Q1 2020 Earnings Call
First quarter 2020 earnings call.
And 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 care trust business and environment in which it operate.
These statements may include projections regarding future financial performance dividends acquisitions investment returns.
Financing and other matters and may or may not reference other matters affecting the company's business or the businesses.
Including factors that are beyond their control such as natural disasters.
When do you make such as Cobot 19 and governmental action.
The company's statements today and its business generally are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied you're in.
Listeners should not place undue reliance on forward looking statements in or encourage to review here Chris.
Yes, you see filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by S. E C regulation G.
Except as required by law Caretrust REIT and it's a few years does not undertake to public you publicly update or revise any forward looking statements were changes arise as a result of new information future events changing circumstances.
Or for any other reason.
During the call the company will reference non-GAAP metrics such as EBITDA.
Oh, and F 18, or Fad and normalized EBITDA, if it's okay.
And F 18.
When viewed together with GAAP results. The company believes these measures can provide a more complete understanding of this business, but cautions that they should not be relied upon to the exclusion of get report.
Sure Chris yesterday, we filed its form 10-Q.
New 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.
Game that we.
Chief Operating officer, Mark Lam, Chief Investment Officer, and Eric Gillis, Vice President of portfolio management and investment.
I would now I'll turn the call over to Greg Stapley, Kickers rights Chairman and CEO.
Thank you Sylvia good morning, and welcome everyone.
We'd be remiss, if we didn't start todays call with a tribute to the nation's health care providers, particularly the frontline staff, so working tirelessly to protecting care for individuals affected by cobot 19.
Especially Michael the caregivers are nations skilled nursing in assisted living facilities, we're giving their ultra protect most vulnerable segment of our society.
We're gratified by the outpouring of support we have likely seen for them and the great job, they're doing under extraordinarily difficult circumstances.
We will also caution in the strongest possibly terms for those few critics, who have not walk in their shoes. They should become much better informed before for me are expressing opinions on what should we should not be expected in these care environments. During the current pandemic.
With the exception of a few isolated cases to get all the media attention our nation's skilled nursing and assisted living providers, let's see here management to the frontline's for doing a remarkable praiseworthy job.
We're also grateful for federal and some state governments, who worked quickly to provide financial support and regulatory relief.
These common sense adjustments are helping providers delivered the best care possible well dealing with a highly transmissive bull and initially poorly understood contagion.
We applaud the supplemental payments made to date nerds urge policymakers everywhere to increase their focus into director ongoing funding decisions toward skilled nursing and seniors housing providers for protecting our most vulnerable elderly going in for.
We believe that until then effective vaccine is widely available focusing on a rigorous testing in prevention in these places very places where a large percentage of the virus target demographic live due more to stop the press spread and reduce the mortality rate now almost any other effort we can make.
No we who is contagious has been the missing puzzle piece from the beginning.
And when it comes to actually saving lives the value of immediate results point of care molecular testing cannot be overstated.
I also want to know the efforts work standing portfolio management team and help your up readers and other friends across the industry is the continued battle through the pandemic.
Dave and Eric in particular have stayed close to where tenants through these frequent conversations and their own de backgrounds in health care operations.
I understand the unique challenges our operators are facing in a very personal and insights away.
Dave will take more about it in a moment, but let me just say how proud I am or the way they Marshall our resources to quickly help our tenants get ahead of the curve as worldwide P.P.E. shortages begin to spiral out of control.
And we'll continue to look for ways to help support these tenants.
That's for Caretrust I'm pleased to report that the company is in good shape today.
With rents coming in as expected low leverage.
No debt maturities on the horizon before 2024.
Over half a billion in availability on our revolver around 45 million in cash on hand.
Payout ratio of only 71% normalize that notwithstanding the 11% increase in our dividend recently.
We're very liquid and well positioned to weather the present score.
Well, we intend to retain ample liquidity to see us through should the current environment persist longer than expected.
Exactly for times like these that we keep some dry powder on here and as Mark will outline in a moment, we're in a position to continue pursuing compelling opportunities to grow.
Bill will talk about it in greater detail, but let me just say worried about guidance.
With much related to pandemic still unresolved, we acknowledge that any annual earnings guidance offered at this time would seem specs you little bit best.
However, with the support or tenants are receiving it appears possible, but our previously issued guidance could be achieved although we caution that the unknown still loom large and we'll continue to do so for some time.
