Q3 2019 Earnings Call

Caretrust REIT.

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Ladies and gentlemen, thank you for standing by and welcome to the Caretrust REIT.

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18 earnings conference.

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Trust controller thank.

The speakers presentation, there would be a question answer session.

Welcome to Caretrust REIT.

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And beliefs about caretrust business and the environment in which it.

Interest rates.

Such statements May include projections regarding future financial performance.

Whereas this call is being recorded.

Jim.

Listeners are advised that any forward looking statements made on today's call are based on management's current expectations.

And uncertainties.

Beliefs about caretrust.

And the environment in which it.

Expressed or implied herein.

Basically projections regarding future financial performance.

Before we are looking statements.

Acquisition.

In French to review Caretrust SEC filings.

Financings.

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We differ from those.

Yes.

Access to imply herein.

Except as required by law.

Not place undue reliance on forward looking.

Publicly update or revise any forward looking.

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And for changes arise as a result, new information.

Future events.

Well as any financial or other statistical information required by SEC regulation G.

The company will reference non-GAAP .

Uh huh.

Next to EBITDA.

And it's affiliates do not undertake to publicly update or revise any forward looking.

That's okay.

It's a rise as a result, new information.

The other with GAAP.

The company believes these measures can provide a more complete understanding of its business, but cautions that they should not be relied upon today.

Metric.

Exactly.

EBITDA at that though an essay.

I'm 10-Q.

Okay, and normalized EBITDA FFO and at the.

Well that each of which can be.

GAAP.

Relations section of Caretrust website at Www Dot.

Cautions that they should not be relied upon.

Installed will also be available on the website for limited.

Excluding filed its Form 10-Q .

<unk> call. This morning include Bill Wagner Chief financial.

It will supplement.

Essentially.

Which can be accessed on the Investor Relations section of Caretrust website at Www Dot Caretrust REIT Dot com.

A replay of this call will also be available on the web site for limited.

CEO .

Management on the call. This morning include Bill Wagner.

Hi, everybody.

Officer, Dave.

During her last earnings call, we view the fast start to our years, an opportunity and maybe even a mandate.

Good.

Sure fully reexamined, our real estate portfolio enter tenant relationships.

See Caretrust REIT.

Five years, a lot of success in a few challenges.

Okay.

Deep dive on or assets enough readers.

Suggested that we could strengthen the portfolio.

Faster to our years, an opportunity and maybe even a mandate.

So that's another number fronts.

See portfolio enter tenant relationships.

But high level.

So of years along success with few challenges.

A deep dive on our assets and operators.

Several assets.

We could strengthen the portfolio.

That's a few pockets of current and potential weakness.

We saw in or tenant roster.

Fronts.

Some of these changes like the previously announced exit of Trillium for a portion of rural.

Most of certain less desirable assets.

Begun recycling the capital into more desirable assets.

Completed.

We will backfill a few pockets of current and potential weakness.

Real softness in the portfolio.

Yes.

Okay and position Caretrust for solid operating performance going into 2020 and beyond.

Overall hydro portfolio had been completed now.

All of these changes at.

Process.

The conventional wisdom might've been to handle them sequentially in spread them out over time.

Spend to renew salvini real softness in the portfolio.

From acquisitions to asset management to accounting.

Going into 2020 and beyond.

Done within a remarkably short.

And execute all of these changes at.

We believe.

The conventional wisdom might've been to handle them sequentially in spread them out over time.

Firstly.

It's been a lot of work for everybody on the team here.

Leap from time to time.

Management through counting.

That's our commitment to aggressively tackle small.

We short.

Still relatively.

Okay, because we believe.

These operating philosophies rigorously applied.

But only to grow and diversify earnestly.

Interim results for church.

Folio responsibly from time to time.

Steve This approach will continue to foster an atmosphere of accountability and high performance.

They are still relatively small.

Operating partners.

We believe these operating philosophies rigorously apply.

It will stand the test.

Overall long term results for Caretrust and our stakeholders.

We've also reexamine so virtually owning into.

Products will continue the fostering atmosphere of accountability and high performance, both for us and for operating.

Some diversification.

Spanning organization that will stand the test of time.

So we will increase our disclosure.

This quarter, we've also re examine super counting.

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Sure.

Tenant relationships.

However, the tiny startup we were five years ago.

Planning and wanting to do for a long time when the time was.

And established track record.

The rule it out.

Determine the going forward, we will increase our disclosure.

But the rest of the your goes we're pleased to be reaffirming our 2019 guidance for normalized FFO normalized fad notwithstanding the portfolio adjustments we've made.

Wanting to do for a long time, when the time was right.

But just in the quarter, we felt we should again.

Transparency sake.

As far as year goes the rest of the your goes we're pleased to be reaffirming our 2019 guidance for normalized FFO normalized fad notwithstanding the portfolio adjustments we've made this quarter.

Time over to Dave talked about both current operations and the changes we've been making.

It should again for transparency.

And the pipeline and Bill will wrap up with the financials and guidance.

Early this year.

Thanks, Greg and good morning.

Some color on it.

On our last call we discussed how we are regularly reassessing.

And were to Dave talked about both current operations in the changes we've been making.

Setting.

And Mark will discuss recent acquisitions in the pipeline and Bill will wrap up with the financials and guidance.

Based trillium in southern Ohio.

Thanks, and good morning.

Seven facilities there we told you.

Just how we are regularly reassessing.

Both our portfolio and our operators to determine what changes if any.

We made to either.

Facilities and one another.

Bill about our decision to replace Trillium in southern Ohio.

Before we are at least to our current.

Well it is there we told you.

It.

We plan to sell three and re tenant for.

I'm pleased to report that's exactly what happened on September Onest.

Softness in the portfolio.

Lunging facilities and one other.

Great.

Well for 28 million.

[noise] rent for skilled nursing, operator, and deciding to sell our skilled nursing assets in Michigan.

Added to their master lease.

The other on each of those three.

Since our last call, we continued to shore up lingering softness in the portfolio.

Early life care.

Seen an assisted living operator.

Resetting rent for skilled nursing, operator, and deciding to sell our skilled nursing assets in Michigan.

As shown in Red.

Let me give you some color on each of those three.

Just for the change was a combination of inconsistent performance.

We replaced priority life care.

So with noble senior.

Early under consulting and management fee.

Assisted living facilities in for Eastern States.

Sure.

Theres no reduction in.

Clear to us that another operator would likely be able to perform better in these.

Of inconsistent performance and priorities strategic shift.

That's true 18 months of closely monitoring.

Tilting in management fee.

Instead of leasing real estate and owning their.

Yes.

That being the case it was clear to us that another operator would likely be able to perform better in these.

Being some damaging challenges from the previous operator around the time of.

Sense of closely monitoring.

Yes.

We decided to reset the.

As a special focus facility right before trio stepped in and several others were kicked out of a preferred provider network right around the time the.

But inheriting some damaging challenges from the previous operator around the time of transition.

And it became apparent that we can no longer view. This portfolios performance is only a runway or timing issue.

Trio stepped in.

Just to the rent by approximately 4.2 million annually.

Right around the time the.

Please note that trios coverage.

These challenges and others, but this quarter.

They're TTM EBITDAR.

Hi can no longer view this portfolios performance as only a runway or timing issue.

Our coverages approximately 1.2 times.

Suddenly 4.2 million annually.

So.

In the supplemental please note that trios coverage.

But medtronic in Michigan.

You bet against their TTM EBITDAR.

But a fight us at the state of Michigan.

Let me there.

Metro in for millions of.

Great coverage is approximately 1.2 times.

So in prior years cost.

Okay and trending up in.

Shockingly.

In the.

Sure, Let me talk about metro on in Michigan.

Next operations.

Metro on recently notified us that the state of Michigan Pet assessed metro and for millions of dollars.

Medicaid overpayments.

They would no longer be paying veterans contractual rent of roughly.

Stocking.

2000.

The breadth.

So we replaced.

For their intent to exit operations.

Sued all options, including the parallel.

So.

Retenanting, we're selling.

Rent through the transition.

We have the portfolio under contract to sell.

Prepaying Medtronics contractual.

Cementation and licensure.

50000 a.

To pay proceeds from the sale to be approximately 37 million.

Sued all options, including the parallel path of either re tenanting or selling.

We expect a sale to close within the next few months.

The contract to sell subject to normal diligence transfer documentation and licensure.

So the least coverages.

Pay proceeds from the sale to be approximately 37 million.

Proceeds from the Trillium and Medtronic sales will be recycle.

8 million.

Down debt.

We expect the sale to close within the next few months.

In addition, we have further.

So as we've made.

Explain bench of backup operators, who are eager to step up.

It is.

Casey opportunity presents itself in the future.

Proceeds from the Trillium and Medtronic sales will be recycle.

De risk our portfolio in a relatively short period of time.

Vestments.

And these issues are or very soon we'll be all behind us.

And should backup operators, who are eager to step up.

So just can't be.

Pence itself in the future.

Looking at the broader industry.

We're pleased to say that we have significantly de risked our portfolio in a relatively short period of time.

Yes.

A learning curve before operators really hit their stride, but in talking with our sniff.

The term benefits of these changes campy overemphasize.

And they remain optimistic.

Looking at the broader industry of course, the Big news is the implementation of PD PM on October Onest.

Perfect there to be a bit of.

