Q3 2019 Earnings Call
Good day and welcome to the LTC properties third quarter, 2019 analyst and Investor Conference call. All participants will be in listen only mode. So you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to actually quotes you mean press Star then one all your telephone.
Pat.
To withdraw your question. Please press Star then to before management begins its presentation. Please know that today's comments, including the question answer session may include forward looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC properties filings with the securities and exchange.
It's commission from time to time, including the company's most recent 10-K. They dated December 31st 2018, LTC undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances. After the date of this presentation. Please note that this you've been is being recorded I would now like to turn the call for itself.
Ms. Wendy Simpson. Please go ahead.
Thank you operator and good morning.
Because everyone to Ltcs 2019 third quarter conference call joining me today, our Cam Kessler, our Chief Financial Officer, and correct me like our Chief investment Officer.
Okay.
He is positioning itself for future success like overcoming recent partner challenges, providing creative financing solutions to take advantage of pipeline opportunities.
Densifying dispositions that strengthened our portfolio by removing non strategic assets.
First the fine.
Partner concentration.
Today, we will discuss our progress.
I'm happy to report that most of the portfolio challenge as we discussed are being resolved outright portfolio, it's 100% transition and anthem continues to improve performance.
That's close will discuss later we are.
In the process [laughter] fully transitioning the LTC owned properties operate aside preferred care.
Senior care Center entry names, the one issue over which we had the most limited control as they continue to work through the bankruptcy process.
The judge in the proceedings entered an order.
<unk> senior care to assumed or LPC lease.
This order required payments our sure claims which consist of on December 2018, rather late fees legal fees totaling approximately $1.6 million as that they got the border.
The payment is due to either upon the effect of state of senior care plan of reorganization for December 16th whichever comes first.
On October 20 seconds.
George approved the disclosure statement and schedule the confirmation hearing on December four to approve senior cares.
Plan of reorganization.
That point subject to senior care, securing access to financing we anticipate it will take approximately two to four weeks.
Or reorganization to become effective and for their emergence from bankruptcy.
This issue aside.
We are optimistic about our future prospects, including our current pipeline.
In an environment that remain saturated with capital, we see opportunities small work yet strategic deals.
Which other capital providers are not just spoke.
Were often the pro tried.
<unk> operators not will they want to grow their business [laughter] also happy operational resources to do so and we are working closely with them to offer great financial structures at work for them and for us.
So give us additional flexibility, we recently termed out some of our line of credit.
Yes, with more liquidity for future investments.
And we'll provide additional details in a moment, our creativity and flexibility allows LTC to remain competitive providing us with solid opportunities to add new partners and communities to our portfolio.
At the same.
We continue to evaluate our portfolio divesture opportunities, where we believe we can redeploy the capital into better more strategic investments.
Our preferred care portfolio is a perfect example.
However.
Reinvesting cash at today's he'll make sense.
Challenge to immediately a cheap the same return earned on older assets.
[laughter], creating significant capital gains helped with the cash could be reinvested, but there may not be an immediate result, as we work to redeploy the proceeds.
In the interim the proceeds will.
We reduce amounts outstanding under our line, which cost us approximately 3.4%.
Regarding 2019 Guy.
Currently estimating F, though will be between $2 a 97 sub.
$3. It appears that for the year, we'd have generally provide.
So I didn't I, just got a fairly tight range.
There are not a lot of moving parts in any given quarter currently however.
There remains some timing uncertainty related to senior care should we not received the payment of our entire sure claim by year end after FFO will most likely be at the bottom up.
The range, while the top of the range estimate reflects full payment of Archer claim among other things.
Although I'm not prepared to provide formal guidance for next year, we're very comfortable that our dividend will continue to be well covered in 2020.
Projected revenue increases her alstom and from.
For Mcbride assets.
And with a 2019 investment should partially offset that replaced the preferred care grant.
And we expect to have lessened debt after having deploying the proceeds from the potential sale of the preferred care asset to pay down on our line of credit prior to.
Reinvesting these proceeds at higher return them to 3.4% interest savings on our line.
Now I'll turn the call over to Pam.
Thank you Wendy.
<unk> increased 5.3 million for the 2019 third quarter from a year ago.
3.8 million I'd be increase would get you probably.
Pre tax revenue recorded in accordance with the new lease accounting guidance that requires us to record the property tax that's grows we collect from our connect as revenue like a corresponding expense.
Accordingly, 2019 revenue increased property tax income, while 2018 does not.
The remaining ones.
