The Ensign Group, Inc.
Q3 2013 Earnings Call Transcript

Published: 8 Nov 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to The Ensign Group, Inc. Third Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's program, Mr. Greg Stapley, Executive Vice President. Please go ahead.

[Gregory K. Stapley:]

Thanks, Jonathan. And welcome, everyone, and thank you for being on the call today. We filed our 10-Q and accompanying press release yesterday. In addition, we filed the Form 10 and 8-K and 8-A and the separate press releases addressing our plan to separate our healthcare business and our real estate business into 2 distinct publicly traded companies, which we will discuss in more detail today. All of these disclosures are available on the Investor Relation section of our website at www.ensigngroup.net. A replay of this call will also be available there until 5

[Christopher R. Christensen:]

Thanks, Greg. And good morning, everyone. Despite several challenges in the first half of the year, we didn't revise our annual guidance last quarter, as we expected to see many improvements in the third quarter and especially in the fourth quarter. However, some of those challenges dragged into the third quarter and were augmented, to some degree, by the distractions of crafting the spinoff transaction we announced yesterday; efforts to push the DOJ settlement over the finish line and preparations to comply with our Corporate Integrity Agreement; and of course, a short-term drag on earnings created by our significant growth earlier this year. In addition, most of the Medicaid rate adjustments we were expected to receive in the third quarter will not actually be received until the fourth quarter. As a result of these challenges, we have adjusted our annual guidance for 2013. We're pleased to report that we see a reversal in some of the setbacks from earlier this year, as many of the projected improvements we discussed in August actually began to take effect late in the third quarter and early this quarter. We expect that these improvements will continue through the fourth quarter and into 2014. As those of you who have been following us for many years know, this fourth quarter surge is typical for us, as we almost always see our best occupancy and skilled mix increases, as well as the effective rate increases, in the last 3 months of the year. We made a significant announcement yesterday about our plan to separate our healthcare business and our real estate business into 2 separate and independent publicly-traded companies

[Gregory K. Stapley:]

Thanks, Christopher. After acquiring 8 skilled nursing and assisted living facilities in Q2, we added an additional skilled nursing facility in Seattle in Q3. We are actually seeing increased acquisition opportunities at present and expect to complete additional facility acquisitions before year end. During the quarter, our home health and hospice operators continued to enforce -- or reinforce our operational foundation strengthening systems, processes and personnel prior to taking on any new acquisitions. To date, we have acquired and developed 9 home health, 7 hospice agencies. And likewise, we see no abatement in the number of opportunities in that space. We expect to resume the growth of those operations as our existing base there matures. Our fledgling urgent care centers' Immediate Clinic purchased an existing urgent care clinic in Seattle, Washington. All of our urgent care centers, up to this quarter, have been developed de novo, which can be time consuming and expensive during the startup period. The addition of this established clinic adds significant additional firepower to our Seattle cluster, improving our critical mass in what we believe to be an underserved market for retail urgent care centers. To date, we've opened or acquired 6 urgent care clinics, all in the Greater Seattle market, with the seventh location there currently being built out. This new growth has brought our total senior housing in inpatient care portfolio to 119 facilities in 11 states, with 11,124 skilled beds, 1,603 assisted living units and 477 independent living units in operation. Of the 119 properties we operate, 96 are Ensign owned, and 75 of those are owned free of mortgage debt. And with that, I'll hand it back to Christopher.

[Christopher R. Christensen:]