Believing that the active withdrawing guidance could be regarded as a form of guidance in of itself, you're accordingly, neither updating nor withdrawing our prior guidance rabbinic hobby ought to significant changes in economic and other factors related to the cobot 19 pandemic and the government's responses. There are two could alter our outlook in the future.
Of course, you knew that already said it probably feels like weve, given with one hand and taken away with the other we simply want to convey that despite all the uncertainty there is a possible path through this for us and our tenants today and we are working very hard to make that happen.
With that I'd like to turn some time were today to expand upon kobin nineteens impact on the industry in our portfolio than Mark will discuss recent acquisitions in the pipeline Bill will wrap up with the financial state.
Thanks, Greg and good morning.
I want to spend my time with you addressing the common questions, we've been receiving related to the pandemics impact on operations.
It wasn't too long ago that several of us for operating facilities.
Hope at our experience plus the constant communication, we've maintained with our tenants since March.
Help us provide you with a clear sense of what's happening.
As of this week, we have 29 facilities across eight operators reporting at least one positive coded patient case.
While we recognize that those figures or if some interest to you. We have generally viewed the running kobin counts as a bit of a red herring due to the inconsistency in testing practices industry wide array.
Early on our thesis was that annual report of Cobot cases would be grossly inaccurate and lower than the true numbers, our expectation has been that most facilities, including some of the very best ones.
To deal with coven at some level.
We believe those expectations are being borne out although to date, we see significant variances from market to market and we'd be happy to be wrong on that.
Skilled nursing facilities have the protocols and staff for isolation precautions and routinely treat and contain highly infectious patients with contagion like C. diff, Morris say or neuro virus, they're good at it.
It is made cobot 19, different and particularly devilish or the asymptomatic, but contagious carriers, who can escape detection, but even the best clinicians and protocols and infect others.
Without readily available testing for the virus identifying infected individuals has been extremely difficult.
Add to that the sudden scarcity of personal protective equipment and even the best providers have been working with one arm tied behind our backs.
With only limited and delayed testing options when I suspected coded infection is identified wider testing at the facility often leads to the surprising discovery.
Dozens of other residents and staff also infected.
In a minority of cases, we've seen the virus spread like wildfire, resulting in multiple kobin related fatalities.
Those relatively few cases are the ones that make the news.
However, in most cases operators are able to contain an isolated and successfully care for the corbett patients and the facilities only sending out to the hospitals. The most critical patients usually only those requiring ventilators.
Our our part very early on we saw that P.E. and test team are critically important for operator's ability to contain the virus and treat cobot patients in a controlled fashion.
But our operators reported that they are relatively small P.P. orders were unable to get the attention of the big medical suppliers.
We began an accelerated dialogue with all of our operators and discovered a reliable source for <unk> reasonably priced P. P.
We leveraged our portfolio size to get the attention of a supplier and placed a seven figure order and behalf of our operators.
Not only did they get more P.P.E. and get it sooner we estimate that our bulk water resulted in roughly $2 million of combined savings for smaller tenants.
This week, we're working on another order a P P for them.
In addition to P. testing is the other problem that needs to be solved we believed that the Abbott style molecular test, which will tell you in minutes at the point of care is what our facilities need now. Unfortunately sales are currently restricted to hospitals clinics and laboratories, we need the white house to raise skilled nursing to that Sam.
Priority as soon as possible.
What's good information skilled nursing providers will be able to be instrumental in helping turned the corner on the spread of virus.
Next let me address occupancy.
First overall occupancy for seniors housing in April compared to March held steady.
These residents generally speaking are in much better health to begin with and those the nursing homes.
In April we saw more move ins unexpected. We believe this is largely due to the positioning of our midmarket facilities as more needs based than the more expensive private pay scale options.
Our seniors housing operators report that prospective residents and their children after being in quarantine for several weeks and often together.
Our coming to the realization that they could not get the assistance needed in their homes and they couldn't afford to wait to move into assisted living.
On the skilled nursing front.
Occupancy has declined.
Outside of the Kogut hot spots hospitals have been in a hurry up and wait mode running incredibly low occupancy.
Largely stops non critical and elective procedures and emergency department volumes have reportedly dropped significantly.
Therefore, the skilled nursing facilities that depend most on short term rehab patients coming from hospitals are being hardest hit.