5 million increase relates to revenues from acquisition loan origination and additional funding for expansion and renovation projects right from completed development projects and increased rent from asked them, partially offset by lower rental revenue due to property sold in 2018 ended 2019 lease trends.
Sure.
<unk> SSL with 77 cents per diluted share with a third quarter of 2019, and 75 cents for the year ago third quarter net income available to common shareholders decreased 7.7 million from the prior year due to a lower gain on sale this year compared with last year at higher expenses.
Finally, offset by an increase in revenues.
During the third quarter of this year, we recognized a 6.2 million dollar gain on the sale of a skilled nursing center in Georgia, We sold the property for 7.9 million and rethink 7.8 million in net proceeds which were used to pay down our line of credit. This asset was part of an after me and.
Under the Master lease was not reduce doesn't result for the sale.
Interest expense increased about 330000 from last year's third quarter, due mainly to higher cash balances, resulting from acquisitions development Capex funding, partially offset by lower interest on our senior unsecured notes that resulting from schedule.
Principal pay downs DNA extensive inline with the prior year, we anticipate Phoenix, then could be in that 4.6 to 4.7 million range in the fourth quarter. During the 2019 third quarter as previously announced we invested approximately 22 million in one news skilled nursing center and the Kansas.
He metro area and one parcel of land to develop another skilled nursing center with the same operator.
Oh provides additional detail.
We received a $3.4 million partial pay down on a mezzanine loan and 3.2 million come to pay off of a mezzanine loan that was accounted for as an unconsolidated joint venture.
During the third quarter. We also funded 3.1 million in developing and capital improvement projects I'm properties, we own and another 1.2 million under existing work Itron. That's what that's Ltcs 19 cents per share a monthly dividend.
Dividend payments during the third quarter totaled 22.7 million.
At September 30 asks me on two properties under development with remaining commitments totaling 22.9 million and one property under renovation with the remaining commitment at 4.4 million.
We also have remaining mortgage loan commitments of 13.7 million did they get to expansions and renovations on seven properties in Michigan.
And 1.6 million remaining Andrew preferred equity commitment.
We borrowed 18.5 million under our line of credit for acquisitions during the third quarter and made kinda half million scheduled principal payments under our senior unsecured notes.
As Wendy mentioned, we recently termed out some of our.
Enough credit using proceeds from the sale of 100 million a 3.85% senior unsecured notes could potential you can find additional details about the transaction in the 8-K, we filed on October Ken.
We remain focused on maintaining a strong balance sheet to provide us with sufficient flexibility and the <unk>.
Cassidy to fund current and long term growth initiatives.
Taking into account the sale of notes to forget show, we have 534.6 million available under our line of credit 200 million under our ATM program and 7.5 million under our shelf agreement with credential, providing LPC, but.
Total liquidity of just over 740 million.
Long term debt to maturity profile remains well matched to our projected free cash flow, helping moderate future refinancing risk we have no significant long term debt maturities over the next five years.
At the end of the third quarter, our credit metrics remain well.
To the health care REIT industry average debt to annualized adjusted EBITDA for real estate, a 4.4 times and annualized adjusted fixed charge coverage ratio, a 4.9 times any debt to enterprise value of 25%.
Now I'll turn the call over to claim.
Thanks Pat.
Oh, So my discussion with the preferred care properties.
The completion of a thorough evaluation of the sale and releasing initiative of our skilled nursing portfolio with the majority of the properties are currently under contract for sale.
Multiple transactions.
All bars are currently in the process of conducting due diligence and should this process would be.
Completed successfully some closings could occur in December 2019, and the remainder in the first quarter of 2020.
Also of note, we've applied preferred care security deposits to satisfy a majority other up saying rent obligation to.
However, this did not cover their full obligation. So there was a rent.
Fall of $476000 for the third quarter.
The fourth quarter, we anticipate receiving $55000 per month and run from preferred care, which equals the amount. We are currently receiving the amount we are including in guidance.
On last quarter's call I mentioned that two locations owned by an affiliate of senior lifestyle.
Yeah, which we hold or preferred equity investments on non accrual basis.
Well under letter of intent for sale.
The buyer if not for profit organization ultimately decided not to proceed with the transaction.
With our consent and her lifestyle entered into a letter of intent with another buyer a for profit entity.
Based on the Salt sales price under letter of intent Oh, PC anticipate they lost when its preferred equity investment in the range of 3.3 $3.7 million.
Concurrently senior lifestyle is pursuing refinancing alternatives to take advantage of lower interest rates in today's market in the event the purchase and sale transaction does not.
Sounds good.