Shipment growth.

Incur before operators really hit their stride, but in talking with our sniff tenants they've indicated that the changes are going fairly smoothly and they remain optimistic.

So leverage.

So to sum up.

Going into 2020 from a position of significant.

So far this year.

And with that I'll hand, it over to Mark to talk about pipeline.

Our growth.

With.

Thanks, Dave and Hello, everyone.

Navigant portfolio de risking.

We've closed approximately 35 million in new.

Industry, leading low leverage.

I mean.

And we're going into 2020 from a position of significant.

Unit memory care facility located.

You talked about the.

But in San Diego suburbs.

Thanks, Dave and Hello, everyone.

No trend from the industry.

Brian sense, we've closed approximately 35 million in new investors.

This includes.

We acquired a 70 bed skilled nursing facility located in Modesto, California, which we.

The point 6 million for.

Faded.

And also a 99 bed Smith.

Per visit Escondida.

Unit assisted living campus in Sacramento.

Tenants our.

To millions.

Charters.

Some of which had been leased to our existing.

So if any bed skilled nursing facility located in Modesto, California, which we paid.

All of these deals were inclusive of transaction costs.

Also a 99 beds snus.

In closing ourselves.

Two unit assisted living campus in Sacramento that we picked up.

For for.

Some 40 million at a blended yield.

In lease to our existing tenant cholesterol.

Targeting a year in close for our.

Quoted.

Yes.

While these deals were inclusive of transaction.

Do stay DVR 99 bed skilled nursing facility located.

Year to date.

But.

Our total investment amount as 340 million at a blended yield of 8.9%.

Turning to the.

We are targeting a year in close for our preferred equity.

Yes, which we believe as.

Most.

Which is the brand new steady VR 99 bed skilled nursing facility located in Boise, Idaho.

Okay and sniff.

The Nampa facility, we acquired a few months ago.

In our existing operating.

The market.

As well as our deep industry relationships to bring a sport marketed.

Believe is mostly seasonal.

Functions that we can paired with our best.

With the brokerage community, we would expect to see a pickup in sniff opportunities and then.

For two needs that we believe can be.

Lean on our existing operating base.

Creators. So we're optimistic that we'll be able to add to our seniors housing portfolio.

An off market transactions that we can paired with our best.

It is right around 100 million.

Senior housing front, we continue to see smaller.

Uh huh.

Compelling opportunities that we believe can be.

Exclusively tack ons for our existing.

Optimistic that we'll be able to add to our seniors housing portfolio over the.

Both.

Yes.

Deals we are actively pursuing.

Finally, as we sit here today is right around 100 million.

Coverage and other writings.

Just mostly of singles and doubles.

So if we placed from time to time.

Most almost exclusively.

Mobile level of confidence or we can lock them up.

I mean partners.

Now I'll turn it over to build a.

We only closed.

Thanks.

Actively pursuing.

Normalized FFO.

Yield.

30% over the prior year quarter.

Other underwriting standards, we have in place from time to time.

35 cents per share.

If we have a reasonable level of confidence or we can lock them up.

Yes.

Thanks.

4.5 million.

For the bill to discuss the financials.

One cents per.

Our.

Our payout ratio.

FFO.

Most of our.

Sent over the prior year quarter.

As 4% normalized FFO.

Sure.

From 63%.

Chair.

I stepped I'd.

Our FMD grew by 30% to 34.5 million.

Normalized EBITDA ratio.

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It's payout ratio remains at or among the lowest of our.

First quarter.

Currently 64% on normalized FFO and 63% on normalized EPS.

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Near all time lows.

Straight line.

<unk> debt to normalized EBITDA ratio of 3.4 times.

Dan.

Yeah that.

A 1 million.

You have 20% as our quarter end.

And benefit of this quarter's.

Dave noted.

As much more predictable platform.

Amounts of 16.7 million reserves and write offs of straight line.

Provide an early view into.

1 million.

Shaping up to look like.

For loan loss of 1 million.

Dense for next year.

The longer term benefit of this quarter's changes.

Items for 2020, we expect normalized AFFO per share.

In 2000.

36 to $1.30.

Good day to provide an early view into.

Our 40.

Money is shaping up to look like and so we're issuing guidance.

The best men's made today, including the expected close in Q4.

For 2020, we expect normalized FFO per share.

Restructures.

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As discussed.

Hi, FSD per share of $1.40.

Yes.

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Okay.

This guidance includes all investments made today, including the.

Close in Q4.

Yes.

Of our remaining preferred equity investments.

Mr dispositions, nor any further debt or equity issuances next.

Got it split the proceeds applied to outstanding borrowings.

Rent Escalations, which account for almost.

5.6 million shares.

Coverage of 1.75 per se.

Assumptions.

Total rental revenues for the year again, including only acquisitions made today.

Or equity issuances next year.

Basically 166 million.

Inflation based.

We includes.

Students.

700000 of straight line.

Of our.

Lastly, not included in this.

5%.

Tenant reimbursement.

Total rental revenues for the year again, including only acquisitions made today.

Due to the new leasing standard this is now.

6 million.

Yes.

Which only includes.

Two independent living facilities.

These are projected to do.

Play not included in this.

Why next.

Reimbursements.

With the enzyme.

Accounted for on their own line item in the income statement.

Please.

Due to the new leasing standard. This is now group with rental revenues.

Point 8 million.

Three our two independent living facilities.

Currently 26.4 million.

200000 in and align next.

Tune to LIBOR rate of 2%.

And it's been we leased one of our independent living.

So on the revolver and 150 beds.

Approximately 3.8 million.

Interest expense also includes roughly 2 million of amortization of deferred financing fees.

Okay relations, we have assumed a LIBOR rate of 2%.

Directing gionee of approximately.

125, bips on the revolver.

And 150 beds.

And also includes roughly 3.2 million of amortization of stock.

Includes roughly 2 million of amortization of deferred financing fees.

Okay.

Additions will continue to remain.

Yes, we are projecting DNA of approximately.

Well in ATM that we put up in Q1.

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Our revolver balance currently sets.

So includes roughly 3.2 million of amortization of.

Calculated on a run rate basis as of today.

Our leverage and liquidity.

That's approximately 3.4 times.

Averages about 23% of enterprise.

The ATM that we put up in Q1.

Joe is approximately.

Balanced currently sets.

We also have 17 million of cash on hand.

Credit stats calculated on a run rate basis as of today.

You three supplemental.

EBITDA was approximately 3.4 times.

Perfect coverage by EBITDAR and EBITDARM.

Yeah.

Our top 10.

Charge coverage ratio as approximately.

Into.

Times.

Operator specific coverage.

And our cash on hand.

Our revenue.

Modeling.

You will notice in our Q3 supplemental.

50% of our revenue so we're disclosing those in one line item.

Darren EBITDARM.

Change.

Top 10.

I should point on all the participants regarding the overall quality and financial stability of our.

Hi percent of our.

This quarter's.

Remaining.

Yes.

The team tenants represent approximately 15% of our revenue. So we're disclosing those in one line.

Each supporting was that we'll be happy to take questions.

And point on all the participants regarding the overall quality and financial stability of our operator pool.

Question, you need to press star one of your telephone.

And with that I'll turn it back to correct.

Yes.

It's bill.

County.

We hope this discussion has been helpful. We thank you again for your continued support and with that we'll be happy to take questions.

Okay.

Bridget.

Thank you.

As a reminder to ask a question you need to press star one of your telephone.

I was hoping.

To withdraw your question please press the pound.

Good morning, and this is pouches for Chad.

Hey roster.

Yep.

Sure.

Thanks for the additional details to provide on the rent coverages for your top tenants.

We just have one suggestion if you could break down the coverage ratio on the various property types like you did before that will be great.

So I'll for Chad.

First question is just wanted to understand the trajectory off the coverage decline for the tenants you took good laundry this quarter.

We just have one suggestion if you could break down the coverage ratio on the various property type. Thank you before that will be great.

Regarding the portfolio.

I think the market is kind of surprised by the change out the narratives.

Hi, and for the tenants you took the laundry this quarter.

Did you see like a faster deterioration in threeq.

In the third quarter that prompted a more broader set of actions that you are taking regarding the portfolio.

Now I think the market is kind of surprised by the change out the narrative is there any color on their background enough the decision process.

We.

Much appreciated.

He said about how quickly we dealt with them when they became.

I'd say that each of these.

Which really happened in the quarter.

Changes to the portfolio, you really need to take.

Sure.

Case by case.

Yes.

Besides that I'm not sure what more color to give.

We feel good about how quickly we dealt with them when they became.

Actionable.

In terms of coverage.

That happened in the quarter.

Materially during the quarter.

Sure so.

Besides.

Again, you'd have to look at it case by case.

And we would really have to.

Coverage.

Case by case.

And.

In terms of coverage.

But.

Change materially during the quarter.

Permanence alongside them.

Again, you'd have to look at it case by case with with trio.

So this quarter.

Bridge.

Not that.

In this quarter dramatically different from.

Burn for awhile, but.

As we were looking at the performance.

The fee can no longer view it that way.

We had been viewing this as as a runway and timing issue.

Uh huh.

Until until this quarter.

Life care.

I'm not that something happening this quarter dramatically different from before we just.

It was.

Was made because they had strategically they had made changes to their strategy as a company.

And to focus.

Rented.

