Q4 2019 Earnings Call
Ladies and gentlemen, thank you for same by and walking through the Caretrust REIT fourth quarter. That's a 19 earnings conference call.
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I'd like to him the conference over to controller Lorne field. Please go ahead.
Welcome to Caretrust REIT fourth quarter and year end 2019 earnings call participants should be aware that 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 dividends acquisitions investments returns financings and other matters all of which are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein.
Listeners should not place undue reliance on forward looking statements and are encouraged to review Caretrusts FCC filings for a more complete discussion of factors that could impact results.
Well as any financial or other statistical information required by FCC regulation G.
Except as required by law character Street and its affiliates do not undertake to publicly update every size any forward looking statements were changes arise as a result is new information future events changing circumstances or for any other reason.
During the cold the company will reference non-GAAP metrics, such as EBITDA, So and if he were sad and normalized EBITDA SFL FCB.
When viewed together with GAAP results. The company believes these measures can provide a more complete understanding of its business like cautions that they should not be relied a point to the exclusion of capital sports.
Caretrust yesterday filed its form 10-K, and accompanying press release and its quarterly financial supplement Egypt, which can be accessed on the Investor Relations section of Caretrust website at Www Dot Caretrust REIT stocks.
A replay of this call will also be available on the web site for a limited period.
Management on the call. This morning in food Bill Wagner, Chief Financial Officer <unk>.
<unk> Sedgwick, Chief operating Officer, Mark Lam, Chief Investment Officer, and Eric Gillis Director of asset management, I will now turn the call over to Greg Stapley, Caretrust Reed, Chairman and CEO takes more than a good morning, everyone. Thanks for being on the coldest today.
2019 get caretrust, the opportunity to evolve and make changes that we believe position us well for next phase of our growth.
Are you worried sometimes that the <unk>.
That the noise that we experienced in second half the year might mass effect that 2019 was our biggest you remember for acquisitions with over 340 million in new investments made in the year there were very excited about.
But more importantly, and part of the reason we're excited is that we made them with outstanding operators, who are doing a good job in those facilities.
2019 also required is as I alluded to face some hard realities as we looked across the portfolio.
We're pleased to report do we've completed all that were previously announced portfolio changes retenanting some facilities and disposing of others. We also had one unexpected mortgage loan prepayment and the sort in the fourth quarter. We now anticipate another early repayment in the spring.
The team will walk through those details in just a minute.
The goal as a reminder of these efforts has been the rents out any softness in our portfolio just to be sure that we always have solid foundation to build on.
So seats from dispositions and loan repayments are already being recycled into war desirable assets superior operators.
Naturally until we fully deployed the additional capital our revenues might run slightly behind where we were before the changes were undertaken but we're working hard to replace them as aggressively responsibly as market conditions will allow.
Our success in making these changes has reaffirmed our belief that principles are sound stewardship requires not only to grow and diversify earnestly, but to also pruning. The portfolio response, we from time to time.
It also reinforces our commitment to aggressively taco small problems, while they're still small.
So that in we continue to monitor in Iran interact with all of our tenants frequently.
We believe the rigorous application of these operating philosophies will produce the best overall long term results for Caretrust and our shareholders.
They should we expect this approach to continue fostering an atmosphere of accountability in high performance well for us and our operating partners well, helping us build a strong helping expand the organization that can stand the test time.
With that I'd like to turn sometime over to Dave talked about the changes we've made in current operations. The Mark will discuss recent acquisitions in the pipeline and Bill will wrap up with the financials and guidance Dave.
Thanks, Greg and good morning.
On our last call I provided detailed color on the actually then underway to de risk the portfolio.
With the exception of Medtronic, Michigan all of those actions were completed in the quarter as I described.
We're now watching the performance of the facilities, we retained and reposition closely and are encouraged by most of the progress today.
As a reminder, in Ohio, we moved four facilities from Trillium to our master lease with provenance recast trios rents and there are seven facilities.
And we sold the remaining three Ohio assets to communicate.
Our Ohio facilities are now largely performing as expected with these operators they still have ground to cover before we consider them stabilized, but we believe there on the right path.
And our seniors housing segment, we replaced one operator with noble senior services without any drop that given the incoming operators outlet for the portfolio.
It's still early but we're encouraged by some of the improvements we've seen occupancy out of the game.
Well continue to monitor all of these tenants and their operations closely to be sure pro Formas are consistently Matt and they're on their weight, you're reaching their full potential.