Noted that we anticipated receiving approximately $600000 of additional income and 29 team based on forecast net operating income through the remainder of this year that's provided by senior lifestyle.
As discussed.
$600000 was not included in our Twoq your 29.
Thank God.
Since our last call we received $60000 in Q3 and 125000 today in Q4.
Oh, the remaining $415000.
Well then create additional income for 2019 $250000 is now included in the high end range of Barclays.
The 19, if that's okay [laughter] the remaining $165000, which was not included in guidance is anticipated to be received in the first quarter of 20 Twond.
Since the original announcement of our investments and night medical resorts and new operating partner, we have commenced construction on a 90 bed skilled nursing.
And the Kansas City Metro area.
Construction began on October Onest, and we anticipate construction certificate of occupancy and licensure to be completed in the fourth quarter of 20 Twond.
Total investment which include the purchase of a 90 bad post acute skilled nursing center built in 22 also in the.
In the city Metrorail, there's approximately $37 million, including the development commitment.
Our two portfolio numbers from would prefer care has been removed given the start of the pending asset sales I discussed.
Due to trailing 12 month, EBITDARM and EBITDAR coverage using your 5% management theory was one.
0.44 times, and 1.22 times, respectively car assisted living portfolio and 1.3 times at 1.38 times, respectively for our skilled nursing portfolio.
I'll finish with some comments on our pipeline.
Identified several strategic opportunities to add to quality.
Growth oriented operators to our portfolio and to further improve the portfolio average age. The current pipeline stands acquisitions real estate joint ventures, and mezzanine loans, both in assisted living memory care and skilled nursing.
There is a high likelihood that we can close north of $30 million investments between now and the end of January .
And your [laughter] these transactions would be with operators new to our portfolio.
Now I'll turn things back to when do you for closing remarks.
Thank you Pam Clint.
As we move through the remainder of this year and begin our transition into a more positive 2020 there is much about which to be optimistic.
Rick.
We are successfully executing on our strategy of a disciplined approach to building a more diversified asset and operator base on the majority of our portfolio challenges has been addressed.
We very much value each of our partners and we'll continue to do our best to support them in good times and that.
While maintaining zero intentions of controlling their operations or entering into his idea agreement.
Additionally, industrywide changes such as P. P M, which is now in its infancy are anticipated to provide some upside going forward for our SNF partners.
Over the coming.
It's a month, we look forward to seeing how this industry adjust to this new payment model.
In closing I believe LTC has consistently demonstrated our ability to make progress through numerous realistic cycles and challenges I remain in creative flexible and opened interesting.
Opportunities that others may not appreciate.
We look forward to updating you again next quarter.
Thank you as always for joining us.
Operator, we're now ready to take questions.
We will now begin the question answer session to actually quite she May Press Star then one all your telephone keypad if.
We're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.
And our first question will come from Chad Vanacore of Stifel. Please go ahead.
[noise] there thanks.
So on guidance.
Does your guidance in the fourth quarter assumed a sale prefer care closes and what's the impact.
To AFFO assumed in Fourq, you and then into one Q2 020.
Well club different Pam the the impact is about a 10 cents kicking here on preferred care.
From our previous guidance and we've assumed a the scale at the end.
This quarter.
We ended the fourth quarter or we've assumed that 55000 per month and October November December .
All right. So in that that's for the 10 cents of value.
How much of that do you seem to get back post sale.
In terms of.
You mean from reinvesting.
We haven't we we have we're not giving guidance in 2020, yet so we haven't assumed anything but obviously field we were getting in the past on the preferred care. It's not the same that's what we would get investing in newer properties, whether they be skilled nursing.
Or assisted living.
Okay any thoughts on on what are your preference isn't that skilled nursing versus just living in memory care spectrum.
And we're agnostic still to both types of investments, it's really opportunistic, which which ever type presents itself to us.
Alright.
Right and then.
Another question when do you mentioned dividend being secure between selling assets booking gains or losses through a deferred ramp where should we expect that fulfilling fad payout ratio to be by saying B 2020 compared to today.
It's still going to work.
The main about 80%.
Payout cafe D. so <unk>.
We're going to be as comfortable with its always them.
Have you thought about you how tight that gets from from here to their one yeah between.
Today, and then you read redeploying capital.
Yeah, well get tight it'll get booster <unk>.
Okay.
All right that's it for me I'll hop back in the Q.
Thanks, Chad.
And the next question will come from Michael Carroll of RBC capital markets. Please go ahead.
Yeah, Thanks, I wanted to dive.