Early on consulting and.

When it came to priority life care.

It's too to see what.

The decision there.

Sure.

Change to that portfolio would be whether it be selling or re tenanting.

Typically they had made changes to their strategy as a company they wanted to focus.

Third quarter.

Primarily on consulting and management fee.

The quarter that we could act on.

To see what the best.

With Medtronic that as I said in my prepared remarks that.

Building or re tenanting.

So there wasn't a major change.

Quarter.

Really not much more color.

With the quarter that we could act on.

Going.

With Metron that as I said in my prepared remarks that that is chagas.

What we do if you can feel good about that situation at all which we really.

Really not much more color, we can give on medtronic, because it's an ongoing matter.

And that could have been an issue that will linger.

Okay.

For a long time, but we were able to get it under contract to sell.

If you can feel good about that situation at all which we really.

Fairly well along the path.

About is acting on it as quickly as we did.

It takes a little bit longer than others in terms of.

Linger.

And so.

Time, but we're able to get it under contract to sell.

Yes.

The quarter.

But feel like we handled these.

It's fairly well along the path.

Of closing the state of Michigan.

It takes a little bit longer than others in terms of.

Good 0.37 is pretty good and.

Hey seems to also have the guarantee from enzyme.

Some of these.

Due to you have some coverage hurdle dependent has to cross for enzyme to dial back the guarantee.

Would you be able to disclose those and how do you think about your relationship with this new entity.

Good and.

Hey seems to also have the guarantee from enzyme.

We know these guys very very well.

Some coverage hurdle that pattern has to cross plans on to dial back the guarantee.

Every.

It would disclose those and how do you think about your relationship with this new entity.

Hi, praise and high hopes for their future.

This is Greg we love this new entity, we know those guys very very well.

At all if they.

We experienced some growing pains here early on.

Every.

Over the word.

Great confidence in him over the long term.

Hi.

To be able to.

For their future.

To ship.

The standalone.

With time.

Yeah.

We wouldn't be surprised at all if they.

Experienced some growing pains here early on.

See that's a very very solid guarantee and was part of.

There.

It will to expand.

Pledge and willingness to.

With them.

Do anything that left us in.

In terms of the enzyme guarantee.

With them when these assets were.

You know obviously, that's a very very solid guarantee and was part of.

A cup to where they were before.

Willingness to.

Yeah.

We'll we'll feel very comfortable that.

In a negative physician vis-a-vis, where we were with them when these assets were.

Strongly on its own.

And.

Long as these assets get back up to where they were before the spin.

We will will feel very.

So the.

A guarantee can go away and pin it will be standing.

Feet.

Strongly on its own.

Yeah.

Okay.

What is the level of coverage before the spin.

Yes.

Thank you.

Next question comes from the line of John Kim.

That piece of the portfolio.

It was right around one point.

So little confused with a veteran situation I'm just wondering.

Okay great.

I think that another one of your tenants can do just basically walk away from their lease without any.

Thank you and our.

Yeah.

So in a line of John Kim with BMO capital markets. Your line is.

Hey, John it's Greg.

Thank you.

This is Dave mentioned in his.

Just with a veteran.

Yeah.

And I'm just wondering.

That's still an ongoing matter.

One of your tenants can do.

Thank you you shouldn't assume.

That.

Yes.

That anything's concluded.

There yet other than.

It's Greg.

And do that.

As Dave mentioned in his.

Yet.

In his prepared remarks.

That's still an ongoing matter.

But you shouldn't assume.

And.

But.

That that anything's concluded.

Then.

The 2018.

Contract to sell the assets.

Okay.

Can you remind us.

Trillium fill it looks like.

Financings.

Just those assets and had met China.

Frank.

Yes. Its recent is.

In terms on the.

18.

Not on the mortgage that.

Okay.

Yes, John it's bill.

We did provide financing on.

Financing.

Short term.

90.

Bridge financing, while they go up and get.

From financing.

Jason.

20.

The.

Most 28 million and the interest rate on it is 10%.

Yes, John it's bill.

Good provide financing on it.

Our short term.

For term.

Paul at bridge financing, while they go out and get.

In March 2000.

A 20 its.

Almost 28 million and the interest rate on it is 10%.

Closure, which was which is very helpful. But I was wondering if you could still.

I was short term.

Hi.

The.

Last few periods.

I think its March 2020.

Operating type.

Occupancy.

So.

Pardon.

The current yield.

Disclosure, which was which is very helpful. But I was wondering if.

Yeah.

No one could still.

Are there any of these metrics that you could share.

And last few periods.

With us.

Including the EBITDAR coverage.

This time.

Property type.

Occupancy.

Under advisement.

Disclose it next.

Used to provide the yield.

Yeah.

Perhaps the type and I think.

The total.

I just ask one last question then.

How are you underwriting.

Right.

Are you willing to accept a lower yield with a higher coverage.

Mark is that not.

We will.

What I can still be the same.

Two.

Yes.

Disclose it next.

Operator.

Yeah.

Yes, Yes, John Fair question, we cross that bridge quite a while ago.

Underwriting transactions.

And have.

Are you willing to accept a lower yield with the higher.

Pre singly.

Correct.

Heavier emphasis on coverage as we've gone into deals.

Sure.

We've been able to do this impart because of cost of capital has come down very significantly since.

And have.

We feel like we are now in a position.

Please.

To really do those things with them.

As we've gone into deals.

The more thoughtful way.

Unable to do this.

Two.

And because of cost of capital has come down very significantly since.

If you watch.

It's going on those coverages.

We are now in a position.

Have been dropping a little bit and the coverage is going in.

In a in a more thoughtful way.

For modeling purposes issue.

Five years ago.

So.

You have if you if you watch what's going on those coverages.

The answer by asset class.

Dropping a little bit in the coverage is going in our.

Im not really been willing to go below 9% for example on SNF assets.

Should we be.

Exactly.

Recently, we've been able to drop a little bit below that.

To make deals that better coverages.

There by asset class of course and.

Has not been willing to go below 8%.

Go below 9% for example on SNF assets previously.

Okay.

Recently, we've been able to drop a little bit below.

Five cap deals on seniors housing.

They're coverages.

But.

On the on the seniors housing front, we've not been willing to go below 8%.

In the past, we now have the flexibility to.

Okay great.

From a little bit below that we're not going down and doing the class a.

A five cap deals on seniors housing.

Good luck with Keybanc capital markets. Your line is open.

Thanks ability in terms of what we can take on a yield and still get the spreads we were.

Just a quick follow up on John's question, Matt China was there.

Personal guarantee on.

No there was no.

It was not.

Thank you and our next question is from Jordan Sadler with Keybanc capital markets. Your line is open.

As it relates to I want to kind of come back to the original sitting here on.

Follow up on John's question, Matt China was there.

And really what.

You mean.

No there was no.

Overall portfolio because just on a.

And then.

Yes.

As it relates to I want to kind of come back to the original sitting here on.

The peak more than 18 million 18, and a half million.

What.

Scene.

Now on an effective basis.

Overall portfolio because it just on a look back basis.

Tween.

Stone and trio.

Tenant.

Speaking I think.

At the peak more than 18 million 18, and a half million.

Total.

Amounts to about more than a 40%.

Yeah.

I think.

Yeah.

New or current.

About the underwriting.

And trio.

So that transaction that portfolio.

Our paying.

From what I recall that was a Medicaid.

What amounts to about more than a 40% reduction.

No.

In rents.

You know with.

So I'm curious.

About the underwriting.

The premier underwriting that there.

Transaction that portfolio.

The question I'm asking is.

What I recall that was a Medicaid.

So take away from.

In terms of that portfolio.

Where did things go sour.

With reasonably low occupancy.

<unk> expense.

Teamed.

Underwriting that there.

The overall portfolio, if you will and is there anything to sort of.

Yes.

If we if we look through this new.

Way from that deal.

To be worried about within.

Please go South tower, either on the revenue line or the expense line.

Yeah.

Yeah.

Of the overall portfolio, if you will and is there anything to sort of.

Redone and re read done the up top see on.

Mhm.

We've seen in that investment.

In the portfolio.

Times.

And then four years since we made an investment.

Believe weve beaten ourselves up pretty.

No we have done.

And redone and re read done the up top see on.

Obviously the problems we've had largely.

Many times.

One investment that we made.

Since we made an investment.

The early.

Believe weve beaten ourselves up pretty.

That one.

Since then.

And it hasn't been fun, because obviously the problems we've had largely.

As underwriting.

One investment that we made four years ago, when we were barely a year.

A number of things systems that we think.

With that.

The has.

Much.

Yeah.

Very significantly strengthened our underwriting processes the underwriting team.

Yeah.

Yeah.

Excellent.

And.

Have.

Do we do we know what happened we knew a lot a lot of things that happened.

We've seen.

We would be happy.

Much.

Offline.

Investor.

And your real question is.

I am.

You concluded with is do we have anything else.

Of that investment.

There.

The problem.

Do we do we know what happened we know a lot a lot of things that happened and we would be happy to take those off line.

The real question is.

With what you conclude with is do we have anything else.

Within this past quarter.

There that could be a.

In the portfolio.

I.

And we.

Yes.

That we do have.

Can look at their portfolio and.

And say that there might be something but as we sit here today.

Operator review.

Within this.

No.

Yeah.

Full asset management team that we actually.