Finally, with regards to Medtronic I said on last quarter's call that we expected to sell the portfolio sometime in Q1 and this year.
I'm pleased to report that we closed on the sale of all six facilities last Friday February 14th.
36 million.
In order to expedite the transaction, we provided short term selling financing.
Leaving roughly 3.5 million in cash at closing.
Carrying the balance of 7.5%.
We expect to mortgages will be paid off by March 31st.
This quarter continues what we believe is the new gold standard for reporting with our top 10 tenant lease coverage slide in our supplemental.
We're showing you EBITDAR and EBITDARM coverage by tenant for approximately 84%.
Our annualized rent rental revenue.
One quarter to the next does not make a trend, but with time, you'll be able to have a stronger sensors. How these operators are performing.
Looking at the broader industry. There are basically three areas of interest to us and our operators.
First ppm second CMS is recent statement about Medicaid.
Third the impact of these things on deal flow, which I'll, let mark this disgusting.
First regarding Pdps, it's really too early from our perspective to make conclusions about PDP and impact on the industry as a whole.
There's certainly anecdotal evidence that some providers and benefited from PDP I'm as expected, but improved daily Medicare rates and lowering therapy costs. We've also heard others had been hurt by it.
So were frequently asked whether ppm might significantly miss his budget neutrality target function and take back rather draconian change by CMS.
We believe it PDP EMS change just set rates from patient characteristics rather than from therapy volume isn't much better approach and will produce better outcomes and we applaud CMS is efforts here.
So even if the budget projections turned out to be a little bit off we hope and expect that CMS will have the flexibility to thoroughly assess the impact before making adjustments if any.
Second we have also lately have been asked quite a bit about CMS is recent comments about their proposed Medicaid fiscal accountability rule or M.
We believe that recent comments by CMS reassure any industry. The they have no plans to cutting Medicaid payments or otherwise.
Wrung out from under those states supplemental payment systems should effectively allay fears of a significant impact in the near term. We don't expect in conversation to go away. However, I will be tracking the discussion as it affects the states where we have assets.
With that I'll hand, it over to Mark talked about the pipeline Mark.
Thanks, Dave and Hello, everyone.
In Q4, incense, we've closed approximately 48.5 million in new investments. This includes 70 bed skilled nursing facility located in but I still California for which we paid 8.7 million and a 99 bed snap and 72 unit assisted living.
Saudi campus in Sacramento, we picked up for 14.2 million, both of which have been leased to our existing tenant Calista health care.
Scheduled cash rent for the first two years of approximately 3.9 million has been added to collapsed as master lease with us and both facilities are performing ahead of expectation.
We deployed eating into half million to acquire Cascadia Boise brand, new steady our 99 bed skilled nursing facility.
Located across the street from St Alfonsin's Medical Center in Boise, Idaho, adding 1.67 million, a new rent to our master lease with Cascadia health care.
You may recall that we jointly developed this asset with Cascadia jury preferred equity financing.
Mangement, which allowed us to get the property had an advantageous price, while allowing them to lease it from us at our rent that was below market for a new asset this quality.
This was our second new gold with the Cascadia team and we look forward to more new construction with them in the near future.
Lastly, we just acquired Barton Creek assisted living 62 unit memory care facility located on the campus of Lakeview Hospital on Bountiful, Utah.
Lisa Barton Creek to our outstanding existing senior housing tenant base Shire singer communities.
Adding just under 600000 in rental revenue to their master lease with us.
We look forward to further growth with day Shire as well.
Numbers quoted for all these deals were inclusive of transaction cost and the initial cash yield are all disclosed in our supplemental.
Our total investments for 2019 exceeded 340 million, which was our best year ever all at a blended yield of 8.8%.
Turning to the market.
We've seen it heat up a bit over the last few weeks prior to that it was very slow, especially on the snow side as Dave mentioned, we suspect that some SNF operators, who might otherwise be sellers than on the sidelines waiting to see how PDP m. might shake out.
We believe this is a temporary phenomenon.
That might be making deal flow at that lighter at present.
Certainly makes valuation of the deals we do seem a bit more complicated in the short run we're working through that and we have no reason not to expect to get our fair share of acquisitions. This year.
On the senior housing side, there are plenty of assisted living memory care deals out there right now, but most don't fit with our for operators objectives, some meaningful opportunities for us in that asset class had been fewer and father between.
We are getting a few as you just saw was the Barton Creek deal, which we're very excited.
The pipeline as we sit here today is right around 150 million.
Consist of a few singles and a few small to midsize portfolios, we anticipate placing a majority of the buildings with our existing operating partners.