I've been to the preferred care situation, a little bit more I guess why did the tenant stopped or decide to start paying $55000 a month versus the previous freed up a million and it is there any chance that you could we gain that loss ran in the future.
Oh, good question, Mike Clint Oh.
Right no preferred.
Oh, it's been a bankruptcy for just shy of two years now and they are the case has been converted to chapter seven.
It should be I'll conclude here shortly during the duration of that two year period preferred carrots downsized substantially as an organization.
They've had a lot of disruption going on so.
One of what we're seeing in the portfolio is yeah, a lot of all expense control issues revenue in an occupancy has stayed pretty much consistent for lobby expense control side, So oh and with that they've had some challenges in and they're in a like a form of so yeah.
That's the number there they're able to pay to us and you know we're pushing of what they can pay well, obviously moving forward and trench. These properties as quickly as possible. This definitely the legacy part of our portfolio and obviously the selling wasn't recycling recycling the capital into newer assets is a strategic decision. It makes a lot of sun for LTC.
Okay, and then Claire thing what you can you talk a little bit about what's how many assets that you're planning on selling here over the next several months then and what's the plan with fever remaining assets that are not under contract to sell right now.
So right now for preferred care.
I'll be 24.
Properties, we have with 22 properties are now under contract for the majority of the portfolio.
It's under contract with due diligence being conducted.
We are negotiating a P. S. I think now on one one of the two remaining properties, so making a lot of progress on that front.
Beyond that going into 2020 will be.
Yes, they can look at the opportunistic sales I don't see the significance of sales obviously is what we're doing with personal care, but we will continue as we have been in the past to selectively and strategically what could recycling of capital noncore nonstrategic assets.
Okay, Great and then Pam I left just a quick modeling question how much gap.
Brent did LTC record under the legacy thrive assets during the quarter and what's a good stabilized run rate I'm, assuming that's gonna be fully stabilized as we go into next quarter on GAAP basis.
I don't have the quarterly number, but we gave projection.
Last quarter that it would be 3.4 million from the legacy private assets in year, one going to four and a half million in year two.
And 5.2 million in year, three but also with though bike wouldn't you might have near three we do have the benefit of <unk> percentage rent of on one of the.
Second also be two buildings, one in South Carolina, one in Georgia artists, who you're.
Master lease would be ability to reset runs on those two buildings going forward. So hopefully that number a 5.2 would grow in outer years.
But that was a cash number that right Tam. So is there a gap number I'm assuming that.
These rents are straight line and was the GAAP number.
I guess fully stabilized in the third quarter I guess, what's the what kind of ticked up should we expect a GAAP basis between Threeq and Fourq you relates to those properties.
No I gave you cash and GAAP because right now those properties are.
You can count its fourth still on a cash basis.
Due to the transition and Lisa nature of them.
And then I'll give you a refresher on the fun Collectibility analysis, you have to be.
90 that.
There has been more than likely that you will collect 90%.
Your projected [laughter] out future cash flows over the life of the leap so over 10 years and if it doesn't meet that threshold you won't be quite straight line rent. So we had it not that threshold yet because my crystal ball isn't good enough [laughter]. So right now on a cash basis till we get some history and.
Cash flow on on these properties.
Okay, perhaps at some point in the future, we will have that certainty, but right now that certain he doesn't exist.
Okay, great. Thanks.
And our next question will come from Tayo Okusanya with Mizuho. Please go.
Hello.
Hi, Good morning, everyone I just wanted to talk about senior care for a second again, realizing that you guys have very little control of the process. As you as you said <unk> at this point do you have any sense, what the emerging NTD could look like and the reason I often it is just again you guys have.
Always expressed some hesitation about a continued relationship with.
You know with senior care, whether its company specific whether it's just because of everything that's going on in Texas, Medicaid, but I'm just kind of shows how you kind of think about an emergent entity and how you kind of deal with that against the back against the tough.
Medicaid backdrop in Texas.
That's how this is club good question. Thank you for that.
Right now for the D. The disclosure statement that was approved by the court. The all entity that's proposed to emerge that 22 properties under their operation, which will all be lease [laughter] and L.P.C.S portfolio would comprise.
Hi, I'm not 22 building portfolio.
So we make up a material part of the emerged organization.
Obviously LTC is had concern and we filed an objection to the at least assumption we did not prevail on that so we made an effort to try to transitions to another.
Other operator.
In one of the concerns going forward and just the capital structure, obviously, the unsecured creditors love a position and the ongoing it's the.