Bill.

Just expanded in.

If.

When do you continue to.

We do have.

Looking forward.

Pretty.

Looking at these things.

Chris.

Ongoing.

And we may.

Review.

The two distinctly decided to change something else in the future, but as we sit here today.

Asset management team that we actually just.

Hey, Jack the any.

I'm going to continue to expand.

The engine.

Going forward.

The.

Looking at these things.

For the operators.

And yet and we may.

Opportunistically decide to change something else in the future, but as we sit here today.

Helps but I.

Very sincerely Im curious about.

Yes.

Changes.

I thought.

Yes.

That was a bare bones operations pristine in terms of very high Medicaid mix.

And limited.

Questions or kind of it kind of helps but I.

Yeah.

Very sincerely Im curious about.

So is reasonably low occupancy.

Bare bones.

Im missing on the revenue side and what it like what happened there.

Yeah.

They thought there was.

Limited.

Danny.

There wasn't a lot of room for error.

Instances.

From the outset.

And the portfolio until I'm sure I'm curious like.

As reasonably low occupancy.

Okay.

I'm just curious.

Are they missing on the revenue side and what it like what happened there because I thought there was.

Oh and.

Thats, putting margin and that sort of a more obvious.

Out of the.

Resubmit the story and the Medicaid on these Medicaid shops, and what's causing.

This was like.

Turning to.

More traditional on.

Okay.

Skilled mix.

Portfolio, where we've seen.

So John I'd say.

Right.

You for years, now and that's their roading margin and that sort of a more obvious.

Did the deal.

Medicaid on these Medicaid shops, and what's causing.

One thing that we.

These leases.

We weigh much more heavily today than we did that.

So John I'd say that.

Ben underwriting.

Alongside the incoming.

When we originally did the deal.

To that in a silo and and say hey, operator, here's your.

The thing that we.

Really work on that collaboratively with them.

Heavily today than we did them.

Okay.

We've always done underwriting.

Inside the incoming.

I can.

Yeah, right, we never you kind of do that in a silo and then say.

No the operator very.

Right, we really work on that collaborative linked with them.

I wasn't a local.

Take that we made.

Operator.

Ben.

One of the things that we've learned from the pristine.

Team.

That.

And is.

We.

We give much more.

Yeah.

To local.

And the operator wasn't a local.

Operator, the matters its how.

So one of the things that we've learned from the pristine.

The market.

And what are the relationships like.

Is.

We've had two.

Much more weight to local.

These facilities.

Not so much.

Times.

The size of the operator the matters its how.

And to know more Ohio.

Market, how well do they know the.

It's become.

Patient chips like.

Had we had in Ohio, operator out of the gate.

John .

In that.

These these facilities.

Our.

Split times.

Our pricing probably would have been different.

And we've gotten to know more Ohio.

It wasn't Medicaid shops, like you said and we had some.

Yes.

Very modest assumptions that skilled census could increase a bit.

Uh huh.

It.

But ultimately those high margins for that Medicaid.

Because there was it wasn't Medicaid shops, like you said and we had some.

Very modest assumptions that skilled census could increase a bit.

Burden.

Expensive lesson.

But ultimately those high margins for that Medicaid shop.

Along with others.

We're.

Thank you.

Sustainable.

And those.

Our next question comes from the line of Michael Carroll with RBC.

Capital markets. Your line is open.

But like Greg said, we have learned.

Just real quick on on trio I mean after the rank cut it looks like your coverage ratios are still around one too.

He talk a little bit a bounce the performance of those assets have they always been this lower has it been some type of issue within the past few quarters that.

Backed on on Creo I mean after the rank cut it looks like your coverage ratios are still around one too can you talk a little bit a bounce the performance of those assets have they always been this lower has it been some type of.

Issue within the past few quarters that.

Brought at lower.

And from a preferred provider.

The.

Therefore from a preferred provider network perspective as well.

Had been.

And so for trio they've always been.

Variable.

ER stress.

In.

From a regulatory perspective.

For.

Before they got in.

A preferred provider network perspective, and therefore from a preferred provider network perspective as well.

And so for trio Theyve always been.

But.

Results than the I get coverage on the prior.

Not like they were.

Yes.

As previously before they got in.

Well, it's around 0.5 times for.

Stuff that they walked into.

Sure.

Okay.

I don't have I don't have.

Okay. So they.

Not to get back on that.

I get coverage on the prior.

It.

It.

Is that.

At the level so coverage rate was around 0.5 times for.

Optimism in noble on being able take over on the priority facilities and I think.

Yeah.

After facilities were previously leased better senior living too and they weren't able to make those properties work. So.

What gives you confidence that noble's be going to be able to come in and do unlock the hidden value that you both the.

For the priority facilities and I think.

So the Phillies were previously leased a better senior living too and they weren't able to make those properties work. So.

Fairway.

Confidence that noble's be it's going to be able to come in and do unlock the hidden value that you both the.

Thank you.

Pro forma assumptions.

Yes.

The I'd say the original investment in these buildings.

And.

I was really.

Got it right down the middle of the fairway in terms of underwriting against trailing 12.

Yes.

With the.

Performance, there's very little if any.

Because.

The pro forma assumptions.

Does an attention.

When we.

We acquired.

And.

So.

We do have.

Outlook.

Fin chronically disappointed with the performance.

Resources.

The lack of.

Yeah.

I'd say resources and attention.

Knowledge to these facilities.

Is that.

Getting.

It has been.

And so we do have different outlook on noble.

Hi.

And how they are.

To better than the others are they having a different marketing plan.

A different rent structure.

Sure.

Okay and gets with the residents moving in.

We think have been.

Not priority that you think that they're going to be able to drive better.

Okay, what are they actually bringing as it Jeff.

For cutting.

No the market better than the others are they having a different marketing plan.

Deferred rent structure.

This is this is really their whole.

Now I'd like what are they doing differently than priority that you think that they're going to be able to drive better.

Spread out spreads.

Your approach to marketing.

And for.

This more aggressive.

Local leaders already.

The.

In the state of Florida for example that that has been there that knows that market very well.

Ration.

Yeah.

Set of.

Marketing perspective.

And.

Different.

Spread out spread thin.

Okay.

This is this is everything for them.

He.

And they have local leaders already.

Yes.

In the state of Florida for example that that has been there that knows that market very well.

At about Premier.

Marketing perspective.

But shows that the coverage ratios are below 0.9, you get what gives you confidence of.

C.

Coverage ratios can go and what's kind of the.

We believe that they can.

For that ratio once that portfolio stabilizes.

Okay. Then last question for me can you talk little bit about premier.

We have a long relationship with premier.

For those ratios are below 0.9, you get what gives you confidence of.

Yeah.

This coverage ratios can go and what's kind of the expected pro forma for that ratio once that portfolio.

They've been operating for long time.

Yes so.

Premier we have a long relationship with premier.

Yeah.

They've been in the business a longtime and have.

They have one building in particular that.

It is.

Causing temporary drag on coverage.

They've been operating for long time.

Month of March.

Yeah.

Up until yesterday.

Good luck to see that coverage.

It was.

I have one times.

Band for admitting new residents.

Has that.

So as some regulatory.

Temporary drag on coverage.

Yeah.

That since the month of March.

And.

Yesterday.

The they have waiting.

It was.

So I'll start.

Under.

Stabilizing that particular building.

Adding new residents.

As of some regulatory.

Stabilize I would expect.

Add back in March.

Coverage would be.

Because of that census dropped quite a bit.

The.

And Luckily they have a waiting.

Yes.

Taking now start.

I guess.

Good lies in that particular building.

Did that opera me make enough money to make that.

But as I would expect that coverage would be.

And.

In Bips higher.

They have we had some.

Okay and is that a sustainable coverage ratio again.

Just above one times on an EBITDAR does that operate may make enough money to make that lease prop all for themselves.

And to be concerned about the rent.

I'll tell you do and and.

There ever hinted at even being.

Have we asked them to vary.

Right.

Well backed personal guarantees in addition to two that EBITDAR. So we're really not.

With.

We don't have any reason to be concerned about the rent there.

They've never missed a payment there ever hinted at even being.

Taking the questions. So.

I missed part of the calls I apologize I got drops and now I'm not in the middle This thing with the.

Submit the Medtronic situation that Michigan deteriorated pretty quickly so I guess on the decision to sell instead of re.

Thanks, Good morning, good afternoon, everybody. Thanks for.

At decision process and weather.

I missed part of the cost I apologize I got drops and now I'm not in the middle This thing with the.

Ground to improve skilled mix or other operational.

Optimization variable.

The sell instead of re.

As for other operators that you had confidence and to add to take over there.

Jim process and weather.

Well as part of the criteria centered around whether or not there where there were still room to improve skilled mix or other operational.

Issuances themselves it was in fact.

It was a simpler just based more on whether or not there were other operators that you had competence and to add to take over there.

Okay.

They were tag for a multimillion dollar Medicaid overpayment liability.

The problem in in Michigan Metro wasn't really in the operations themselves that was in the fact that as Dave mentioned in the part of the call you might have missed.

See their way forward.

From an operational standpoint.

A multimillion dollar Medicaid overpayment liability.

Got to it differently.

Their revenues on a monthly basis.

With respect to the other part of your question, though.

Made it very difficult.

For them to see their way forward.

Pass on that.