By contrast, the facilities it primarily care for the long term Medicaid residents are less sensitive to the sharp decline in hospital census.
Our snic portfolio consists of approximately 75% Medicaid residents and 16% short term Medicare or managed care patients also referred to as skilled patients.
Not including and sign who will report for themselves next week, our overall skilled nurse nursing portfolio occupancy dropped 370 Bips in April.
But the higher margin skilled occupancy increased in April by 240, Bips, providing additional revenue to offset the occupancy loss.
Now on the surface any drop in census may be a concern.
However, I want to make sure you understand an important levers at the current state of emergency grants to operators to help mitigate transfers to hospitals, it's called scaling in place.
Before the state of emergency.
A long term Medicaid resident would have to have a serious changes condition requiring hospitalization for at least three days to qualify for Medicare skilled services.
Today, because the government has waived the three day qualifying stay rule.
Patients, who have a change of condition, including but not limited to those who test positive.
Or our suspected to be positive for coated.
Maybe immediately build at a much higher skilled patient or Medicare rate without going into the hospital.
Let me just give you a little illustration today, a hypothetical Medicaid resident has a serious change condition.
But it's stable enough to be cared for in the facility.
A new care plans formulated appropriate cares rendered.
Now Medicaid and Medicare rates vary widely by geography, and patient, but save that yesterday Medicaid was paying about $200 a day for that resident.
Today, Medicare begins paying $800 a day for that patient.
So while we have seen parts of our portfolio experienced drops and overall occupancy increase we've seen in skilled mix, which can offset.
The financial head from census declines.
This emergency measure is one of several ways. The government is helping operators bridge this difficult high risk phase of the pandemic.
No doubt you're already familiar with some of the others. For example, the family first Corona virus response Act.
Under the families first act a temporary 6.2% increase in federal medical assistance percentages are estimates.
Was approved retroactive to January 1st 2020 in several states have directed SMS estimate funds dismiss.
Which had included some of our tenants couple of examples the state of Washington raise the Medicaid <unk> daily rate by $29 and the state of Louisiana reason Medicaid rate daily rate by $12, our estimated impact to our portfolio is approximately $5 million.
There's also the krona virus aid relief and economic Security Act and its several components under the Cures Act a substantial number of our tenants have received or are expected to receive assistance from a 100 billion dollar fun provided for eligible health care providers, which includes operators of sniffs.
Additionally, a payroll protection program was established under the cares act to provide forgivable small business administration loans to eligible businesses and many of our tenants qualify.
Cures Act also includes a temporary suspension from May 1st 2020 through December 31st 2020.
Have a 2% Medicare sequestration cut.
And a deferral of employers social security remittances through December 31st 2020.
The combined carries estimated benefit for our portfolio is approximately 60 million.
Looking forward as we weigh the several headwinds along with the support provided today.
We see a path for our operators to continue to care for their residence keep their caregivers fully employed and pay their rent as the fulfill their role as a critical part of the solution to the crisis.
Thanks to the emergency measures taken by state and federal officials liquidity has actually improved from most of our operators, including those who have been in our watch list in recent quarters.
In April we collected 99.3% of contract rents.
As we sit here today, we've collected 99.8% of May rents.
With that ill pass the call over to Mark to talk about investments Mark.
Thanks, David Hello, everyone.
We kicked off the year, two previously announced transactions, which totaled 25 million in new investments.
In mid January we acquired Cascadia, Boise for reaching an app.
Just give you have.
As a brand new steady the yard 29 bed skilled nursing facility located across the street from seeing Alfonsin's Medical Center in Boise, Idaho.
1.67 million in new rents, where master lease with caskey okay.
A month later in mid February we acquired Barton Creek assisted living.
62 memory care facility located on the campus, we view hospital in balance will Utah, we talked this acquisition onto our lease would be shires communities.
At about 600000 rental revenue to their master lease with us.
The numbers quoted for these deals when inclusive of transaction costs in the initial yields are all disco disclosed in our supplemental.
As we assess the current investment market, we've seen volumes dropped off significantly as operators.
From actively selling.
Taking an all hands on Dec approach to Balco, the 19 in their buildings and portfolios.
We are deals currently on the market, there's a significant delta between sellers expectations and buyers ability to underwrite and value deals with a number of unknowns.