So that's not what the structure looks like the management team will have a portion of ownership and the remainder be the unsecured creditors effectively.
So that's something we will monitor going forward and.
Yes.
He's going to be concerned I think potentially of off some type of exit or recapitalization the in the future.
But we have.
They are replacing their lender and so the new lender is doing deep due diligence and will not provide them with the lineup.
<unk> downward receivables without having some confidence.
That's a it'll be a profitable entities, we haven't seen thing last budget the come how the bankruptcy yet.
Our crops are those assets are still doing well so.
So we we.
No.
At this point, we wish them well and profitability in the future. They are they have asked us to approve the movement up a few bed to another of our facilities up to maximize.
Revenue for them and so we have evidence that they are looking to the future and.
Doing some strategic.
Business planning. So that's ultimately said he will give me material part of that organization. So I think they've obviously, but adamant about assuming our leases and out of the 100 plus buildings that then the senior care portfolio. Our 11 survive. So we like the assets, obviously senior care does as well.
And we think we're you know what a good position.
But but is there any risk just as you mentioned of the entity that survives.
You know ends up having such a poor capital structure that you know you could really kind of running through this issue again, whether its 12, what 24 months down the line.
It's always control, but we have.
Credit enhancements under lease we have financial covenants that would trigger incremental credit enhancement.
We have an operator, though we have worked with as we've talked about on previous calls to be prepared to take over these buildings that we have the opportunity. So something we're gonna closely monitor we do have as mentioned credit may influence on this and.
Oh, that's something we'll be paying a lot of attention to you go forward and the company like the emergence from bankruptcy.
Gotcha alright, thank you very much for that.
Thank you.
Our next question will come from John Kim of B M O capital markets. Please go ahead.
Thank you good morning.
On the preferred care I think if I heard you correctly your preference.
Uh huh.
Should we assume it's gonna be.
A double digit cap rate on the last.
Right.
Million.
So this is.
I I think that's probably in double digits as accurate number I mean, this is a legacy part of our portfolio.
An older components skilled nursing building starting that would be priced along the line right now we do have it's our intent we have 22 of the buildings under contract. So our intent is to them for the sale how these properties and there's due diligence.
Being conducted so if we get through the due diligence trade with the buyers or will be able to provide more visibility into future regarding oh the price point.
Okay and claims on on the investment pipeline in the 39, you expect to close potentially by end of January is there going to be more.
On acquisitions alone.
<unk>.
Earnings Guy.
All these would be easily be acquisition.
Acquisition.
And can you discuss them as loan environments, but given your cost capitals improved cost that is coming down or are you willing to accept lower on ways on that.
Well [laughter] leave something we it's a it's an option for us and if the tool in selling and forming relationships with operating companies. So it's something we will continue to look at strategically as a one component to deploy capital. It's obviously not exclude since that we do that but is there are situations that arise with opportunistic.
Well I can be able to provide that type of financing, but I think with our cost to capital. We have you don't give you flexible and strategic and.
I'm working with companies to develop relationships inside is a an investment structure that we can do absolute took advantage of though.
Okay, and then final question on a assisted living.
You've had an occupancy increase.
Sequentially for several quarters.
We expect a similar increase in third quarter to split the seasonal pickup and can you just discussed.
The ability for your operator to increase occupancy despite the supply Edwin.
Right, we would see that occupancy would continue hopefully.
Due to grow a little bit me anthem has been performing stronger and their occupancy.
As you go until I guess, a quote unquote seasonal aspect you would hope to see some continued increase in that occupancy number.
I mean, I wouldn't expect large jobs, but I think that has continued improvement and that's what.
We're expecting.
Is it better markets, you're not seeing as much supply pressures.
Oh.
Yeah, I mean, there's not as there are still start.
Still building openings, there's not as many starts so I'm. So we're not seeing as much I'm not markets. So that's what that's.
Well, we're seeing right now.
Okay. Thank you.
Thank you.
Our next question will come from Jordan Sadler of Keybanc capital markets. Please go ahead.
Thank you another one on preferred care.
The what was the trailing EBITDARM coverage in occupancy these assets that you could sort of point too.
I don't think we'd given trailing occupancy archiving coverage for this portfolio a drug <unk>, but as I mentioned in my earlier comments, we have seen no deterioration.
Oh Im not EBITDAR and that's a function of level out in regard to wherever threat. So it has that's definitely declined in that portfolio because I get what what we think that the <unk>. The buyer population really if not necessary looking so much at the bottom line looking more occupancy and revenue because everybody to come in and infinite implement.