From an operational standpoint.

Billy hired a broker who is.

React to it differently, but they didnt was we partner with with respect to the other part of your question.

The choice between.

Selling and Retenanting, we actually went down parallel pass on that.

We immediately hired a broker who is.

Brian and long story short.

The sale turned out to be the best strategy.

Yeah.

We have the property under contract diligence.

The tenants or buyers as possible to look for the very best.

Licensure and some other documentation or regulatory.

Okay and long story short.

Now so.

Bill.

So.

Now to be the best strategy.

The speed.

It was important to us.

Now back diligence is.

That.

All the complete.

The.

We're just really waiting for licensure and some other documentation the regulatory.

So.

Decisions to be made.

Reporting.

So.

That is headed toward resolution.

Speed was important to us.

And then.

And that probably played a larger world of normal.

Our next question is from the line of Daniel.

And with capital one.

Or sell.

But we're happy to be reporting that.

Well, yes.

Headed toward resolution.

Is there any provisions and a new issues that you're transferring to.

Yeah.

Sure.

Some additional rent in the future whether to.

Bernstein with capital one your line is open.

Hi.

Yes.

Couple of questions for you.

In.

I guess one.

The transactions that we've done.

The new issues that you're transferring to capture.

In the case of.

Some additional rent in the future whether to rent reset or something else.

You too.

Share in case.

Actually in.

Im sorry.

So of the transactions that we've done.

Barrel pretty normal.

With CPI bumps.

Phil where we have the base rent that weve.

There is.

The ability to.

Comps.

Share.

Yeah.

In case.

We share in that.

The ramps.

So there's an opportunity.

It's a percentage rent.

The quarter by.

Of.

And.

So where we have the base rent that weve.

Greg In addition, the Trillium.

Yes.

Rewrite.

Ramps.

I told you this.

Asked for.

We share in that.

Yeah.

They are in so theres an opportunity.

The onetime.

Is that more.

Quarter by quarter.

Is there any capex needs.

You've set up.

And these facilities, it's you know.

Trillium.

Operates tend to get to stress they tend to skimp on capex somewhere.

But there is a significant bump in that next year.

And their facilities.

That often happen soon is there any capex.

Is there any capex needs.

These happened.

It's you know.

For any contracts.

Uppers tend to get stress they tend to skimp on capex somewhere.

On behalf.

Yeah.

Yeah.

And there are in their facilities.

Two.

Up instead is there any capex.

A few million dollars into the noble.

Yes.

Or anything or any contracts in place commitments in place.

That will.

On behalf of Yup.

Additional rent.

Yes, we've agreed to.

After its.

Invest a few million dollars into the noble.

Transaction.

Yeah.

That will.

The leases have.

I will fold into.

Capex in there, but we don't we don't have.

As its shortly after its.

Of these days.

But beyond that commitment for that transaction.

To Medtronic I don't know, if you can comment or not but.

Releases have.

In hindsight was there anything.

Capex in there, but we don't we don't have.

You could have cited.

Commitment beyond that.

<unk>.

These.

You know as part of the.

As announced.

And due diligence.

So.

Suggested that.

John I don't know, if you can comment or not but.

Sorry.

In hindsight was there anything.

Yeah.

No not really nothing would have suggested or payments on the Medicaid.

As part of the asset management due diligence.

The new one.

So there would have suggested that.

Two dozen them was.

There were some overpayments on the Medicaid.

Quite unusual.

Right.

So no there were some other red flag.

No not really not that would have suggested or payments on the Medicaid side.

That's a that's a fairly new one.

Yeah.

And this.

Susan making process.

I was.

I wish we had probably weighted a little more heavily.

As usual.

But.

So no there were some other red flags.

Turning in.

That we've identified in.

Our.

That's all I.

Of that.

We'll see you guys.

Making process that we wish we had probably weighted a little more heavily.

Yes.

But.

No.

We're taking.

Okay.

Beyond applying it now going forward.

Thank you.

Okay.

Just trying to get your fourth quarter guidance.

Hi.

35.

Jeff will discuss you guys next week it now.

If you look at.

Thanks, Dan forward too.

Right.

Yes.

And.

Ron.

Good luck with a follow up from John Kim with BMO capital.

With that.

On its.

Second quarter a.

Thank you.

Present different.

Just trying to get your fourth quarter guidance.

34 to 35.

No.

Makeup come from.

Yes.

If you look at CR annualized.

Because.

Ron.

Chilean.

It's about.

That Mona.

And.

Mother.

And trying to compare that.

Okay.

Second quarter of 44 million for about 10% difference.

Hey, John its investments that we've closed.

GAAP come.

Subsequent.

Q2.

Interest and other income.

You've also got the preferred equity investment.

Some other.

Interest and other income that's closing.

Okay.

Right.

In Q4.

It's in.

And.

On its investments that we've closed.

Yeah.

Subsequent to Q2.

That's the then.

The acquisitions in Q2.

Keep preferred equity investment in.

That's why it's my number one.

Thats closing.

In Q4.

No.

And.

That's pretty much.

Yeah.

Mhm.

Then.

The acquisitions in Q2.

I'm not showing any further questions.

Fee.

I'll turn the call back over to Greg.

Right number on page eight occur supplemental.

Thanks, Bridget and thanks, everybody for being on the call.

Is there any other questions feel free to calls at any time, and we will be out at knee, we take meetings next week.

Several the analysts have.

Not showing any further questions I'll now turn the call back over to Greg.

The.

Actually.

Chat with anyone and answer any questions you have then.

Frankly for being on the call.

Dave travels and we'll look forward to seeing in.

I feel free to calls at any time, and we will be out at knee retaking meetings next week.

Yes.

For the analysts have.

Thank you for participating you may now discuss.

We'd be happy to chat with anyone and answer any questions. You have then.

So if you're going safe travels and we'll look forward senior.

Ladies and gentlemen, thank you for standing by and welcome to the Caretrust REIT third quarter 2019 earnings Conference call.

I'm all participants are no listen only mode later.

After the speakers presentation, there will be a question answer session. So that's the question during the session you'll need to press star one and your telephone.

Require any further assistance during the conference Please press Star zero.

I would now like they have a conference over to Lorne deal Caretrust controller. Thank you. Please go ahead manner.

Welcome to Caretrust <unk> third quarter 2019 earnings call.

It's been should be aware this call is being recorded and listeners are advised that any forward looking statements made on today's call are based on management's current expectations assumptions and beliefs about caretrust business and the environment in which it operates.

These statements may include projections regarding future financial performance dividend acquisition investment returns.

Financings and other matters, all of which are subject to risks and uncertainties that could cause actual results to materially different from those expressed or implied herein.

Listeners should not place undue reliance on forward looking statements and are encouraged to review Caretrust FCC filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by FCC regulation G.

Except as required by law Caretrust REIT and its affiliates do not undertake to publicly update or revise any forward looking statements were changes arise as a result, new information future events changing circumstances or for any other reason.

During the call the company will reference non-GAAP metrics, such as EBITDA at that though I think maybe werent fad and normalized EBITDA Epo and at the D.

When do you together with GAAP results. The company believes these measures can provide a more complete understanding of his visit but caution that they should not be relied upon to the exclusion of gap reports.

Your trust yesterday filed its Form 10-Q , and accompanying press release and its quarterly financial supplement each of which can be accessed on the investor Relations section of Caretrust website at Www Dot Caretrust REIT Dot com.

A replay of this call will also be available on the web site for a limited period.

Management on the call. This morning include Bill Wagner, Chief Financial Officer, Dave Sedgwick, Chief Operating Officer, Mark Landy, Chief Investment Officer, and Eric Gillis Director of asset management, I will now turn the call over to Greg steeply Caretrust Reed Chairman and CEO .

Thank you weren't good morning welcome everybody.

As we previewed on our last earnings call, we view the faster to our years, an opportunity and maybe even a mandate to carefully re examine our real estate portfolio in or tenant relationships.

And after five years a lot of success with your challenges a deep dive on our assets are not breeders suggested that we could strengthen the portfolio.

These critical reviews of let us take decisive action on the number of fronts.

She will explain in more in detail in a moment, but high level, we've disposed of certain less desirable assets begun recycling the capital into more desirable assets and worked aggressively to backfill a few pockets of current and potential weakness that we saw in our tenant roster.

Some of these changes like the previously announced exit of Trillium from a portion of our Ohio portfolio have been completed now.

One other remains in process and we expect it to be completed shortly.

Our goal has been to rent salvini real softness in the portfolio in position Caretrust for solid operating performance going into 2020 and beyond this is why we very intentionally execute all of these changes once when the conventional wisdom might've been to handle them sequentially in spread them out over time.

It's been a lot of worked for everybody on the team here from acquisitions to asset management to county.

How does a great work that everyone's done within a remarkably short period.

We did so because we believe the principles of sound stewardship requires not only to grow and diversify earnestly the pruning the portfolio responsibly from time to time.

It also reflects our commitment to aggressively tackle small problems, while they are still relatively small.

We believe these operating philosophies rigorously applied will produce the best overall long term results for Caretrust and our stakeholders. We further believe that this approach will continue the fostered an atmosphere of accountability and high performance both for us and for our operating partners, while building strong, helping expanding organization that will stay.

On the tests of time.

In addition, this quarter. We've also re examine so we're counting and disclosure policies.