Forward looking run rate revenues as well as expenses.
The ability to underwrite deal side by side with our operators has never been more important than it is.
Environment.
Speaking of underwriting we continue to look for Mismanage assets that are moderately performing where operators can come in and make day, one changes to both revenue and expense items.
How we account for Coca 19 changes to revenue and expenses is facility dependent and we are closely working with our operators to bacon necessary adjustments to account for potential challenges going forward.
Finally operators, who are interested in and capable growing during difficult times is extremely challenging as I understand.
Different spots in our portfolio.
I have been less impacted by 90 and some of them as operators are interested in growing despite the prevailing challenges.
Many banks in traditional buyers and say.
I didnt sidelined for voluntary and involuntary.
So our balance sheet, which was built for times like this combined with our execution ability in closing certainty provide us with the competitive advantages we continue to work to grow our portfolio.
The current pipeline system 100, 125 million dollar range.
It consists of our bread and butter singles and doubles, but also include some portfolio opportunities we're really excited about.
We intend to leverage our existing lease coverage for a majority of the opportunities while continuing to look for opportunities to add any new relationship for too as we match assets with operator skill sets.
Please remember that wouldn't be quarter fine we close deal that we are actively pursue.
Coverage and the other other underwriting standards, we haven't place from time to time.
We have a reasonable level of confidence that we can walk them up and closed.
Now I'll turn it over to build to discuss the financials.
Thanks, Mark for the quarter normalized FFO grew by 16% over the prior year quarter to 32.3 million were 34 cents per share normalized F.A.D. also grew by 16% to 33.7 million or 35 cents per share.
A payout ratio remains at or among the lowest of our peers at approximately 74% on normalized FFO and 71% on normalized Epay de.
Leverage continues to be at all time lows at a net debt to normalized EBITDA ratio, a 3.5 times and a net debt to enterprise value of 28% has a quarter end.
And our fixed charge coverage ratio is approximately 6.4 times.
During the quarter, we put in place a new 500 million ATM and 150 million stock buyback plan neither have been utilized today.
Our liquidity remains strong with more than 45 million of cash on hand.
525 million of availability under our revolver, we produce roughly 10 million of cash per quarter, even after our recent 11% increase in our dividend.
Cash collections for contractual cash rent in May were 99.3%.
And our up so far in may at 99.8%.
While we aren't withdrawing our previously issued guidance for 2020, given where we stand today, let me give you some additional color on some of those assumptions that were used in that guidance that had us for the year and normalized FFO per share of $1.32 to $1.34 and normalized EFI deeper share of $1.38 to one dollar.
40 based on a diluted weighted average share count at 95.6 million shares.
Total contractual cash rents were projected at approximately 167 million for the year, which included $100000 a straight line rent and assumed cpis at 1.75%.
No additional investments were made since our last call. So no material adjustments to this number.
Interest income was projected to be around 1.3 million.
I expect this to be a bit bigger given the 32 million mortgage loan payoff is now expected to be one month later than previously expected as well as the recently read on short term seller financing that we made on the Michigan assets will now be paid off in Q2.
These expected payoffs will further strengthen our liquidity and together with cash on hand, and should we decide to enable us to fully paid down our outstanding borrowings under our revolver.
Interest expense was projected to be approximately 26 million. This assumed a LIBOR rate of 1.75%, which has a lot higher than it is today, given the LIBOR rate and assuming we pay down.
The line a bet with our excess cash on hand, I would expect interest expense to come in a bit lower.
Interest expense also included roughly 2 million of amortization of deferred financing fees and I don't think there will be any change there.
We projected GNS of approximately 13.9 million to 15.8 million, which includes roughly 3.7 million of amortization of stock comp. This range is still pretty reasonable.
As Greg noted in yesterday's press release and again in his remarks today, although there's a lot of uncertainty around what comes next in the pandemic. Our tenants are performing and we expect they will be able to continue doing so for the foreseeable future. So to withdraw guidance for us seems premature at best right now.
We simply point out the obvious that significant developments in the Kobin 19, pandemic and the government's responses there too could alter our outlook in the future.
Exactly how it might be altered depends on who's Crystal ball you prefer to look at as for us will be staying close to our tenants and working hard to help them and by extension us to navigate our way through the remainder of this thing 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 interest in supporting with debt will be happy to answer your questions Sylvia.