Our operating procedures and their cost efficiencies on that as long as the occupancy and revenues continue in place.
[laughter] Hello about seem to teach gotten to the sport.
So I'd say that again.
So what occupancy look like where are they at this level that they're looking at that.
Good.
I think across the portfolio. Its so let me because I know for just seconds.
You should be roughly 80% Mark I believe.
The positive part of the of the preferred call polio is that the revenues have stayed fairly high.
And I'm sure part of their cost.
Lunches are labor cost because they're probably using a lot of agency its hard to higher permits people and a.
And that NASA, that's going to be sold so.
Nobody is really paying attention to cost controls and that sort of thing. So the good part of the seat.
Preferred assets are that the breadth of new continues to hold.
And.
That's good and Terry.
The costs are coming up.
I haven't my question for you know a bigger picture on preferred carries I kind of feel like we're this is coming it's a big surprise to us in a way in that.
You know.
I don't know that a year ago. When we you know when well that would you say two years I mean, the bankruptcy so it's going.
It's been in bankruptcy for quite some time, you know immediately you guys kind of.
You know made sure that we all understood that it wasn't necessarily your properties that were exposed to the bank group.
See I guess I'm not mistaken.
It's kind of been status quo and then you know more recently you said you know we're going to look to you know when evaluate whether or not makes sense to sell some of these actually show all the sudden.
You're getting $55000 or rent instead of a month instead of a million Bucks I mean did like.
What was the catalyst for this is why are we so surprised and why are you not receiving ret I mean, I think Quinn kind as.
Went through a little bit the you know there's been some struggling in the city this is languished and but.
Can't you said like I thought your properties are not part of the bankruptcy.
What am I missing.
Jordan This is quite high because it's a good question.
The the Master Lucky was part of the bankruptcy, but the sub tenant the whole licenses they were not part of the bankruptcy remembers.
Her care filed they only filed on a portion of their coffee is not the entire [noise] organization I'm, assuming that's the.
Regarding the bankruptcy that end at that time, they told us they intended to operate these properties and affirmed the lead and this is gonna be part of their emergence from bankruptcy when that changed we were very transparent pennsaid preparing care has decided they're gonna be a much smaller company.
And that smaller company will not include our asset that was earlier. This year, we we were under the books.
That was that affirmed Lee was that a burden lease or under the bankruptcy under sort of the purview into bankruptcy courts.
Yes, Ben but remember yeah remember earlier this year. He said probably it was our first quarter.
Our call or yearend call, we said that Leif did not get affirmed they they did not affirmative by the deadline and that was something different than they had told us they intend to Paul you, even after that but it closely because they didn't afirma. They wanted it continues offers so good.
I think their decision process and processing their organization nor does it get.
And changed overtime, if they're looking at Holly downsize the organization I'm. So obviously affected it wasn't a thing and bankruptcy when they told us it wouldn't be ourselves after they definitely passing told us they still want it would be in buildings and then through that process. They change their mind. They want you exit certain geographies, which our buildings happened to volunteer which then change their mind.
Line to further one I've already made the decision they wanted to get out of our building potentially stay in a couple of our building and then during the duration of the the focus on operations and expense control called the deterioration in the cash flow for the culmination of a number of things that have happened rather quickly.
Looking at it Rightsizing whatever remaining organization they'll have going forward just think is gonna be a much smaller organization they and they have your joint attended intended Dallas.
And it's gonna be no different company that even they expect that I think back when they were before I discuss converted to a chapter seven.
Okay.
That chapter seven being I'm very specific entity is not the entire organization.
So it looks like and I can appreciate as always but like I feel like in the last two years number one you've had quite a bit a time to sort of still on this and watch. This play out I guess I'm curious you know one why haven't you look to replace the operator at least finding <unk>.
Operator, we could just jump in.
I know, it's <unk> I'm, not as close to the properties or the property level, but it sounds like some people would be interested at this round.
Or at the legacy rent because you know.
At some point they were performing and it seems to me correct me if I'm wrong.
All of the last two years the environment for sniffs, he's gotten better not worse in a way Oh released evaluation rate interest rates are extraordinarily low.
I feel like the reimbursement environment has been benign to positive.
What women.
<unk>.
Those are good question. So so we used to piece. So we strategically said back you approach preferred care.
But to try to sell these assets back them before they file bankruptcy. So we were looking at actually wasn't before cares you typically sell these over a period of time to them then.
They filed bankruptcy, so that discussion with them to strategic piece of them, we weren't able to do that and as we've seen through the senior care process, the ability to change and operator and of course, the bankruptcy case, it's not easy.