We anticipate bringing some new relationships into this into the Caretrust family as a result at these opportunities in the pipe operators, we know very well and have had substantive conversations with over the past few years.
Please remember that when we quote our pipe we quote deals that we are actively pursuing which meet the yield coverage and other underwriting standards. We have in place from time to time.
And then only if we have a reasonable level of confidence that we can lock them up in closing now I'll turn it over to build to discuss the financial.
Thanks, Mark for the quarter normalized AFFO grew by 20% over the prior year quarter to 32.5 million or 34 cents per share a normalized EFI de grew by 22% to 34.1 million or 36 cents per share.
Our payout ratio remains at four among the lowest of our peers at approximately 66% a normalized FFO and 63% on normalized EFI de.
Leveraged continues to be at all time lows.
The net debt normalized EBITDA ratio of 3.3 times net debt to enterprise value of 21% as of quarter. It.
Updated guidance for 2020, we expect normalized FFO per share of $1.32 to $1.34 and normalized FTD per share of $1.38 to $1.40.
This guidance includes all investments and dispositions made to date.
Expected loan pay offs in Q1 of approximately 32 million.
Sale of our one remaining independent living facility in Q1.
Diluted weighted average share count of 95.6 million shares and also relies on the following assumptions one no additional investments or dispositions other than the ones I mentioned, nor any further debt or equity issuances. This year.
To inflation based rent Escalations, which account for almost all of our escalators at an average of 1.75%.
Total rental revenues for the year again, including only acquisitions made today, our projected at approximately 167 million, which includes 77000 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.
Three interest income of approximately 1.3 million.
This is down 2.5 million due to an unexpected loan payoff in Q4 of last year as well as the now expected pay off of the loan we made to communicate our when we sold them three Ohio assets.
This decrease was slightly offset by the short term loan we made in conjunction with the sale of our Michigan assets.
For interest expense of approximately 26 million in our calculations, we have assumed a LIBOR rate of 1.75% and a grid based margin rate of 125, bips on the revolver and 150, Bips I'm, a seven year term loan.
Interest expense also includes roughly 2 million of amortization of deferred financing fees.
And five we're projecting DNA of approximately 13.9 million to 15.8 million.
Our gene a projection also includes roughly 3.7 million of amortization of stock comp.
This range is up approximately 2 million on both below in the high end from our previous guidance due to expected new hires we intend to make to strengthen our team and increased wages and stock.
Leverage and liquidity positions continue to remain strong we did not sell any shares under our 300 million dollar ATM that we put up last year and our revolver balance currently sits at 75 million.
So our credit style stats calculated on a run rate basis as of today, our net debt to EBITDA, It's approximately 3.6 times.
Leverages about 20% of enterprise value and our fixed charge coverage ratio is approximately 6.4 times. We also have 12 million of cash on hand.
Finally, you'll notice that we put back into our Q4 supplemental.
Folio performance by asset type based on all the feedback we've received since we last took it out.
I will turn it back to correct.
Thanks, Bill, there's really a bit a news we'd like to share with you before we open up for questions today.
Well, our first priority will always be the creation of long term value for shareholders. We believe that sustainable development practices inconsistent attention to social and governance priorities that can help enhanced value over time.
We're pleased to report the yesterday, we've published a number of policy statements covering corporate responsibility.
Well many of these statements simply memorialize our existing practices and philosophies, yes. The exercise has given us the opportunity to get these core values on paper in shares in both internally and externally.
Among other things we've updated very internal code of conduct business ethics. We've also crafted the vendor code of business I think he will soon begin distributing it to every vendor with whom we have a material relationship.
We like why is that memorialized our positions are policies on human rights human capital and environmental responsibility.
One of them, we're unique policies as our new tenant code of conduct in corporate responsibility.
It creates a model for a new kind of responsible partnership between triple net landlords and tenants. We believe it is a first of its kind document for fully triple net non Shaw non RIDEA read.
Our hope is that this partnership approach will allow us and our triplett tenant to make walk positively the kinds of positive changes that landlords.
Who have full control over their properties can make unilaterally.
We also hope that it may actually distinguish us as a more attractive capital partner for perspective tenants in the future.
This will be an ongoing project a nationally implementing that program and treme buy in from tenants will take some time.
It's going forward, we will be working on a periodic reporting pattern that our stakeholders can look to in order to gauge our continued progress on this front.
And all of these policies can be found on the Investor section of our web site.