Thanks, Greg. As we've mentioned in previous calls, our consistent success is achieved through the aggregate effect of dozens of small victories across the organization. Similarly, our earnings decline has resulted from a number of small challenges rather than any one factor. I'd be remiss if I did not recognize our outstanding field leaders, who are working tirelessly on all fronts to identify and overcome these weaknesses wherever they occur, and tell you that we believe we are starting to see their efforts bear fruit. But just to mention a few of the recent challenges which create great opportunities for future performance are the following. First, executing the strategic separation of our real estate and healthcare operations has required significant effort from our leadership team. We've designed the transaction to leave both resulting companies in positions of great strength. And we look to the lessons we learned following our IPO, which again was followed by tremendous growth in almost every category of performance in 2008 and 2009, to achieve and even exceed those results in 2014 and beyond. The costs and organizational effort associated with implementing the terms of the Corporate Integrity Agreement exceeded expectations, especially with respect to implementing compliance programs in our smaller service offerings, each of which have unique needs. However, we believe that these efforts will help us to be more profitable as we improve clinical and claims processing systems and are able to bill and keep more of our earned revenues. Third, the second quarter was an enormous quarter on the acquisition front. And we experienced larger-than-usual startup losses at a few of the facilities, as well as a significant cost of deploying numerous resource personnel to the 4 corners of the company to transition these newly acquired operations. As discussed above, we believe the short-term weakness in operating results at our newly acquired and transitioning facilities also represents an improvement in our long-term organic growth prospects in those facilities. Next, we continue to experience significant costs associated with the ramp-up of the home health and hospice agencies and, although on a smaller scale, our urgent care and mobile x-ray services. Although these operations did not contribute as expected to our earnings in 2013, we see significant upside, and with a few adjustments, we expect our returns on those investments to improve dramatically in 2014. Next, we did not receive most of the state Medicaid increases that we expected in the third quarter. However, we expect these benefits to arrive in this quarter. In addition, the 1.3% net increase in Medicare rates announced in the second quarter took effect on October 1. Our healthcare costs increased again in the quarter by $1 million over our projected costs. The increases were unexpected, and we believe that we've made the adjustments in our insurance program to prevent this problem from recurring in 2014. Lastly, consolidated occupancy of 77.4% was significantly impacted by the group of 42 transitioning and newly acquired facilities, averaging occupancy of 70.5%, 64.5% average occupancy in the 17 newly acquired facilities alone, representing the addition of substantial organic upside to the company's portfolio. All of these things and others -- and other things combined to impact the quarter, but in each case, we see both short-term improvements and long-term opportunities. We're especially pleased to report significant improvements in compliance and quality of care across the organization. And as always, we would remind you that compliance and quality outcomes are precursors to outstanding financial performance. But you don't have to take our word for it

[Suzanne D. Snapper:]

Thank you, Christopher. And good morning, everyone. Detailed financials for the quarter are contained in our Q and press release filed yesterday. As Christopher noted, operating results in the quarter were impacted by a number of unusual factors that we included in our adjusted results, including management's comment that it's devoted to the separation of our healthcare and real estate businesses; the ramp-up to meet our compliance obligations under the CIA; the deferral of some expected Medicaid increases; a spike in healthcare cost; difficulties in our home health and hospice services; and some continued softness in occupancy, with a slight decline in the year-over-year occupancy in our same-store bucket of 26 basis points, which is offset by an increase in skilled mix of 58 basis points and an increase in same-store managed care days of 15.4% and a growth in our subacute days of 5.6%. As for other key data points at September 30. Cash and cash equivalents was $46 million. Net cash from operations was $57.1 million. And free cash flow for the trailing 12 months ended September 30, 2013, was $53.6 million. As always, we provide a reconciliation of GAAP to non-GAAP results in yesterday's release. Although, as Christopher indicated, we have many reasons to be positive about the fourth quarter, which is when we historically have our best occupancy and mix and the efforts of rate increases finally kick in, we have reduced our annual guidance for 2013 to $900 million to $915 million in revenue, with $2.56 to $2.72 in diluted adjusted earnings per share. These projections are based on diluted weighted average common shares outstanding of approximately 22.5 million; no additional acquisitions or disposals beyond those made to date; the exclusion of acquisition-related costs and amortization costs related to intangible assets acquired; the exclusion of startup losses at newly created operations; the exclusion of expenses related to the DOJ matter; the exclusion of expenses related to the separation of the healthcare and real estate businesses; a tax rate at our historical average of approximately to 38.5%; and including Medicare reimbursement rate increases, net of provider tax. In giving you these numbers, I'd like to remind you again that our business could be lumpy from quarter to quarter. This is largely attributable to variations in reimbursement systems, delays and changes in state budgets, seasonality and occupancy on skilled mix, the influence of the general economy on our census and staffing, the short-term impact of our acquisition activities and other factors. We'll be happy to answer any specific questions you might have later in the call. And now I'll turn it back over to Christopher. Christopher?