Ladies and gentlemen in order to ask your question. Please press Star then the number one on your telephone keypad again to ask a question. Please press star one on your telephone keypad.
Your first question comes from Jordan.
South learn from Keybanc capital markets.
Thanks, and good morning out there, but if you guys are all going well.
My first question relates to scaling in place.
Dave I appreciate the insights and all the detail there.
Ken all of your operators do all of your operators have the sequential too.
Access these programs I mean, the Medicare.
Selling.
Yes so.
The ability to scale in place is.
Sellable to all.
Skilled nursing Medicare providers today.
And it does like I said, it's not limited to those who test positive or suspected for cobot, it's really.
In the into lingo the operators there the clinicians the change of condition.
Observed so that could be a fever it could be.
A whole host of.
New symptoms.
Has resulted in the past needing to send a patient to a hospital.
Then be treated in the hospital for a few days and come back and then when the patient comes back they come back as skilled or Medicare.
Now you identify the symptoms you get a doctor's order for some skilled services.
And.
Immediately you're you've converted that Medicaid resident to Medicare or skilled patient.
That's interesting you mentioned that thinking maybe sort of the prepared remarks, but also in the press release last night.
Maybe gregs comments that.
This sort of fall.
Under that umbrella in other words.
Were some doing this more effectively.
In late March and into April and I guess in April and others.
Yes, I think everybody's yes, it does fall into that category into those practices. We've also been sharing best practices around.
Responding to a positive case.
Of course.
There's it's been actually pretty remarkable to see how open and sharing.
Our operators had been not just with us in each other but throughout the whole industry.
There's been a lot of sharing of case studies of what to do and what not to do when you get a positive case.
And.
So we share that we share leads on P.B.E., we shared a ton of information.
As we've gotten into the weakness.
Early early on on the testing Fran.
The differences between the psychological and molecular test shared that widely with our operators as well.
And we pushed as far as we could with Abbott in particular to get those test for operators.
Until we hit a bit of a lot there.
So there's a lot of.
We're doing everything we can do as as a landlord to help.
Can you maybe elaborate there also just on the.
Yeah. The lab tests I mean, you did mentioned you need the white house in order to get those but so so where you stand on terms that testing what are you what are your.
Operators doing right now in terms of testing either.
Well.
Employees versus residents and what is availability look like.
I'd say that the common approach to testing.
Is it still fairly dictated by.
Local availability of tests in directions by by local authorities.
Generally speaking.
Testing is not done proactively on all residents and.
Employees and patients.
Although that that does vary by.
Geographies there have been some places like.
Not in our portfolio, but just as an example, like Detroit, where in the city of Detroit.
Mandated that all nursing home patients get tested.
Regardless of signs or symptoms, but that's that's uncommon what's what's more comment is that.
Once.
Patient presents signs or symptoms that patient gets tested.
And in the result of a positive case than the rest of this facility will get tested inclusion staff.
It can be frustrating.
To wait for those results to come in.
You, even though they're doing that molecular test, which tests for the active buyers in your system. It can take.
Yeah.
Two to four days, sometimes to get those test results back.
And that's why we have been pushing as hard as we can get the point of care testing.
Well to our operators.
It's our understanding based on conversations both with Abbott and with.
Our industry Representatives and lobbyists.
App, it's been restricted to only sell those point of care test to labs hospitals.
And clinics.
And it would really take white house intervention and direction to elevate skilled nursing to that same priority.
And so.
We're.
We're calling on them to do that because that that's ultimately we think the missing a very important missing ingredient.
In our ability in our operator's ability to.
To discover the asymptomatic contagious.
Cook nurse housekeeper patient.
Okay.
That's helpful color.
One last one in terms of the conversations with tenants I mean, it looks like there's been quite a bit of success and Greg the other comments about.
Deferrals being.
And.
Solution looking for a problem.
Can you maybe.
Elaborate a little bit there in terms of what the dialogue, it's like patient sorry with with your tenants is.
Because everybody seemed to have adequate resources liquidity.
To be able to function through this what's your what's your sense.
Yeah, our sense is that the relief that's come from.
The GAAP.
From CMS.
And from the state Smith with how they responded as well.
As provided.
Adequate liquidity to get through the phase that we're in right now.
In fact perversely some of our.