Well no longer the tiny startup we were five years ago with our increased size growing some diversification and established track record.

We've determined the going forward, we will increase our disclosure and transparency I disclose you lease coverage by tenant for our top 10 tenant relationships.

This is something that we've been planning and wanting to do for a long time. When the time was right. We're excited to find to be able to roll it out.

As far as your goes to the rest of the your goes we're pleased to be reaffirming our 2019 guidance for normalized FFO normalized staff notwithstanding the portfolio adjustments we've made this quarter.

Look into the future with so many changes in the quarter, we felt we should again for transparency sake.

For preview into our 2020 earnings estimates a little early this year. So we have that guidance and some color on it for you today as well.

With that I'd like to turn some time over to Dave talked about both turn operations and the changes we've been making then mark will discuss recent acquisitions and the pipeline and bill will wrap up with the financials and guidance Dave.

Thanks, Greg and good morning.

On our last call. We discussed how we are regularly reassessing, both our portfolio and our operators to determine what changes if any.

We made to either one.

Talked in detail about our decision to replace Trillium in southern Ohio.

For the seven facilities. There. We told you we plan to sell three and re tenant for.

I'm pleased to report that's exactly what happened on September 1st.

The two most challenging facilities and one other were sold for 28 million.

The remaining for release to our current tenant Providence group and added to their master lease.

In addition, since our last call we continued to shore up lingering softness in the portfolio by replacing an assisted living operator.

Resetting rent for skilled nursing, operator, and deciding to sell our skilled nursing assets in Michigan.

I mean give you some color on each of those three actions.

First effective November 1st we replaced priority life care with noble senior services.

This portfolio consists of seven assisted living facilities in for Eastern States, There's no reduction in rent associated with this change.

Entered its for the change was a combination of inconsistent performance and priorities strategic shift toward focusing entirely on their consulting and management fee business instead of leasing real estate and owning their operations that being the case it was clear to us that another operator would likely be able to perform better in these assets and we made the switch.

Second after 18 months of closely monitoring we decided to reset the rent for our seven facilities and central Ohio.

In prior calls we've commented on trios hard work and the momentum they've built in spite of inheriting some damaging challenges from the previous operator around the time of transition.

For example, one building was designated as a special focus facility right before trio stepped in and several others were kicked out of a preferred provider network right around the time that transition.

They have fought back from these challenges in others, but this quarter. It became apparent that we can no longer view. This portfolios performance is only a runway or timing issue.

So we adjusted the rent by approximately 4.2 million annually.

In the supplemental please note that trios coverage reflects their new rent against their TTM EBITDAR.

Any of extra visibility there we believe their pro forma run rate coverages approximately 1.2 times as performance has been trending up late.

Third let me talk about metro on in Michigan.

Metron recently notified us at the state in Michigan at assessment that Sean for millions of dollars in Medicaid overpayments after auditing prior years cost reports.

Shockingly in the next breath, they told us of their intent to exit operations.

And after initially assuring us that they would.

Intend to pay the rent through the transition.

Later said that they would no longer be paying medtronics contractual rent of roughly 350000, a month until we replace them.

We quickly pursued all options, including the parallel path of either re tenanting or selling.

We now have the portfolio under contract to sell subject to normal diligence transfer documentation and licensure.

We anticipate proceeds from the sale to be approximately 37 million, resulting in an impairment of approximately 8.8 million.

We expect to sale the close within the next few months.

As a result of the changes we've made we've improved both the least coverages and the tenant credit sit back these assets.

Proceeds from the Trillium and Medtronic sales will be recycled into paying down debt and redeployment into more desirable investments.

In addition, we have further expanded our growing bench of backup operators, who are eager to step up in case the opportunity presents itself in the future.

With these changes were pleased to say that we have significantly de risked our portfolio in a relatively short period of time.

And these issues are or very soon we'll be all behind us.

Long term benefits of these changes can't be overemphasized.

Looking at the broader industry of course, the Big news is the implementation of Pdps on October Onest, we expect there to be a bit of a learning curve before operators really hit their stride, but in talking with our sniff tenants they've indicated that the changes are going fairly smoothly and they remain optimistic.

So to sum up.

We really achieved three important objective so far this year.

First record new investment growth with number two significant portfolio de risking.

While number three maintaining industry, leading low leverage and we're going into 2020 from a position of significant strength.

And with that I'll hand, it over to Mark to talk about the pipeline.

Thanks, David Hello, everyone.

In Q3 and sense, we've closed approximately 35 million in new investments. This includes the 12 and a half million dollar acquisition because the dialogue with 52 unit memory care facility located in the northern San Diego suburbs, Escondido with an old friend from the industry, but a new tenants our portfolio based Shire senior.

These.

Next we acquired a 70 bed skilled nursing facility located in Modesto, California, which we paid 8.6 million for and also a 99 bed snacks and 72 unit assisted living campus in Sacramento that we picked up for 14.2 million.

Both of which had been leads to our existing tenant collects the health care.

The numbers quoted for all of these deals where inclusive of transaction costs and the initial yields are all disclosed in our supplemental.

Year to date, our total investment amount as 340 million at a blended yield of 8.9%.

We are targeting a year in close for our preferred equity investments Cascadia, Boise, which is the brand new steady VR 99 bed skilled nursing facility located in Boise, Idaho.

The twin sister have been Nampa facility, we acquired a few months ago.

Turning to the market.

We've seen a bit of a slowdown in actively marketed sniffed deals, which we believe is mostly seasonal.

Based on conversations with the brokerage community, we would expect to see a pickup in sniff opportunities and the new year.

We continue to lean on our existing operating base.

As well as our deep industry relationships to bring us marketed and off market transactions that we can paired with our best operators.

On the senior housing front, we continue to see smaller but compelling opportunities that we believe can be accretive to us and our operators. So we're optimistic that we'll be able to add to our seniors housing portfolio over the coming quarters.

The pipeline as we sit here today is right around 100 million.

Consist mostly of singles and doubles.

Including most almost exclusively of tack arms for our existing operating partners. Please remember that when we caught our pipe. We only closed deals we are actively pursuing.

Which meet the yield coverage and other writings other underwriting standards, we have in place from time to time.

And that only if we have a reasonable level of confidence or we can walk them up in closing and now I'll turn it over to bill to discuss the financials.

Thanks, Mark for the quarter normalized FFO grew by 30% over the prior year quarter to 33.6 million or 35 cents per share and normalized FDD grew by 30% to 34.5 million or 36 cents per share our payout ratio remains at or among the lowest of ARPU.

Here's at approximately 64% on normalized FFO and 63% on normalized EPS.

Leverages near all time lows at a net debt to normalized EBITDA ratio of 3.4 times net debt to enterprise value of 20% as our quarter end.

For the transactions Dave noted.

This resulted in total impairments of 16.7 million reserves and write offs of straight line and other rents a 12.1 million and a provision for loan loss of 1 million.

We expect the longer term benefit of this quarter's changes as a stronger and much more predictable platform to grow from in 2020.

This gives us an opportunity to provide an early view into the what 2020 is shaping up to look like so we're issuing guidance for next year today.

Preliminary guidance for 2020, we expect normalized FFO per share of $1.36 to $1.38 and normalized FFO per share of $1.40 to $1.42.

This guidance includes all investments made today, including the expected close in Q4 of our remaining preferred equity investment all tenant restructures discussed property sales as discussed split the proceeds applied to outstanding borrowings on our revolver share count of 95.6 million shares and also.

Relies on the following assumptions.

One no additional investments or dispositions, nor any further debt or equity issuances next year.

To inflation based rent Escalations, which account for almost all of our escalators at an average of 1.75%.

Our total rental revenues for the year again, including only acquisitions made today, our projected at approximately $166 million, which only includes about 700000 of straight line rent.

Lastly, not included in this amount our tenant reimbursements, which we previously accounted for on their own line item in the income statement due to the new leasing standard. This is now group with rental revenues.

Our two independent living facilities are projected to do about 200000 in Anna line next year concurrent with the enzyme pennants, Ben we leased one of our independent living facilities.

For interest income of approximately 3.8 million.

Five interest expense of approximately 26.4 million.

And our calculations, we have assumed a LIBOR rate of 2% and a grid based margin rate of 125, bips on the revolver and 150 bets on our seven year term.

Interest expense also includes roughly 2 million of amortization of deferred financing fees.

And six we're projecting DNA of approximately.

12 to 13, and a half million our Junaid projection also includes roughly 3.2 million of amortization of stock comp.

Heading into 2020, our leverage and liquidity positions will continue to remain strong we did not sell any shares under our 300 million ATM that we put up in Q1 and our revolver balance currently sets at 73 million.

So our credit stats calculated on a run rate basis as of today, our net debt to EBITDA was approximately 3.4 times leverage is about 23% of enterprise value.

Charge coverage ratio is approximately 6.2 times, we also have 17 million cash on hand.

Finally will notice in our Q3 supplemental weve less lifted operator specific coverage by EBITDAR and EBITDARM for our top 10 tenants, giving you a clear view into our into the operator specific coverage of 85% of our revenue.

The remaining 13 tenants represent approximately 15% of our revenue. So we're disclosing those in one line item.

This change puts an exclamation point on all the parties that adds regarding the overall quality and financial stability of our operator pool. Following this quarter's changes and with that I'll turn it back to Greg. Thanks Bill.