We hope that this discussion has been helpful to you. We thank you again for you continued interest and support and with that we'll be happy to answer questions Michelle.
As a reminder to ask a question you will need to press star one telephone.
Your question plus the pelkey.
Please standby, we've compiled the Q and a roster.
Our first question comes from Chad Vanacore of Stifel. Your line is open.
Hey, Good morning. This is that's kinda on for Chad.
Steve in your opening commentary you mentioned.
Our Medicaid fiscal accountability rule can you just tell us how much of that revenue in your existing portfolio.
Could be impacted by that I think.
Packs, Texas in Indiana.
Yes, so M is.
Yes at this point, we've seen really unified opposition from hospitals, and insurers and everyone bipartisan opposition from governors to senators to.
So the rule it as it's been written.
The public comment period closed on January 31st in CMS now has about 4000 comments to go through before they.
And decide whether to finalize the rule or change it.
We don't expect.
There will be significant impact based on.
Everything we've we've read so far.
There's basically that provider taxes.
Methodology, which is largely.
Employed by almost all the states.
If there's if there's a problem that CMS has with a particular states.
Criteria, there, they're going to have time to to change how they do things to show that theres.
Quality outcomes as part of the measure man or whatever CMS is looking for so we don't we don't expect that to go away I I think you PL.
Component is probably the one that's.
Are the most largely at risk, but again, there's going to be.
Period of several years for these operators and states to work out something or transition to something else.
Away from you PL, just to something else to protect that that revenue.
The Medicaid.
Revenue as you know in skilled nursing is just not rich enough to.
To cut.
Medicaid knows that the signal that they're not in their intention is not to cut the the Medicaid funding from this.
So we think it's really an attempt for transparency and accountability.
CMS wants to see so we're not really.
Projecting are giving out any guidance or numbers as to.
A threat to the cut in revenue that we don't expect.
Okay, Great. That's very helpful, but does it impact youre underwriting of potential acquisitions in certain states.
Hey surface Mark I think if you look at states that are affected by you PL you have states like Texas, which is kinda has some called clip and we don't underwrite CWIP into our and do our new acquisitions. So I think other states that.
Little bit more embedded say, maybe Idaho or Montana.
You know in there we're very careful in terms of how we you know how we use that revenue stream and how we value that revenue stream, but.
Like most of our peers, we don't we don't ever.
Do you PL.
You guys, we look to acquire assets.
Okay.
Perfect and then just shifting to the top 10 operators in your portfolio you I think it was.
Well some of that you guys provided the coverage metrics for those but if if I look at it seems like most of the operators are flat to slightly up which is great, but the two that jumped out anywhere.
Providence group coverage and the Premier.
I know, we talked last quarter that you mentioned Premier has one building in particular, that's causing a temporary drag on their coverage, but is there anything else meaningful that's.
Dragging down the operator, and then should we expect province group coverage to rebound from PDP EM.
So with regards to Premier This story, there really hasn't changed from from last quarter.
So we would expect to see covered start to stabilize here in 2020 as those regulatory challenges that they had we're kind of throughout 2019 for for the majority of a year.
So you're probably not going to start to see that until we start to see Q1 numbers come in.
What you're not going to see until Q2.
And then.
But regrets or Providence, yes, there is really simply.
Ties to the addition of the Ohio portfolio, but they stepped into.
That's right there their coverage down.
And.
They'll they'll take their time to.
Stabilized.
Part.
Buildings are doing.
As expected when you when you take over act.
Yes, some underperforming assets it takes a little bit of time to get those things stabilized and so.
We're not concerned about about we think that that's going to.
Eventually in 2020 start to show better coverage.
Alright, great. That's it for me thanks for taking my question.
Good.
Our next question comes from Jordan Sadler of Keybanc capital markets. Your line is open.
Just one follow up.
On the coverage.
Yes.
So a little differently sequentially.
No.
And.
Maybe I'll say.
[music].
That sequential.
Softening, but I know that it's only through threeq.
Got it curious germs and the expectation as we roll forward.
We'll.
Recent trend be sustained or you think ultimately will be.
Reversal.
Either following reimbursement or just as a result, considering the individual business plan.
Yes, the operators that huge wind down over the years.
Well, John and see each of these operators has their own unique story and.
Hard to paint a broad brush overall, the top 10 tenants. So I guess, what we could say is that.
You what I would expect if I were used to see.
Coverage kind of go up and down slightly.
From quarter to quarter for for a whole host of reasons that operators.
Hi, good quarters, and then some some challenges and.
No.
So.