[Christopher R. Christensen:]

Thanks, Suzanne. Although we've already touched on the announcement we made yesterday regarding our plan to separate our healthcare business and our real estate business into 2 separate publicly traded companies, we'd like to spend an additional few minutes to explain our vision and purpose in pursuing this strategy. First, we want to be very clear that our first and most-pressing priority from the beginning of our discussions has been to ensure that, when the dust settles, the separation would result in 2 very healthy companies. This priority has been our guiding principle throughout this process. Unlike other transactions that have occurred in our industry, which on the surface may seem similar, we have taken great care in structuring a transaction that would safeguard our ability to provide the highest-quality healthcare services while also finding a way to share the tremendous value we have created in our real estate with our partners and shareholders now and over time. As we described in our announcement and public filings, one of the many distinguishing factors between our transaction and similar transactions is the fact that, based on very recent ruling -- based on a very recent ruling issued by the IRS, our separation can be accomplished tax free. We have requested a private letter ruling from the IRS to confirm that we can separate these 2 businesses without incurring a tax liability, which based on our significant assets and retained earnings will be beneficial to our shareholders. Additionally, we are pursuing this transaction from a position of strength and not one of necessity. The health of our balance sheet, our strong cash flow, favorable market conditions and the tax-free nature of the transaction have allowed us to establish capital structures for both companies that leave each not only quite healthy but with plenty of runway for both near-term and long-term growth. Ensign will continue executing our existing business model and growth strategy, which will still include the purchase of real estate assets and the potential for significant value creation that comes with them, just as we always have. Other unique aspects of the separation, from Ensign's perspective, include a healthy initial rent coverage ratio at 1.85x facility-level EBITDAR, leaving ample cash flow to fund future growth; a healthy balance sheet with the lowest average -- excuse me, with the lowest leverage in our peer group and 0 funded debt on the day of the spinoff; a healthy cash account on the balance sheet, the amount of which will be determined based on the number of acquisitions we complete between now and the effective date of the spin; availability of a revolving line of credit which can be used to fund working capital needs and to aggressively pursue our growth strategy; and retention of all the company's leadership team, except for Greg Stapley, who will become the Chief Executive Officer of CareTrust. In addition, to continuing our same growth strategy, Ensign expects to benefit from CareTrust's ability to close on larger portfolio transactions that historically have been difficult for Ensign to pursue. As you know, Ensign's operating model relies on a cluster system, pursuant to which local leaders in specific geographies support each other in order to produce industry-leading operating results. Furthermore, Ensign's growth strategy has relied heavily on the availability of Ensign-trained leaders, and our growth in both existing and new markets has sometimes been affected by the unavailability of sufficient leaders. In contrast, CareTrust will have the flexibility to carry the Ensign banner in the many new geographies without facing the operational considerations with which Ensign is confronted as a healthcare operator. For example, CareTrust will be able to partner with multiple operators, including Ensign, to pursue larger portfolio transactions. As a result, we expect this new platform to help us acquire facilities that we may not have been able to pursue as one company. These are just some highlights and only a few of many other reasons that we have decided to pursue this transaction. We're excited for the opportunity we will have to add an additional platform to extend Ensign's mission of setting a new standard of care in the skilled nursing and assisted living industries. And with that, I'll turn the time over to Greg to discuss some of the details of this transaction from the real estate company's perspective. Greg?

[Gregory K. Stapley:]

Thanks, Christopher. I'd refer you to our public filings, including the investor presentation included with our press release yesterday for a more complete description of the mechanics of the transaction. And I'll just take a minute to add a few brief thoughts regarding our vision for CareTrust REIT. As a real estate investment company, CareTrust intends to expand into new geographies, branch out into different asset classes, diversify its tenant base and reduce its financing costs. Following the separation, CareTrust will have the flexibility to choose which markets, asset classes and prospective tenants to pursue based solely on the acquisition parameters associated with the real estate business. We expect CareTrust, as a healthcare-oriented REIT, to not only pursue skilled nursing, assisted-living and independent-living properties but also to potentially diversify into different -- or eventually diversify into different property classes such as medical office buildings, long-term acute care hospitals and inpatient rehabilitation facilities. CareTrust may also engage in an expanded range of real estate-related business activities such as the provision of mortgage financing and development financing. As Christopher mentioned, our primary focus has been on establishing 2 very healthy platforms from which we can continue to pursue our mission. Some of the highlights from CareTrust's perspective include an initial lease coverage ratio of approximately 1.85x, which readily supports our projected initial rent stream of about $59 million per year from the Ensign master leases alone; also a starting capital structure that provides ample cash and liquidity at inception; the potential for improved access to more lower-cost capital; and the opportunity to start with an outstanding portfolio of assets, solid rental stream; and the opportunity to establish a stable dividend and grow it as CareTrust grows and executes its business plan. As you know, a healthcare company is subject to unique regulatory, litigation and reimbursement risks and generally have higher costs of capital and trade at lower earnings multiples than real estate companies. In contrast, with its triple-net leases, CareTrust will primarily be subject only to simple premises liability risks and the credit risks associated with its tenants. As CareTrust diversifies both its tenant pool and its asset base, we expect its risk profile and cost of capital to improve. Finally, our biggest advantage will be our relationship with Ensign. Throughout my 14 years with Ensign, I have been personally and gratefully approached by a number of REITs and other prospective landlords, who have been anxious to establish a landlord-tenant relationship with Ensign as one of industry's premier operating companies. CareTrust will inherit, as its first tenant, the best of the best. Ensign's strong track record of operating performance and its industry-leading management team will provide CareTrust with a solid foundation on which to build into the future. We hope this discussion's been helpful. As always, we want to conclude by thanking our outstanding partners in the field, at the service center and across the organization for their continued efforts to make Ensign the best company in the healthcare industry. We'd also like to thank our shareholders again for your support and confidence as well. Jonathan, would you please instruct the audience on the question-and-answer procedure?