We hope this discussion has been helpful. We thank you again for your continued support and with that we'll be happy to take questions Bridget.

Thank you.

As a reminder to ask the question you need to press Star one of your telephone.

Withdraw your question. Please press the pound key.

Please standby along with some Alex you any roster.

She uses and even on the call.

Our first question comes from the line of Chad Vanacore with Stifel. Your line is open.

Hi, Good morning, this is pouches for Chad.

Yes, hi, thanks for the additional details to provide them their rent coverages for your top tenants.

We just have one suggestion if you could break down the coverage ratio on the various property types like you did before that will be great.

And my first question is just wanted to understand the trajectory of the coverage decline for the tenants you took good laundry this quarter.

Did you see like a faster deterioration three in the third quarter that prompted a more broader set of actions that you are taking regarding the portfolio.

I think the market is kind of surprised by the change up a narrative is there any color on the back on the decision process.

Will be much appreciated.

Yes. This is Dave.

I'd say that each of these.

Changes to the portfolio, you really need to take a case by case.

We we feel good about how quickly we dealt with them when they became.

Actionable.

Which really happened in the quarter.

So.

Sides.

That I'm not sure what more color to give generally speaking we would really have to talk case by case.

But in terms of Congress did like change materially during the quarter.

Again, you'd have to look at it case by case.

With with trio the coverage has been.

A concern for awhile, but.

As we were looking at the performance alongside them.

We had been viewing this as as a runway and timing issue until until this quarter.

Not that something happening this quarter dramatically different from before it would just.

Came to the conclusion with them that we can no longer view it that way.

And the second round really warranted the change there.

When it came to priority life care.

The decision there.

Was was made because they had strategically they had made changes to their strategy as a company. They wanted to focus primarily on consulting and management fee. So we ran a process to see what the best.

Change to that portfolio would be whether it be selling or retenanting.

And so there wasn't a major change in the quarter per se.

It was it was the quarter that we could act on it.

With Metron that as I said in my prepared remarks that that is chagas.

They they.

There's really not much more color, we can give on on Medtronic, because it's an ongoing matter.

But beyond what I put in my from prepared remarks, there but that.

What we do if you can feel good about that situation at all which we really don't but what we can feel good about is acting on it as quickly as we did.

That could have been an issue that will linger for a long time, but we were able to get it under contract to sell within the quarter.

And.

It's fairly well along the path of of closing the student Michigan.

It takes a little bit longer than others in terms of changes and ownership and so we're awaiting regulatory approvals there.

But feel like we handle these.

Frankly.

Great and my second question is regarding panel.

So it looks like that the coverage recognized 1.37 is pretty good and.

Hey seems to also have the guarantee from enzyme I saw in the queue that you have some coverage hurdle that pending asked to cross for enzyme to dial back to guarantee would you be able to disclose those and how do you think about your relationship with this new entity.

Well, we really like this is Greg we love this community we know those guys very very well.

There there.

Superstars.

In every sense of the word and we have we have high high praise and high hopes for their future.

Standalone company.

We wouldn't be surprised at all if they.

We experienced some growing pains here early on but we have we have great confidence in NIM over the long term and hope to be able to expand.

Our relationship with them in time.

In terms of the enzyme guarantee.

Obviously, that's a very very solid guarantee and was part of.

There.

Legend willingness to.

Not do anything that left us in in the.

Negative position vis-a-vis, where we were with them when these assets were in their portfolio.

And.

As long as these assets get back up to where they were up before the spin.

We'll we'll feel very comfortable that that guarantee can go away and pin it will be standing.

Strongly on it so.

Okay.

Hi, thanks to the level of coverage before the spin.

It was a bell in depth piece of the portfolio.

It was right around 1.8 times.

Okay, Great. That's it for me thank you.

You bet.

Thank you and our next question comes from the line of John Kim with BMO capital markets. Your line is open.

Thank you.

I'm still a little confused with a veteran situation I'm just wondering.

This is something that another one of your tenants can do just basically walk away from their lease without any termination fee or recourse.

Hey, John it's Greg.

As Dave mentioned in his in his prepared remarks.

That's still an ongoing matter.

But you shouldn't assume.

Matt.

That that anything's concluded there yet other than our entry into that.

Contract to sell the assets.

Can you remind us when you.

Purchase those assets and had met China as an operator.

Yes. Its recent is.

Early 2018.

Got it.

On the Trillium fill it looks like you provided financing to the purchaser for 95% of the purchase price.

Is that the case and can you provide any terms on the.

On the mortgage debt.

Yes, John it's bill.

We did provide financing on it so it's a short term Paulette bridge financing, while they go out and get from financing.

20, it's almost 28 million and the interest rate on it is 10%.

Okay.

How short term loan for.

I think its March 2020.

Got it okay.

You provided some new disclosure, which when style, which is very helpful. But I was wondering if you could still provide.

Some of the disclosure from the last few periods.

Including the EBITDAR coverage by property type the occupancy.

And I'll start with the current yielding used to provide the yield per appetite I think the total was 10%.

Are there any of these metrics that you could share with us at this time.

Not at this time.

But we will take it under advisement to disclose at next quarter.

Okay I'll just ask one last question then.

So how are you underwriting transactions.

Are you willing to accept a lower yield with a higher coverage or is that not.

Well I can still be the same just given very specific.

Operator issue.

Yes, Yes, John Fair question, we crossed that bridge quite a while ago.

And have.

Placed increasingly.

Heavier emphasis on coverage as we've gone into deals.

We've been able to do this impart because of cost of capital has come down very significantly since.

The early days and we feel like we are now in a position.

To really do those things in them.

In a more thoughtful way and we were able to four five years ago. So you have if you if you watch what's going on those coverages have.

Are those yields have been dropping a little bit in the coverage is going in our our stronger.

So for modeling purposes should we should we be putting in.

8% type of.

Neil going forward.

Well you got to split that answer by asset class of course and.

Where where we have not really been willing to go below 9% for example on SNF assets previously.

Recently, we've been able to drop a little bit below that.

To make deals that better coverages on the on the seniors housing front, we've not been willing to go below 8% in the past, we now have the flexibility to to drop a little bit below that we're not going down and do any class a.

A five cap deals on seniors housing.

But we do have more flexibility in terms of what we can take on a yield and still get the spreads we want.

Okay, great. Thank you.

Thank you.

Thank you and our next question is from Jordan Sadler with Keybanc capital markets. Your line is open.

Thank you.

Just a quick follow up on John's question, Matt China was there a personal guarantee on Medtronic.

No there was not.

Okay.

And then.

As it relates to I want to kind of come back to the original sitting here on.

Trillium trio and really what was pristine.

And that overall portfolio because it just on a look back basis.

Yes.

That.

Original tenant was paying I think at the peak more than 18 million 18, and a half million dollars of total right.

Now on an effective basis.

I think.

New or current tenants between.

Hillstone and trio.

Communication Providence are paying collectively.

What amounts to about more than a 40% reduction.

In rent.

And so I'm curious.

About the underwriting.

That transaction that portfolio because from what I recall that was a Medicaid shop in terms of that portfolio.

And.

Reasonably low occupancy and it seemed from your underwriting that there was some potential upside to I guess the question I'm asking is.

What can we take away from that deal where did things go South tower, either on the revenue line, where the expense line.

Of the overall portfolio, if you will and is there anything to sort of.

If we if we look through this new PRASM is there anything else to be worried about within the portfolio.

It's Greg.

No we have done and redone and re read done the up top see on pristine and that investment many times.

And then four years since we made an investment.

Believe weve beaten ourselves up pretty hard over that one and it hasn't been fine because obviously the problems we've had largely.

Our that one investment that we made four years ago, when we were barely a year old.

In the time.

The has passed since then we have very significantly strengthened our underwriting processes the underwriting team.

And.

Have installed a number of things systems that we think are making us a much better.

Faster.

Well at the same time.

Dealing with the fall out of that investment.

Do we do we know what happened we know a lot of lot of things that happened and we would be happy to take those off line.

But I think your real question is.

With what you conclude with is do we have anything else.

Out there that could be a problem.

And and I guess every.

Every landlord.

Can look at their portfolio and and say that there might be something but as we sit here today. The changes that we've made within this past quarter very substantially cleaned up the portfolio.

And Weve explained that we do have a pretty robust and rigorous ongoing.

Asset review, operator review process in place now.

Full asset management team that we actually just expanded and they're going to continue to expand.

Going forward.

Looking at these things and and yet and we May Opportunistically decided to change something else in the future, but as we sit here today.

We're not projecting any material changes.

To the assets or the operators going forward does that does that.

Very answer for your question Jordan.

It kind of helps but I.

Very sincerely Im curious about.

I thought that was a bare bones operations pristine in terms of very high Medicaid mix.

And limited if any.

Medicare census.

In the portfolio until I am trying I'm curious like so is reasonably low occupancy Im just curious are they missing on the revenue side and what it like what happened there because I thought there was.

Maybe there wasn't a lot of room for error out of the out from the outset, but I also didnt think this was like something more traditional on on the skilled mix.

Portfolio, where we've seen Medicare census, tanking, you for years, now and Thats been eroding margins in that sort of a more obvious story I'm curious about the story on the Medicaid on these Medicaid shops, and what's causing them to fail vis-a-vis these leases.

So John I'd say that.