We don't expect to draw much in terms of the conclusion from one quarter to the next but.
As you string four or five quarters together you can really see how these guys are performing.
Okay and then.
As it relates to.
Line.
Well, maybe mark want to jump in.
Yes.
What is the expectation in terms of timing based on sort of.
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About.
What we're seeing in the fourth quarter answered it sort of expectations.
Sequentially salaries.
Have you guys buyer.
And first half of this year.
Yes, I think you can bifurcate.
No. There's there's a lot of Theres a lot of senior housing assisted living out on the markets.
He stated that in the prepared remarks on the on the Snus side. You know, we we have seen an uptick over the last couple of weeks in the pipeline.
Not sure that's.
That's okay operators coming off the sidelines.
PDP and they if they kind of seen seen enough in there and they are ready to sell or if folks. We're just looking to get pieces of their portfolio fixed.
So we're we're little bit unsure as to why the the uptick has has has taken place, but we are encouraged by the deal flow that that has come in of late and it.
We obviously head into then to the Nick.
Two weeks and would expect to see.
Additional deals there so.
You know, we're we're cautiously optimistic that we're going to start to see a.
You know kind of more normalized.
Slow and it's in skilled nursing deals that that we see us.
I think I think it ready.
Jordan its Greg let me just added that we've already indicated that the latter part of last year. The deal flow felt kind of light and and so is the pipeline just starts to refill now you can probably anticipate that.
The acquisition.
Volume will probably be.
Loaded towards the middle and back of the year.
More heavily at this point, assuming that what we're seeing right now holds.
Can you characterize the uptick as.
Many individual like one off and wanting to sort of properties had come to market over the last.
Year to date or has it been a couple of portfolio.
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Yeah, I thought I think.
Yes, that's all so it's.
Its continued divestitures of non strategic assets for regional operators, it's maybe a mom and pop that are looking to exit and then and then you have small to midsize portfolios of say four to 10 assets that you.
Yes.
Groups that are looking to looking to get out altogether. So it's not.
It's not you know I think obviously cap rates are are what they what they are you know that particularly in certain regions, California. The southeast mid Atlantic I'm still are very very competitive.
From a geographic geographic perspective so.
But there is not it's not like a flood of mom and pops or it's not not a lot of say traditionally Medicaid operators, it's really kind of a catch all of you know people paring down their portfolios.
And then some people just getting out of business.
Okay, Thanks sort of color.
Sure.
Our next question comes from Steven Valiquette of Barclays. Your line is open.
Hi, Thanks.
Good morning, everybody here on the West Coast. So two questions here first just what's kind of long when it's I apologize in advance, but just your comments around PDP and were helpful. And just a quick follow up question on that topic is really just given the timing each year of when proposed rate updates come out.
Lets say around me first each year for proposed rates and file rate published around August 1st.
My personal view is that there was probably only a small chance that CMS would have enough data to really make any sort of well informed decision around hitting versus missing a budget neutrality targets to change sniff Medicare reimbursement for fiscal 21 related to PD PM. I guess the question is whatever the revenue and profit trends are for SNF operators in the first.
Next month or M. P. D. P. M do you and Oreo industry insiders in general thinking what's realistic that seems to make any quick adjustments.
I, just snap reimbursement for fiscal 2021.
The next six months or so or would they more likely want to see one to two years of financial trend to make an adjustment for MB fiscal 22 at the earliest.
My question makes sense.
Yes, it does.
We think it's we think it's less we think it's more likely.
That.
They would not be making.
A big decision based on the limited information they received so far so we agree with you there we think Mark Parkinson recently ahead of OCA.
As has basically suggested the same.
So we would be surprised if they made a major change.
Later on.
At this late summer early fall.
However, there's you know.
Theres precedent for being surprised by CMS.
And so you can sleep on it but.
But the short answer is yes, we agree that would be surprising.
Based on limited information that they have so far to to make big changes.
Okay. That's helpful.
To follow quickly on that last one of discussion around sniff.
Transaction flow overall across the industry and there was another large health care re company that talked about.
In today's skilled nursing market pricing is so hot they'd rather be him a seller instead of a buyer I don't know that was a comment that you caught or not but just curious if.
You want to comment further on the up other operators have that view you know how you kind of think along those lines.
Uh huh.
No I remembered another out here I read just to be clear sorry about that.
Yes, Steve It's Greg I think I think that's interesting comment.
You know all of our at least Oliver all of our properties are subject to long term.
Leases and if we had a tenant who was actually doing so well that the property was it could go out and command a super high price.