[Operator:]

[Operator Instructions] Our first question comes from the line of Rob Mains from Stifel.

[Robert M. Mains:]

A couple of questions on the operations. First, you mentioned the home health and hospice ramp-up costs. That -- as you know, that occurs in situations where you're buying a license and then kind of filling-in the business underneath it. Is that a fair assessment of that?

[Gregory K. Stapley:]

There are several acquisitions that we made that were really just starting. And so they were practically the same thing. Their volume was so small that it was almost like starting a -- with a new. Plus we -- yes, plus there just are some complications, as you change from one organization to the next, in the billing process.

[Robert M. Mains:]

Okay, that -- I understand that. And then the 42 transitioning and that subset, the 17 newly acquired, how many of those are going to wind up with CareTrust?

[Christopher R. Christensen:]

Say that again, Rob?

[Robert M. Mains:]

The 42 transitioning facilities, how many of those will be with CareTrust versus staying -- versus the ones that you already leased?

[Gregory K. Stapley:]

Which bucket is [indiscernible] in?

[Suzanne D. Snapper:]

It is in the -- it tends...

[Gregory K. Stapley:]

You know what, we haven't broken those out by what's owned and what's leased. I think they're mostly owned, Rob. I can't think of any we've leased, if that's...

[Christopher R. Christensen:]

It's, the number is probably in the 95% range. I mean, they're probably -- there are probably only 1 or 2 that are not. We haven't looked at it in buckets yet.

[Robert M. Mains:]

Okay. And then when I look at growth going forward, obviously, part of the Ensign story has been successful M&A. It -- how will the growth be done in comps with CareTrust? Because on one hand, I assume you want to be able to continue to grow Ensign. You had mentioned about how this improves your financial flexibility, but at the same time, CareTrust wants to diversify.

[Gregory K. Stapley:]

Yes, listen, there's actually 2 answers to that question, Rob. First, Ensign will continue to grow the exact same way it's always grown. It's always had good free cash flow. It's always had good credit facilities and plenty of cash on the books with which to do whatever it wanted to do. And mostly, we do one-off deals and try to absorb them fairly quickly, and, but that's just not going to change. What this will do, with the way CareTrust will be involved in that is that when we see large portfolios, and we see these now but they're just -- sometimes, it's too much for Ensign to swallow all at once, CareTrust will be able to go out and work with Ensign and other operators to take down whole portfolios and divide them up amongst their pool of tenants, including Ensign. So we think it's advantageous to Ensign both ways. And while, yes, we do -- at CareTrust, we are going to be very, very focused on diversifying the tenant base, we're not running away from Ensign at all. Quite the opposite. They're still the best operator in the industry.

[Operator:]

Ladies and gentlemen, please remain on your line. Your conference call will resume momentarily. [Technical Difficulty]

[Gregory K. Stapley:]

Rob, where was I in my answer when I -- the phone died?

[Robert M. Mains:]

You were just explaining the meaning of life, and now we just got all -- lost it. No, you were explaining -- I think you've pretty [ph] broke down through the explanation of how both companies will grow. So the takeaway then that we should have is that, Ensign as a tenant of CareTrust, we can expect it to grow, but you're going to grow with other tenants as well.

[Gregory K. Stapley:]

Yes, we'll grow with other tenants, and they will grow without CareTrust. I mean, I want you to be real clear on both of those growth strategies, that there's going to be great opportunities on both sides of the ledger. This just opens up a whole new world for them, for CareTrust, for everybody.