Operators, who have been maybe operating more at the margins in recent quarters from a liquidity standpoint are stronger than they had been in the past because of the assistant relief that they thought.
And so bad debts part that will be part of any deferral type of conversation.
Lumpy.
We want to take a.
Deferral request.
At face value, we'd really digging deep.
And look at.
The via the fundamentals.
And layering and all of the relief as available and being received.
And as you go through that exercise you see fairly quickly that.
Our operators are actually in a pretty pretty strong position right now.
Right. Thank you all yoga floor.
Your next question comes from Steven Fellow quiet from Barclays.
Great. Thanks, Hello, everybody. Thanks for taking the question.
So the.
The federal government stimulus to the skilled nursing industry has been fairly visible and transparent to investors. So far have it in your press release, you also made some references to belief and our support from some of the state governments to this nev industry as well so I guess I'm curious to be able just to give a little more color on some of the state level help he was it just Medicaid rate increase.
Leases or other components, and which states in particular are noteworthy from premier perspective. Thanks.
This is this is Eric you know we had several states that received.
Yes, not funds will all the states receive yet not funds.
The government, but we have several that has.
There's still some could skilled nursing facilities, and so Washington, being one, Louisiana, Montana, and a couple others, where our where our facilities reside. So we've seen most of those have been retroactive back in March and will continue through.
This pandemic. So you know like like Dave said earlier in his comments, we're estimating that impact the portfolio to be ever around 5 million dollarss.
Okay.
One other quick follow up so while the liquidity has improved for your operators just certain the good news and arguably the most important variable down today for front from a re perspective I guess is there any color on exactly which components of the federal stimulus will be included versus excluded in the.
The EBITDAR, that's going to be reported back to your from your operators when calculating coverage ratios going forward is that something you're worried about or is that something you think will sort itself out there shouldn't be too much mystery or or.
Let's just say different variations of EBITDAR being reported back to your from your operators.
Okay.
Yeah, we're still kind of.
Wading through that right now and and probably a better color on that next quarter.
The good news is that.
Eric and his team follow these tenants facility by facility appreciably operation the very granular level.
And I think we'll have we'll be really well equipped to understand exactly how the stimulus or supplemental payment the money.
Impacted them as well as Hell.
Their operations have had necessarily change in response to the pandemic, we'll be able to match those up.
Pretty well so so again, it's an ongoing process, we're far it's far from over.
And we hope to have more clarity on that near term.
Okay, all right appreciate the color. Thanks.
Yes.
Your next question comes from Daniel Bernstein from capital one.
Hi.
Hope everybody as well.
Well.
I went to see no.
Where do you think the opportunities will be for me.
Acquisition investment side coming out of it you know it.
Actually this is kind of some input support from government.
Maybe cap rates don't move there, but seniors, yes. Some senior operators are certainly struggling and maybe we see cap rates go up so just want to kind of pick your brain on where those opportunities might be in the next 369 months, maybe even longer.
Again, it's mark I'll give it a crack in the grain Ken can jump in I think I think the most.
The opportunities on the forefront potentially in the short run should be the small mom and pops that have incurred additional expense both on the labor.
Supply side.
Particularly facilities that were Lars Medicaid.
You know that maybe didn't get as much of a boost aren't taking advantage of scaling in place.
Yeah.
Experienced.
Major major increases to to labor costs, we had a facility here in southern California that was a mom and pop owner and.
They sort of kind of lost or Wayne building.
It's fully evaluated.
He goes is pretty pretty widely reported so I'd say opportunities like that where.
They don't have multiple facilities to pull resources.
And we'll start sophisticated and to take advantage of.
What's in front of them, so I'd say I take mom and Pops first and foremost on the on the side, maybe a little more medium or longer term is.
Bigger operators may start to.
So look.
Non strategic assets, even more in potentially crude outline assets that are harder to get too.
In markets that you know just aren't necessarily in their footprint subs skilled side.
The assisted living side of the seniors housing side.
I think.
We'll have to.
Great and see obviously.
Have most of our facilities and secondary and tertiary markets and.
I think once.
Potential new regulations come out there I.
I think.
She is on things that is going to be interesting to watch over the next.
Four quarters.
To see what.
Operators you guys right.
Operator operating expense run rate.
Really understand how.
Occupancy impacts will take place, yes, particularly on the assisted living side that may or may not be needs based do do.
You know do potential resident stay home.