We'd have to.
Not only probably split.
The.
Any game on a sale with them just to pay them to terminate their lease, but we simply give up.
Very good lease with very good coverage, so we would not be sellers, who good assets in this market.
The kind that would command those kind of premiums.
And.
But on the other side.
It sure is making it challenging defined.
Sets that we can get into at the right price.
We are getting them, but it is it is hard work and requires to be out there, beating the bushes per yard.
So.
The 340 million that we did last year in acquisitions, which was predominantly sniffs.
Was was significant for us and.
We hope that we can replicate that where somebody like it this year.
Okay I appreciate the extra color. Thanks.
Our next question comes from Michael Carroll of RBC capital markets. Your line is open.
Yeah. Thanks, Greg I wanted to touch on I guess in the earnings release, you kind of highlighted that there are few tenant still on your watch list.
Can you provide some color to that and how should we think about that how big are those tenants and why are they on your watch list.
Yes, I think I characterize them as smaller tenants Mike.
And and it'll be setting the past and I know, it's probably not appreciated, but we said in the past that everybody's going to watch list, but I know what you're asking.
We do stay close to them and in the but there are couple of tenants there the obvious ones. I mean, you can look at the top 10 list and see a couple of depressed coverage is there that have been on our watch list for while Dave's already talked about.
But the prospects for those two tenants are.
In the in the non top 10.
We're still watching like nobody lieutenant that we just brought in what they're doing a great job and.
But that's still a very fresh relationship and so we tend to stay closer to it.
But but beyond that I mean, the portfolio is pretty stable in and things are going fairly well.
Even the ones that you see there up in the top 10 list. There is a very good reason why Providence is depressed as Dave described let's Larry in some turnarounds into their coverage.
It was basically one month.
I was only September they took over September 1st in those three Ohio assets.
So their coverage you might see going forward when the fourth quarter drops in could be even a little bit lower but it's really not cause for longer because the rest of portfolio is doing fine. It's just effects effects of a full quarter.
In those three assets on the over a number and then premier which we still really like those guys.
We're happy that the regulatory issues that we described to you before seem to be behind them now and.
And it will take a little while for that coverage to pop back up because as you know report coverage on the quarter lag.
But.
It is onward and upward for them right now, we're cautiously optimistic but stay in Super close.
To them in every little thing that they're doing which we can't direct we can sure sure monitor closely.
For for progress and and to be sure. There is no further cause for concern there that helpful.
It is so I guess just wanted to make sure I understand so there's nothing new that you're tracking necessarily it's just tenants that have paid coverage or recently transition that you're staying close to but not necessarily expecting any type of problems here in the near term.
Exactly.
Okay, Great and the Bill can you talk a little bit about the guidance change.
And I picked up I guess your Gionee is up two cents for expected hirings can you talk a little bit about that who do you plan on hiring it seems to be a pretty big tick tick up in DNA is this a senior person or is it just multiple lower level people to to keep up the growth.
Yeah, Hey, I'm going to take that one Mike we we.
I don't think it was pool two cents for new hiring there's some additional there's some additional comp.
In there the starting to flow in stock comp and other things, it's impacting that but we.
If nothing else, we hope, we're learning organization and as Weve.
Progress through some of the challenges that we had latter half last year.
We've we've.
Come to realize that we are going to have to evolve it in order to.
Prepare for the next five years.
So we are we've run this thing.
I knew or shoestring with the shelf skeleton crew for awhile.
And it's just going to take a little bit more going forward as we as we mature so.
We are going to be changing some of Eric's rule.
And he has been our director Bassett management and portfolio management intended relations and we were in a lot of hats, and we actually want to expand what Eric doing for us.
Which means that we need to come back and backfill with.
Some.
Additional strength on the asset management side, So we were going to be out here near term.
Looking for help.
In asset management, and we expect that to be fairly senior level person.
Where people.
To help us.
Sort of get to where we really want to be.
As a as a growing right.
Okay, great. Thanks for that Greg and then just last question for me is did you disclose the expected loan payment that you plan on receiving in spring I mean, how big is that and is there a specific operate that relates to.
Hey, Mike It's it's bill yes that loan is relates to other three properties, we sold to communicate where we now expect.
Financing to come through a lot sooner than what we had previously anticipated and that's really two loans. It. It's a it's a mortgage loan as well as a.
Working capital loan and if they total about 32 million and now we expect to get them.
Just after Q1.
Okay, great. Thanks.
<unk>.