And so given that it's been two years since that time frame the ability to change the operator.
A bankruptcy, we're not in control of that.
And these are not properties, we intend to <unk> long term I believe we said that for a while at least maturity coming up and 2021 that.
Property, we're not the tightening or buying today and you had it always intended to.
Recycle the capital out of them. It was just a matter of timing.
Okay I I guess my sense is that maybe you would have been able to preserve value to a greater extent had you lined up an alternative operator.
Let me try to sell them, but they didn't miss it.
Yeah.
Jordan before we could lineup another offered are really before they filed bankruptcy and our discussions with preferred care about selling assets for them. We could have only sold the building 72 existing we hope.
We didn't have the ability to sell to or bring another operator before they filed bankruptcy and it made a lot of phones.
You know as we were discussing discussion for a character.
Sell the buildings to them.
Okay. So to say now as it stands you didn't get 476000 of the million in the third quarter, but they would sorry or 3 million or that they would have paid you wouldn't early in the third quarter right. So that was a shortfall in threeq viewing as you transition to Fourq.
Yeah. This is a question for you.
Terms or revenue no need to and a half million that young threeq use only gonna be 150 penetrate the under 60000 or something like that right.
And that's really what's happening so I guess neat offset.
The upside.
Right.
I hit the low end guidance, what what sort of offsetting.
That deterioration because you obviously had this negative.
Guidance, so what's driving what sort of helping support you sequentially.
On on the outside it yeah.
Senior care at the senior care potential payment.
So you haven't really curious entirely in yeah yeah.
Yeah, you have a deterioration of 10 cents coming from preferred care and then you have a counterbalanced.
For San Fran Senior care, and then another penny front I'm kind of miscellaneous things.
Okay.
But then I think correct me, if and when they see senior care.
You're always thought when he said at the low end.
No at the low end, we were we don't have to 1.6 million so that the 297.
Outside of the low end of guidance assumes we do not get that payments this year and high end to find that guidance assumes we get that came out which is four cents and then there's another penny that's just a bunch of miscellaneous things like percentage rent and things that we don't typically model.
But so for trying to get to like sort of a run rate as we look through.
The one Q2 0.
That one six is only a one time item anyway that for sensors show. So it's really the low end number that sort of the better.
Run rate for at least the difference between your year to date.
<unk> team and the 297 that sort out almost.
To better run rate.
Forward that's correct.
Yes.
Okay, and then just similar clarification on senior lifestyle.
The.
Uh huh.
You recording in terms of income.
There nothing in at a it's like on the cash basis, you said you receive 60000.
In.
Three Q1 25, so far in for Q.
And the high end the range has to 50 I caught all that.
What happens.
To the to the law, where will that be booked and will that CNX AFFO at all.
No.
Oh, the ultimate Okay. That's ultimately the realized loss on those properties.
Right, if we end up selling it.
Right now we've kind of paying debt.
50% chance, they don't get Socgen, 50% chance that it'll get refinanced.
Okay. Okay.
Okay and that doesn't that underlying property its refinancing not nada apps refinancings, we bought that cash, but the underlying property that's not a refinancing [laughter].
Okay.
Okay that helps thank you.
Thank you.
And our next question will come from corner severe scheme of Berenberg. Please go ahead.
Good morning, everyone, not just changing gears, a little bit or with the implementation of PD P.M. October 1st I, just wondering what kind of feedback you've.
And from your skilled nursing operators and then what kind of timeframe do you think the business environment will kind of stabilize under pdps.
Sure we've had conversations with the number of operators regarding.
PD P M. A C just being implemented October 1st parties are going through and and.
Coating process, you know building right now for October wouldn't occur until the first part of November .
So with the operators that we've spoken with about that they've been planning and training for this implementation and I'm really know glitches or concerns that have been identified.
To us so I think as we go into.
Oh that export a lot more visibility on that but at this point really hasn't been any concerns like a lot of companies are really prepared and trained employees for this and so once the billing takes place and then payments are made and you know middle of November start being able to see.
Well what those rates are.
Our compared to your the P.P.S. structure before starting from a little premature right now to be able to assess where that's out but overall I think all three are still I'm optimistic about Oh, God plus with the implementation of.
Group and concurrent therapies as well.
Thanks for.
And then maybe for smaller mom and pop operators that aren't representative in your portfolio do you think the moving goalposts a P. P. M to some degree of May result in some opportunities to.
Acquire some properties and put in place maybe one of your operators or is it to still too early to tell.
Oh, absolutely I think you're going to see.