Let me stay high.
The adult child.
Have a sudden care for mom or dad, we saw that the downturn in no way.
Pact the adult trial, taking taking on more responsibility for for their parents. So.
I think as we get a better glimpse into occupancy over the next.
Three or four quarters, I think that will help us determine where we think pricing will go on the seniors housing side.
And then it's really great color.
The other question I had here are you know the upper end or if your range on the debt satisfy though net debt to EBITDA.
How willing are you go to go up to that.
Level I mean, you could by my calculation. So you can do about 250 million of acquisitions.
Without raising equity, but do you really want to go back up to five though.
Or you know keep to leverage a little bit lower I mean, maybe it depends on the opportunities but just.
George your inclination for that.
Your instincts on that are good then it would it would be entirely opportunity dependent we are willing to go there the no we don't want to.
But.
That's why we keep the dry powder that keep and if there were a super compelling opportunity of size or series of them with size.
We would have no problem going there my expectation is.
As we started to go there.
That.
Possibly the equity capital markets would come back a little better for us and seen.
We'd have a deal like that could be and and that we probably wouldn't have to go there. So what we say that we're willing to go there we are but what we say we don't want to go there and we don't.
Dictation is we could do a lot without ever having to get there.
[music].
Okay and then the last question I had is really maybe more theoretical on the regulatory side.
The three day rule, Yeah, that's kind of at least temporarily gone way because that permanently go away I mean, it seems like it.
Fairly cost sufficient should see Medicare money. If you don't have hospitalizations incentives can take care of those residents so kind of.
Odds on it but yes.
What are your thoughts on some of these regulations that are temporary temporarily helping sniffs, becoming more permanent.
We use this has been pushing for for the elimination of the three day qualified stay rule for years.
And suddenly into the pandemic, we have that in my hope our hope is that.
The the powers that be we'll look at the result of that and how much money to save the system. I mean, they gave the example, impatient going from 200 $800 a day.
By under under Skilling in place.
And you might look at that go Wow. That's that's a try to that's a ton of increased cost didn't truth. It's a ton of decrease cost because the hospital that you wouldn't previously you had to send into what's going to charge far more than $800 for those two or three days a four days the patient was going to be there before they came back to the Smith.
So.
The three to qualifying stays really is softer the to the acute care lobby.
And.
It's it's elimination would not only saved the system money, but would provide much needed help and support.
To the skilled nursing industry, which is a critical component in health care continuum, and really the lowest cost environment in which a lot of services can be delivered some which are not being delivered their now simply because of regulatory limitations like the threedic globally.
I mean.
He said it better than I could but that's kind of were like Botswana and want to hear from you have you guys.
That's all I have Oh, you before as well thank you.
Thanks, Dan.
Your next question comes from Michael Carroll from RBC capital market.
Yes. Thanks.
Greg or Dave I guess, what kind of touching on about the amount of liquidity that your tenants have gotten from all these packages if how long can they survive. This im assuming that there's been some type of operational deterioration correct me, if I'm wrong on that by the way.
Related to this cobot NPAC and maybe that will improve does the elective surgeries start back up.
But how much longer.
These tenants have before I guess some issues that arise. The mean is that a couple of quarters or as a couple of months or how would you quantify that.
Well, Mike I'm not going to.
I'm not going to show off our crystal ball for that because that's really tough one to answer it's really tough to predict the future. All we can feel really confident about saying is that right now there are fine.
Yeah.
But to predict how long these who is going to last and how how long it's going to take for hospitals to recover their occupancy and kind of get back to.
Normal.
Be.
We'd be it a risky.
That should make on a call like this it's Greg there's a ton of variables involved in answering a question like that it's just too too many the to Dick to predict.
You know, what's going to happen on the enter into this.
All nursing home or is there going to be a waiver of the three day.
Qualifying stay that's permanent that would be helpful.
His PPV going to be used in more different ways first or stocked in more in different ways is he going to become more affordable is the more manufacturers someone like.
What is going to be the expectation for infection control.
Coming out of this or our facility is going to be mandated to have a higher percentage of isolation rooms or to provide the negative pressure environments that or.
What are they going to do.
Nobody knows the answer those things are busy dealing with the president and so I'm, sorry that we can't give you a better visibility into how long.
Our our tenants will go on the current.