Our next question comes from Commerce diversity of Bamberg. Your line is open.
Hi, guys. Thanks, having me on the call I'm just a quick question on the property you picked up and you talk you just touch on some of the market dynamics. There maybe what do you like what you don't like and if the somewhere you'd be looking to extend the portfolio in the future.
Yes. This is this is mark.
No I think I think in that in that particular part of.
Part of Salt Lake City, just north of Salt Lake City one.
This is sell these located on campus to the hospital.
There's a there's a class a brand new build that.
It's kind of attracting a different type of customer and the property that we picked up is you know I would say you know kind of a minus b plus and is going to be little bit little bit more affordable.
Great physical plants.
Great location with respect to amenities and ancillary services.
And just allows our operator, who had a desire to to grow his footprint up into a up into Utah, we've seen opportunities up there in the past and just haven't been able to.
To pair the asset with an operator that we liked and so in this instance, it the stars somewhat aligned in our operator.
Really felt like he could bring his model of working closely with health systems and in insurance companies as well is obviously the private patients that were already there.
Inside that facility. So he felt like he could bring his model that he's proving out here in southern California and.
And can expand it to Utah.
Hi, Thanks for that and then just a little more general skilled nursing the certificate of need laws are you seeing any any plans or maybe any narrative of relaxation law than any any particular safe.
No not not.
I think there have been talks about it in Texas you know they were hanging out there were handed out that licenses in better rights, maybe year year and a half ago.
A little too.
A little too easily we've seen we've seen that.
Pare back a little bit there were some some discussion.
Last year when the legislative session was open that maybe they would.
You know put some sort of.
You know some sort of stay on the ability for developers to.
To attain better rights, but that obviously didn't even make its the floor.
So I.
I would say that's probably the last.
Over the last whispers that we have heard in the states that we that we know well.
But no other discussions that we've we've heard us.
Okay. Thanks, and one last one from me.
Looking at 2019 investments blended yield 8.8% are you comfortable at that level would you would you go any lower or just kind of provide some kind of color going forward.
Yes. This is Greg you know it's interesting we were just having a conversation about that yesterday and wondering.
If if.
The lower cap rates demands that we're seeing from sellers are are sort of and becoming a new normal I don't think we.
I don't think it is but it might be little too early to tell.
So look at what we've said recently and still believe is that.
Well yields are important coverage is more important and so we've increasingly place.
Stronger emphasis on coverage going into the deals that we've been going into lately and if that means that we give up some yielding though below nine below 888.
To get that we're comfortable with that our cost of capital has been steadily ratcheting down over the past couple of years and we can still feel pretty good about our ability to get the spreads do we want.
Even at lower cap rates in the higher coverages.
Okay. That's all for me thanks.
Thank you.
Our next question comes from Todd Stender of Wells Fargo. Your line is open.
Hi, Thanks, and then.
Great kind of in that theme of coverage, but the newly built Cascadia Boise.
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To make that financial commitment a couple of years ago.
You, obviously had some underwriting at some coverage assumptions how was that play out compared to maybe what she would underwrite it today.
I'm going to let mark take that wouldn't talk I know I think it I think it's.
There are obviously the buildings the building still maturing I think when we closed on it.
The occupancy was probably low seventies.
Skilled mix was I think kind of mid teens.
So we expect probably on the on the skilled mix side to that will level out probably in the in the mid to high Twentys and occupancy we would expect to see.
I'll be in the high Eightys low ninetys. So we feel like there's there's definitely some some runway left for that asset.
Cascadia is overall portfolio coverage is very very strong so we're not.
We we actually triggered the option call it a little bit earlier, because their coverage was was so good and I'm not allowed them to kind of keep rents at the numbers that they.
But they felt like were manageable.
But then also felt like our coverage still have room to run so I think it'll be interesting when it when that asset levels out.
We'll be.
We would expect it to be well north of one five.
All right that's helpful.
And then not sure if I missed this with the priority life care transition to noble.
No we see a lot of transitions just with operators I'm getting swapped out and this one.
Sounds like the way you get guys described it no rent leakage, but certainly theres lot of mechanics behind this can you speak to noble can you speak to what triggered the transition and then maybe any financial or capex commitment, you're making to the facilities.
Well sure what triggered the transition was a conversation last year with the outgoing operator.
Priority life care.
About their outlook for the facilities and there.
Their strategic decision as a company to want to focus more on.
The consulting and management fee business as opposed to owning the operations outright.
We took that.
Opportunity to look for a new operator.
And and found noble.
And we've been really pleased with them.