Nation, the more complex this business gets especially under a beauty began with a focus on more complex care I think you're going to see people wanting a small smaller operators mom and pops wanting to exit the my guess.
Great Great and then a you mentioned you know a bit of an expanded acquisition pipeline maybe going into 2000.
20 are you seeing any of any yield movement for your target properties, whether that be in assisted living or skilled nursing and then maybe the same question as it pertains to any particular markets.
As far as yields were looking pretty much at the same type of yields a investments you're entering the seven southern half on private pay.
Probably have to nine on on skilled is what we're looking at overall transaction cap rates thinking changed a lot from what they've done in the past that and when do you mentioned in her prepared remarks, there definitely is a tremendous amount of capital in the marketplace is attracting both on the skilled side as well as on the private pay side.
Oh I think there's just a lot of price discovery going on so on the investment side. There are transactions, we've seen that have come back around that haven't sold coming back run for the second or third time.
Oh, the opposite side, we're seeing some assets, that's what I'm getting tremendous price premiums well we have no interest.
Connect the maybe 50% or more of our valuation and looking at some a broker deals so.
The price point things fell a little bit all over the board and there's definitely some price discovery going on.
Got you should do you think the competitive environment has remained relatively stable and what do you think the outlook for that is going.
I'm going to 2020.
I think there's still a lot of lot of capital looking at.
A building so I think it's going to remain competitive where we see the most opportunity is and no one off transactions, we're not looking at larger marketed deals we see the activity coming in but given price points, we're probably more inclined to look.
A one off acquisitions, where we can talk into existing relationships or build upon new relationships.
Hi, great that hopefully that's all for me.
Thank you.
Our next question will come from Todd Stender with Wells Fargo. Please go ahead.
Thanks, and Clint probably just.
To stick with you just looking at the Missouri deals.
Announced in the quarter, they're interesting because you get a pretty good snapshot of an acquisition versus new construction, but the same operator seem bed count.
The acquisition was made above replacement cost I guess, if you look at sea cost as a new.
But maybe that's too simplistic I wonder if you could just oh yeah.
It was.
Sure. It's Paul It had a I mean song occupancy. So I mean, that's a function of yeah wasn't knowing that you're not taking that risk associated with the out the lease up.
So you get the higher just sure you get the higher yield up front.
Right with the new construction.
Any differences in mix or location anything like that.
No.
Really what you would look to now the existing property.
All right.
And then Pam I think you talked about it the.
We're just sniff that you sold in the quarter. It was pretty good size, but the pricing low I don't know if that had been written down and then you spoke about the rent within the master lease.
Any color you could expand there.
Well I think I think that sales price and the fact that rent didnt change would imply that that was that.
Well, they're building not contributing a lot of cash flow to that master lease.
So if you want everything got into the numbers you can.
Okay. That's it for me thanks.
You're welcome.
Our next question will come from Daniel Bernstein of capital one please.
Please go ahead.
Hi, good morning.
Could just quick question I hope I wasn't already asked or you addressed it came on late Michigan Medicaid there's been a proposal that could affect some.
I guess Medicaid payments in Michigan, and you obviously have some exposure pristine.
The larger operator, but any thoughts on Michigan, Medicaid and and the impacts there potentially on your portfolio.
Sure Dan Leever, we've got a conversation with the prestige healthcare regarding she's got a proposed change on the Medicaid side and it really affects the variable cost.
And it really it reduces that from the 80% of the 65% if it picks up.
With procedure they pretty much are operating in our portfolio at that 65% range. So it really only impacts you have to the extent you exceed that variable costs all of it. So they do have some some properties that.
Feedback, but that's been sort of strategic from acquiring buildings from and not for profit, which has a higher cost structure and if they reduce that cost structure over time, so there might be a little bit of he has gone a couple of buildings, but by and large it seems like they are gonna have tremendous impact from.
From the central change that could take effect.
[laughter] [laughter], yeah, I mean, docker and indicated mostly a larger regional should be able to whether it so that my much price Oh your comments just want to verify it and then the other question I had was on preferred care are those sales.
Just a multiple.
Parties are versus a single party that's.
And those assets the platform.
It's multiple parties that are looking at the.
Building in a different states. So most of that is targeted by state.
Okay, that's all right. Thanks.
Thank you.
This concludes our question and answer session I will like to turn the conference back over to Wendy Simpson for any closing remarks. Please go ahead ma'am.
Thank you and thank you all for your questions Dan for your attendance today. So we look forward to updating you in the future.
Great weekend.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.