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Stimulus, but right now they are pretty good shape, and we think they could they will be as bill said.
In good shape for the foreseeable future.
Okay, Great. Greg can you talk on a little bit about your seniors housing.
Operator, if it gets how are they being impacted by this I know you recently transitioned.
You asked that.
I know theres been what Premier has had some tight coverage that you've been comfortable with because of their corporate guarantees I mean are the I'm, assuming they're going to see some pretty big impacts related to co Vincent given what we've heard from the rest of the seniors housing space I guess, what's your thoughts on those tenants and what gives you confidence that they are still well positioned.
Well a couple of things that are this is Dave.
You know like I said in my in my remarks occupancy you stayed flat.
In the month of April which was really encouraging.
Part of the reason for that as we talked to our operators about the.
Somewhat surprising.
All of it.
New admissions that they had.
I think it relates Mike to the fact that these are kind of the midmarket physician secondary market.
Offerings.
And.
As as Reds is prospective residents have been sheltering in place on their own or with their children they've realized.
That they need care and they can't afford to wait for it.
Maybe that high end private pay only.
Respective resident could could afford to wait a little bit longer.
But it's been our experienced thus far.
That many of our.
Our prospective residents.
I can't wait kind of wait and so went ahead and and moved in.
That's been helpful. In others. Another thing that is maybe a little bit unique to our seniors housing portfolio compared to our peers is the amount of.
Medicaid.
We have in it it's roughly.
So Mike 30% ish of our.
Seniors housing residents are under Medicaid.
And so yes.
If there is another round of stimulus that's been talked about but hasn't really crystallized.
That's related to Medicaid providers as opposed to the first tranche is related to Medicare providers.
Then conceptually those Medicaid seniors housing providers that benefit from that as well.
So just based on the information that we have so far we feel like those guys are.
Our so far weathering the storm pretty well.
Okay, great. Thank you.
Yeah.
Your next question comes from Todd Stender from Wells Fargo.
Hi, Thanks.
I appreciate your.
Information and really context around that three day qualifying stable.
Is there is there an expiration on that I know you guys kind of flush that out a little bit but at this point, it's a truly open ended.
I believe that stays in place.
As long as the state of emergency is in place.
My understanding.
Todd is that as soon as.
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The president.
Recent the state of emergency then that those those regulations will stay in place until the end of the quarter.
We're in President Trump.
Removes that that emergency status.
National fuel, maybe not state by state it sounds like.
That's right.
That's helpful.
And then how are you and then maybe it.
Yes, we'll see as next piece. My next question had to do it. This is national is the state by state.
For operators to.
Maybe have insulation.
From any litigation.
Cost liability coming out of this.
Tenants.
Since have contracted coal that.
What do you know as of this point.
And maybe also for yourself, if you have any exposure.
Or potential exposure.
Yes, I know, we wouldn't expect any.
And exposure for us as the landlord, but.
What we understand is.
That its a.
It's a work in progress both on the National and state levels, we've seen some states.
Enact legislation to address it.
Which which were happy to see but but theres also.
Talk in DC about something on a national basis, but nothing has been.
Settled at that level yet.
Okay. Thanks.
It's one maybe for bill.
The revised Medtronic alone.
The bulk has been paid back, but there's still a portion outstanding.
Digital coupon was 7%.
The new coupon drifts quite a bit lower just wanted to see how do you.
Determined the new read I guess, we used to seeing loans north of seven maybe 9%, but this ones on the lower side did you get there.
We got there.
As a partner to a lender who is bridging.
The metro on assets to hide so we're in it on a temporary basis.
So we looked at it as it's just a little upside over for another month or two hey, Todd its Greg I would also add that we got a nice loan fee on the front of that really actually depending on how long. It takes some time to pay that off which we don't expect to take very long.
Actually juices that return quite nicely.
All right. That's helpful. So you're not in this for 18 months. This is just new you're you're closer to the bridge financing and then.
They'll have to ride that separate very short term bridge I.
I understand thank you.
You bet.
And I show no further questions at this time I will now turn it back to management for any closing remarks.
Thanks, Sylvia and thanks, everybody for being on the call. We appreciate this if any of you have questions.
In addition, the ones have been asked today, we're happy to take them, just just give us a call take care.
Ladies and gentlemen, this does conclude today's conference. We thank you for your participation and ask that you. Please disconnect at this time.
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