There when we originally did the deal with pristine.

One thing that we.

We weigh much more heavily today than we did then.

We've always done underwriting alongside the incoming operator.

We never you kind of do that in a silo and then say hey, operator, here's your rent right, we really work on that collaboratively with them.

I think the mistake that we made.

Ben when.

Like Greg said back in 2015.

Was that.

We didn't we didnt know the operator very well.

And the operator wasn't a local Ohio operator.

So one of the things that we've learned from the pristine.

Situation.

Is that we give much more weight to local operators is not so much the size of the operator the matters its how.

How successful have they been in that market, how well do they know the market and what are the relationships like as we've had to now shop.

These these facilities a couple of times.

And since 2015, we've gotten to know more Ohio operators.

It was clear it's become clear that had we had in Ohio, operator out of the gates in that.

Our.

Our pricing probably would have been different.

Because there was it wasn't Medicaid shops, like you said and we had some.

Very modest assumptions that skilled census could increase a bit.

But ultimately those high margins for that Medicaid shops.

We're not not sustainable.

And that was.

It's.

Been a hard and expensive lesson.

But but like Greg said, we have learned that.

Along with others.

Okay. Thank you.

You bet.

Thank you and our next question comes from the line of Michael Carroll with RBC capital markets. Your line is open.

Yeah, just real quick on on trio I mean after the rank cut it looks like your coverage ratios are still around one too can you talk a little bit a bounce the performance of those assets have they always been this lower has it been some type of.

Issue within the past few quarters that.

Brought at lower.

Yes, great question the the buildings have.

Had been I would say since trio got yen under considerable.

Stress.

From a regulatory perspective.

And from a preferred provider network perspective, and therefore from a preferred provider network perspective as well.

So for trio they've always been.

Performing.

Not like they were previously before they got in because of all.

The stuff that they walked into.

Okay. So they.

Result in the I get the coverage on the prior rate was always at that lower level. So coverage rate was around 0.5 times for the past several quarters.

I don't have I don't have the.

Well have to get back on the energy.

Okay, Yes, it was yeah, so underperforming.

Okay and then you can you talk about your optimism in noble on being able take over on the priority facility and I think half those facilities were previously leased a better senior living too and they weren't able to make those properties work. So what gives you confidence that noble's be want to be able to come in and do unlock.

The hidden value that you both the.

Well, yes.

I'd say the original investment in these buildings was really kind of right down the middle to fairway in terms of underwriting against trailing 12.

Type of performance service very little if any.

Pro forma assumptions in there when we.

When we acquired them.

And.

We've we've been chronically disappointed with the performance.

And the lack of.

I'd say resources and attention the buildings have been getting.

And so.

We do have a different outlook on noble and how they are.

Bringing resources and and commitment.

And.

Local knowledge to these facilities that we think it's been lacking.

Okay. What are they actually bringing is it just they know the market better than the others are they having a different marketing plan.

A different rent structure.

And guess what the residents moving in its like what are they doing differently than priority that you think that they're going to be able to drive better results.

Their approach to marketing I think is more aggressive them then priority there.

This is this is really their whole.

Operation instead of maybe being distracted and spread out spread Ben. This is this is everything for them.

And they have local leaders already in the state of Florida. For example that that has been there that knows that market very well.

So from a marketing perspective, they have a different.

Approach and they also see expenses that they believe that they can rightsize.

Okay. Then last question for me can you talk a little bit about premier at least in a thought that shows that the coverage ratios are below 0.9, you get what gives you confidence of where this coverage ratios can go and what's kind of the expected pro forma for that ratio once that portfolio stabilizes.

Yes so.

Premier we have a long relationship with premier.

They've been in the business, a long time and have.

So some.

Facilities beyond beyond ours that they've been operating for a long time.

We certainly we would like to see that coverage north of one times.

They have one building in particular that is causing temporary drag on coverage.

That since the month of March up until yesterday Coincidentally was.

Under.

Band for admitting new residents because of some regulatory challenges that they had back in March.

So because of that census dropped quite a bit and.

Secondly, they have a waiting list that they can now start.

Stabilizing that particular building.

Once that is stabilized I would expect that coverage would be about 13 to 15 Bips higher.

Okay and is that a sustainable coverage ratio, we get Thats just above one times on an EBITDAR does that opera may make enough money to make that lease properties for themselves.

Yes, they do and and.

They have we have some.

Two very well backed personal guarantees in addition to two that EBITDAR. So we're really not.

We don't have any reason to be concerned about the rent there.

Never missed a payment there ever hinted at even be m-.

Okay, great. Thank you.

You bet.

Your next question comes from the line of Stephens Alliqua with Barclays. Your line is open.

Thanks, Good morning, good afternoon, everybody. Thanks for taking the questions. So.

As part of the cost I apologize I got drops are now in the middle This thing with the subject to Medtronic situation that Michigan deteriorated pretty quickly I guess on the decision to sell instead of the re tenant.

So I was just curious to hear if there's any more color around that decision process and weather.

What was part of the criteria centered around whether or not there where there were still room to improve skilled mix or other operational optimization variables.

As a simple just based more on whether or not there were other operators that you had competence and to add to take over there.

Thanks.

Yes, Steve this is Craig so.

The problem in in Michigan, Metron wasn't really in the operations themselves that was in the fact that as Dave mentioned in the part of the call you might have missed that.

They were tag for a multimillion dollar Medicaid overpayment liability that was being offset against their revenues on a monthly basis.

It was that offset that made it very difficult for them to see their way forward.

From an operational standpoint.

We would like to seen them.

React to it differently, but they didnt with reporting with with respect to the other part of your question.

The choice between.

Selling and Retenanting, we actually went down parallel pass on that.

We immediately hired a broker who is.

Yes.

This does tenants or buyers as possible to look for the very best strategy for us to exit Metro and long story short.

This sale turned out to be the best strategy.

We have the property under contract diligence is.

All the complete and we're just really waiting for licensure and some other documentation or regulatory.

Decisions to be made now so.

That speed.

As important to us and and that probably played a larger world the normal in in the decision whether to re tenant or sell.

But we're happy to be reporting that.

That is headed toward resolution.

Okay I appreciate the color on that thanks.

You bet.

Our next question is from the line of Daniel Bernstein with capital One your line is open.

Okay.

Couple of questions for you.

I guess one.

Any provisions and the new issues that you're transferring to capture.

Some additional rent in the future whether to rent reset or something else.

Oh, yes actually in so of the transactions that we've done.

Pretty normal with with CPI bumps in the case of trio there is.

The ability to.

Share in case.

Revenue really ramps up.

So it's a percentage rent.

Type of.

Deal, where we have the base rent that we've talked about but as as revenue ramps.

We share in that together and so there's an opportunity to get more quarter by quarter.

And that base rent that we've set up and it's Greg in addition, the Trillium rewrite.

We told you this last quarter, but there is a significant bump in that next year just a onetime.

Okay.

Is there any capex needs.

And these facilities, it's you know when.

Operators tend to get stress they tend to skimp on capex somewhere.

Or.

And there are in their facilities that often happens and is there any capex.

It means that these facilities have and.

Or anything or any contracts in place commitments in place.

For you to provide capex on on behalf of the operator.

Yes, we've agreed to.

Invest a few million dollars into the noble portfolio.

At will.

That will fold into additional rent.

As its shortly after its deployed.

But beyond that commitment for that transaction.

All the leases have provisions for putting capex in there, but we don't we don't have.

A commitment beyond that for these.

Deals that we've announced.

Okay.

And going back to Medtronic I don't know if you can comment on off but.

In hindsight was there anything.

Red flags.

You could have cited.

Right.

As part of asset management due diligence data was would have suggested that.

Maybe there were some overpayments on the Medicaid side.

Yeah.

No not really nothing would have suggested or thing with on the Medicaid side.

That's a that's a fairly new one and this the magnitude of NIM was was quite.

Quite unusual.

So no there were some other red flags.

That we've identified in.

Our.

We view of that.

Decision, making process that we wish we had probably weighted a little more heavily.

But.

We're taking that learning and applying it now going forward.

Okay. Okay.

That's all I have.

We'll see you guys next week at any rate.

Thanks, Dan referred to.

Thank you.

I'll, let some John Kim with BMO capital Your line is open.

Thank you.

Just trying to get your fourth quarter guidance of 34 to 35.

No.

If you look at CR annualized.

On run rate, it's about 40 million.

And trying to compare that second quarter of $44 million about 10% difference.

So where does that.

Makeup come from that from.

Interest and other income because of the Chilean asset loan or some other item that helps Wisconsin at 30 435 type number.

Hey, John its investments that we've closed subsequent to Q2.

You've also got the preferred equity investment in interest and other income that's closing.

In Q4.

And.

That's pretty much at.

So then the acquisitions in Q2 is that fully captured in that 160.

Annualized my number on page eight if your supplemental.

Correct.

Okay.

Okay. Thank you.

<unk>.

Thank you and I'm not showing any further questions I'll now turn the call back over to Greg Stapley for closing remarks.

Thanks Bridge and thanks, everybody for being on the call.

Any other questions feel free to calls at any time, and we will be out at knee retaking meetings next week to several the analysts have.

A multi investors sessions with us and we'd be happy to chat with anyone and answering the questions. You have then.

So if you're going safe travels and we'll look forward seeing in there.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.