[Robert M. Mains:]

Okay. Last question, then, for CareTrust. You're going to own assets that obviously Ensign knows, you know well from Ensign. The transitioning ones are ones that, I'd say, typically you don't see a lot of healthcare REITs owning. I guess the question would be, when you look at comparing yourselves to others out there, it -- how do you position CareTrust compared to some of the other REITs in terms of what the portfolio is going to consist of in terms of the assets and where they are in their development? And that's my last question.

[Gregory K. Stapley:]

Thanks, Rob. Well, look, I would tell you 2 things. First, it's -- when we say we're going to diversify our asset classes, our asset base, we do mean that. We mean that there -- while Ensign has historically done about 80% to 90% of their -- of our acquisitions in sort of the distressed asset space, CareTrust is not going to be pursuing that parameter slowly -- or solely. We'll be looking at performing assets. We'll be looking at other kinds of assets. We'll be really opening up a whole new set of opportunities. That said, with the history that we have and the operator background and orientation that we have, we're going to be able to look at assets that the others don't want and see whether or not there might be a diamond in the rough there, as we have done historically and consistently here at Ensign. I mean, that's what we do

[Christopher R. Christensen:]

And Rob, also, the answer to your other questions, it's 40 out of the 42 because 1 is a leasehold and 1 we are retaining.

[Operator:]

Our next question comes from the line of Ryan Halsted from Wells Fargo.

[Ryan K. Halsted:]

One quick one as a follow-up to the last question. How about on the other side of the equation, the operations, will Ensign be able to benefit from some of those new asset classes? I mean, how will they be pursuing, I guess, their strategy of operating skilled nursing facilities beyond the traditional one?

[Christopher R. Christensen:]

Well, I think we will continue to pursue related businesses as they make sense. And CareTrust REIT could open up some of those avenues. We obviously aren't going to get crazy and just jump into something because CareTrust REIT has bought something and it makes sense for us to lease it or to go be a part of it. If it doesn't make sense with our passions and with our mission, then we won't be doing it. But certainly, there will be -- I think the biggest advantage is the fact that, when there's a big deal out there, we can take the part that we really like and they can find other operators for the rest of that deal, which is a little more difficult to execute right now.

[Gregory K. Stapley:]

That's a perfect segue in sort of explaining, some of those portfolios aren't necessarily big or outside Ensign's geographic footprint, but we don't do, for example, LTACs. And when you see a portfolio that's, like, 6 facilities, 2 of which are LTACs, that's something that CareTrust can do by partnering with an LTAC operator and giving Ensign or somebody else the other 4. So we think it's beneficial on all sides.

[Ryan K. Halsted:]

Okay. And then on the deal specifics, I guess, to start, could you give the value of the real estate, I guess, as you're implying on -- I guess, on the yield on the leases?

[Gregory K. Stapley:]

Well, we can give you -- I'll let Suzanne give you...

[Suzanne D. Snapper:]

Yes, I mean, the -- what we've disclosed so far is just the historical book value. But you saw, I think, if you look through the Form 10, the historical book value as of June 30 is $445 million. And then if you did a yield implied for -- based upon the projected first year revenue stream that's at $59 million, I think it gets you about 12% on the yield, revised.

[Gregory K. Stapley:]

It'll be a little higher. Obviously, that's not the way we think about this spin, but it involves -- we will think about yield on straight-up acquisitions in the future.

[Ryan K. Halsted:]

Okay. And then with -- I guess you talked a little bit about the leverage of the operating company post the spin. Could you just clarify how you anticipate or how that would -- how you'll go about, I guess, delevering the operating company? And I guess, along those same lines, you talked a little bit about the cash account specifically, that it looked like barring any significant -- well, assuming there could be a significant or more transactions going forward that might have implications on the cash accounts between the 2 companies. But I guess my question would be, assuming no deals going forward, how do you see cash sort of split between the 2?

[Gregory K. Stapley:]

Well, we -- as the deal stands right now, we expect -- and this can change, but we expect to issue about a 30 -- $350 million bond at the time -- through CareTrust at the time of the spin and use the proceeds from that to pay off debt, to base and capitalize both balance sheets and to position both companies with plenty of ramp for the coming years' worth of acquisitions. Beyond that, we haven't really published pro forma numbers. And as you correctly note, we do have some acquisitions on the horizon that could affect that, they could affect the amount of the bond if we do a number of them. We could upsize that if we want to. Or depending on where we want those assets to land, we may allocate cash one way or another toward either company. That's as much as we can predict right now.

