DAR, is it 30 basis points or not that much so give a sense of that coverage more conservative cover - converge metric?.

Yes, it kind varies by product side that you're looking at, so with skill nursing for coverage instance its going to be a little bit higher that variance, for senior housing I would say its 0.1 to 0.2 dependent on what your assumption are management fee and CapEx.

And then on skilled nursing its probably more - probably more like 0.3 or so give or take just because you've got a higher top line that you're taking a management fee percentage of so little – be a little bit more of variance there..

Okay. And then I guess, Eric, I mean, would you think of negotiating these escalators. I am not so clear sure that healthcare REITs, particularly smaller cap were already get paid for 3% or 4% escalators these days. And maybe the sweet spot is something 100 to 200 basis points lower than that.

Just so you are protecting coverage or at least having the perception of protecting covered over the long term.

How do you feel about that, do you think that the market is moving to a lower coverage, sorry, a lower escalator world or do you feel good that three or four is here to stay for you and for the industry?.

I would say that’s a pretty astute observation, Rich, I think that we are very sensitive about the impact of those escalators as you telescope them into the future and you know I would take it on a case-by-case basis, but I agree with you, I wouldn't - I wouldn't be surprised if we came across the property that was fully valued, highly occupied and in a competitive market and we would agree to - something between 2% and 3% rather than between 3% and 4%, just so that going forward the operator has enough breathing room you know to make their cash flow that they should get from taking the risk as an operator.

I would also point out Rich that, we're very focused on having a defined escalator because that helps us with straight line rents.

If you look at some of our leases like the Hemsign [ph] lease as opposed to the Evergreen and the McMinnville, Oregon leases, we try very hard to capture that straight-line impact on accounting because that impacts us on our NFFO basis and you know we don't want to miss estimates and we don't want to miss our guidance on that metric..

All right. Okay.

And then last from me, Roger, can you just – does the equity method adjustment just simply go to zero now starting October 1,is that that how we should model Bickford?.

Yes, on Bickford there will be no equity pick up of any income or loss from the OpCo and….

So 754 in this case for the third quarter goes to zero, I mean, there is no other noise in that number?.

That's right, that's right. It goes to zero, it goes zero for the fourth quarter and the minority interest in the PropCo does not increase, that’s the deduct that you see for net income..

Yes. Okay so that is the same and yes….

Hey, Rich, and speaking of noise, we definitely want to point to the dilutive impact of the convertible. We had to add some additional shares as a result of our high share price and obviously we didn't get the benefit of those shares, we just got the detriment. So that was a little noise this quarter that made us the victims of our own success..

Well these are high-class problem..

Yes..

All right. Thank you very much..

Thanks, Rich..

[Operator Instructions] Our next question comes from the line of John Kim with BMO Capital Markets. Please go ahead/.

Thank you.

It was a modest amount, but you had a write down this period of rent receivables due to the tenants material non-compliant, can you just comment on to the tenant was?.

This is Kevin. We have disclosed who was tenant was, as you mentioned it was non-material amount, it’s a small portfolio that we're working to transition to a new operator..

This tenant one of your top ten partners or was it one of the smaller ones that you are moving away from?.

It is a smaller relationship that we're moving away from..

Okay.

And as far as non-compliant is that basically just not paying the rent on time or was it CapEx this year or if you could provide some commentary?.

It was non-payment timely of rent and just one where we felt like it was better to move off of the relationship and put in a new operator in that - and install a new operator into the relationship..

Got it. Okay.

Your commitments to acquire for additional development least Hemsign [ph] think the option is – window is now open, can you provide some color on the timing of these acquisition and the lease feel?.

The timing is such that it’s a year after they get their life safety certifications [indiscernible] and their window we have basically 120 days to exercise the option enclosed.

So I would look for that over the near term on one of the communities and then another one - the other ones won't be for – they are further out into '17 and then to '18 before we'd see those come online. And the lease yield I think we described was 8.35%..

Got it. Okay.

And then finally, can you just provide some color on your development pipeline with Bickford, just update us on the amounts that your dealing with them and also the incentive payments, how that will be accounted for going forward as they achieve those hurdles?.

So the pipeline is such that we had five developments that we were – that had been announced already, three of which opened in the last few months, they've then received very well in their markets, so we have two more that will open in 2017.

The total amount that we've described his $55 million of that is just for basically the base construction costs, as you mentioned there were some lease up costs and incentive payment that go on with that.

What I would tell you on the incentive payments side, that gets capitalize into our lease spaces, we get paid a return based on all dollars out and we expect a low double-digit return on our investment once these are stabilized..

And those incentive payments are they achievable when like, within one year stabilization or it could be further out….

I think its – its takes a little bit of time to stabilize billing, generally when we're looking at underwriting a new development we allow for 18 months, at least for it to open and stabilize, Bickford's experiences been better than that, but generally speaking we're going to allow for 18 to 24 months for these to stabilize and get some seasoning under their belt..

Got it. Okay, thank you..

There are no further questions at this time. I will now turn the call back to the presenters..

Thank you for joining us everyone, and will likely see what NAREITs or one of the other conferences we attend on a regular basis. Thanks for your time today..

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. And ask that you please disconnect your lines..