We committed.
Some capex dollars.
To these facilities and.
We'll help them to too.
Reach their goals of.
Maximizing the census potential that's there.
It was it's kind of a story of an operator that is switching their strategy and and at the same time finding in other operator, whose whose strategy really fits these buildings.
Perfectly well.
And.
So we were able to to make that change.
All right that's helpful and just last one the seller financing that you're providing for Medtronic.
The long tails peered seems pretty tight they have to pay back going into March.
I assume they're not getting HUD financing that takes forever, but you know what kind of the access to capital do they haven't and you know if they don't pay it off on time what are some of the.
Some of the assumptions there.
Yes, so they're going to be pursuing a bridge to head.
Financing.
And really the only reason we stepped into to.
Do the seller financing like we did is because.
Couple of things that it really broad certainty.
To the transaction as soon as humanly possible after the state of Michigan approved the.
The C O N and licensing would be approved so we wanted to as soon as we got that approval, we wanted to be able to close disturbing certainty and closure to the deal.
And it provides us with a little bit more income as well, we'll be able to.
You know get interest income for the second half in February and all of March that we wouldn't have gotten otherwise.
So that's really what was behind it is just being able to to bring this transaction, which had start which is a lengthy process, particularly with all of the.
The dynamics involved with this operator in Michigan.
To an end.
Alright, that's helpful. Thank you.
No.
As a reminder to ask a question. Please press star one.
Our next question comes from John Kim of BMO capital markets. Your line is open.
Thanks, Good morning.
I was wondering if you could comment on premier and its ability to stay current on run it looks like your assets with them represent almost half of their.
Managed communities and I know you expect some stabilization, but I'm just wondering.
You know about their financial stability.
Yes, we.
Yes, sure that we can.
Say much more than than the color, we've given last quarter and on this call today their current we've got personal guarantees.
They are performing better today than they had.
In the quarters that you're looking at I mean on the coverage slide.
So we don't have any reason to believe that they won't be able to continue to pay the rent.
I think bill you mentioned on an earlier answered your question I'm about to communicate alone being paid down early but I thought you mentioned on the last call that that you expected that to be paid out in March I, just wanted to clarify that payment.
In our on the last call I had that communicator loan being.
Paid off later in 2020, then and what I have.
In this round of guidance, so if I misstated.
I apologize I don't think I did though I wasn't sure. If it was that are related to trillium.
Financings I'm not sure if not the same.
Now both both the loans the loan they got paid off in Q4 as well as this communicator loan I had extended.
In the back half I had being paid off in the back half of 2020.
Okay, and that's accounting for about.
2.4 to 2.5 of mill.
2.5 million of change from last quarter to this quarter in the guidance.
Have you utilize ATM in January.
No we have not.
Is there anything we should read into that just the lack of.
The nation, both at the fourth quarter and the fear as far as.
Potential timing of acquisition.
I wouldn't read into it I mean, our net debt to EBITDA is at an all time low.
Interest rates are all time out a to use a little to run the line out a little bit is.
Seems practical to me, but again the ATM as.
As it is another great Tonight, and our toolbox, John It's Greg I would just add that.
You know that.
We've always beauty ATM as perfect vehicle for match funding or acquisitions, but if you look at what's happened we've had some acquisitions in the past.
Four months.
But we've also had the loan repayments and the sale.
Of Medtronic humming and just felt like we didn't really need to turn that thing on.
Because we were going to have this capital to be redeployed. So that that's really the whole story right there.
So as far as acquisition.
Volume on that basis. This year do you think it's gonna be.
Closer to 340 million like you did last year in over 112.
[laughter].
We'd be sure hope so I mean, it so it's so hard to make it prediction like that it's on because you can have a pipeline that's 340 million.
I think that you're going to close most of it and then for some reason you you only close a little of it so.
We'll we'll announce those deals as they come.
We certainly have our own.
Hopes and goals.
But but it's a it is definitely a tough environment out there.
Tough tough it's bit of a sellers market and.
And PD PM creates sort of a complication overhang on valuations.
And then we're just working through all that but as we said in our prepared remarks, we do believe that we'll we'll get our fair share of the of the transaction volume.
That's helpful. Thank you.
Thank you.
There are no further questions, let's turn the call back over to Greg safely for any closing remarks.
Thanks, everybody, we really appreciate you being on the call today and if you have additional questions you know where to find us.
We're always open.
Talk who will be out and about over the last few months it several conference investor conferences and those things.
So we look forward to senior take care.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a great day.
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