[Suzanne D. Snapper:]

Yes, and I just -- let's say that we're working with a great bank group who's really supportive and we'd talk to them a lot about what's going to -- what it's going to look like in the commitments that they're going to be able to make.

[Ryan K. Halsted:]

I'm glad you're in good hands. I guess, as far as the Corporate Integrity Agreement, just curious, I know you talked about some of the initial expenses. But now that you have, I guess, a month under your belt under the Corporate Integrity Agreement, I guess you had outlined about $2.5 million a -- of expenses. Can we expect more quarterly expense going forward? Or was the compliance costs you highlighted in the third quarter the extent of it?

[Christopher R. Christensen:]

No, I think that of -- a lot of those expenses, obviously, will continue well into the future. I think they'll -- they peak in the -- frankly, I think they peak between the third, fourth, and first quarter of next year because of all the extra work that has to go into doing certain trainings with the existing staff. And then obviously, it -- we continue to do so with all of the new staff, and then we do it again each year. But the stuff that has to be done every year is not as rigorous as what has to be done the first time. So I would say that we're at the peak of those costs, but the peak will continue through the fourth and some of the first quarter, just the beginning of the first quarter. And then some of those costs will drop off quite a bit.

[Ryan K. Halsted:]

Okay. And I mean, just any sort of initial thoughts so far as you've been operating under it? I know it's still early, but how -- I know you highlight some of the compliance highlights, but any sort of other takeaways we should come away with on how it's going so far?

[Christopher R. Christensen:]

Well, I think it's been healthy for the organization. I mean, there's some of the things that you deal with when you introduce new computer systems to an organization. I guess the country knows something about that now. But it's -- we have a few IT stuff, but it's nothing unusual. And it's been good for the organization.

[Operator:]

Our next question comes from the line of Dana Hambly from Stephens.

[Dana Hambly:]

So a question for the operating company going forward. I'm just trying to think about your thinking on pursuing new deals. Obviously, historically, you've been -- prefer to buy, as opposed to lease financing. So when you go back into the market, has that thinking changed at all?

[Gregory K. Stapley:]

No. No, I -- we're still happy to take leaseholds when we have landlords that don't want to sell. But we still prefer to buy.

[Dana Hambly:]

Okay. And now that you guys have kind of been out of the market for most of the second half of this year, are you seeing -- I think you mentioned it earlier, is there pent-up demand that you can put that facility to use pretty quickly?

[Christopher R. Christensen:]

Yes. We've seen a better environment in the last few weeks than we've seen in the last 2 or 3 months. So we're pretty excited about that.

[Dana Hambly:]

Okay, good to hear. And on the -- I know this has probably been in the works for a while now, but could you just speak -- I know, the last skilled nursing spin, the reimbursement timing was pretty unfortunate. Could you just talk to how you feel generally about the Medicare and Medicaid reimbursement environment, if that had any -- weighed-in at all on the timing of this?

[Christopher R. Christensen:]

No, it had nothing to do with the decision. I know you didn't ask this question, but the environment actually is better. It looks better than it has for the last 2 or 3 years, but it had nothing to do with the decision.

[Dana Hambly:]

Okay. Just a final one for me. I know it's small, but with the -- what's the purpose of the reowning and operating the 3 independent living facilities?

[Gregory K. Stapley:]

That's one of the nuances of tax law. In order to affect [indiscernible], there's tax respin. And as we understand it, we're only the second ones in the country. Probably by the time we get it done, we will have done this. But in order for the company to do it on a tax-free basis, we had to have not 1 but 2 active traded businesses. And there have been -- the company's had it for a long time. And we have these 3 stand-alone independent livings that we could identify as a good, solid, potential second active trader business. And so those are going with us. They will live inside the REIT. They'll not be dropped into a TRS, at least not -- or in an ideal structure, at least not initially. And the revenue from them is relatively small and probably matches the expenses pretty closely. It's about $2.5 million, actually. So they run just slightly better than breakeven.

[Operator:]

[Operator Instructions] And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

[Christopher R. Christensen:]

Well, thank you, Jonathan. I -- we appreciate everybody's spending this time on the call with us. And we appreciate everybody's support and trust and all the work that has gone into creating this. So thanks for spending this time with us.

[Operator:]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.