Q2 2020 Ensign Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the enzyme groups second quarter fiscal year 2020 earnings call.
At this time, all participants Arnie listen only mode.
So to speak a presentation there will be a question and answer session.
Good question. During this session you will need to press star one on your telephone please be advised that todays conference maybe recorded if you require any further assistance. Please press star zero.
I would now like to end the conference over to your hopes Chief investment Officer, and Executive Vice President Chad Keetch.
Thank you and welcome everybody. We appreciate you joining us today and as always before we begin I have just a few housekeeping matters.
We filed our earnings press release intend to yesterday. This announcement is available on the Investor Relations section of our website at Www Dot enzyme group Dot net a replay of this call will also be available on our website until five P.M. Pacific on Friday September 4th 2020.
We want to remind anyone that may be listening to a replay of this call. The all statements are made as of today August six 2020, and these statements have not been or will be updated subsequent to todays call.
Also any forward looking statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate these statements are subject to risks and uncertainties that could cause our actual results may materially differ from those expressed or implied on todays call.
Listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.
Except as required by federal Securities laws and signed in its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstances or for any other reason.
In addition, the enzyme group eight is a holding company with no direct operating assets employees or revenues certain of our wholly owned independent subsidiaries collectively referred to as a service service center provide accounting payroll human resources and information technology legal risk management and other services.
As to the other operating subsidiaries through contractual relationships with such subsidiaries.
In addition, our wholly own captive insurance subsidiary, which we refer to as a captive provide certain claims made coverage to our operating subsidiaries for general and professional liability as well as for workers compensation insurance liabilities.
All of our operating subsidiaries, including the service center and the captive are operated by separate wholly owned independent companies that have their own management employees and assets references here into enzyme or the consolidated company and its assets or and activities as well as the use of terms we us.
Our and similar terms used today are not meant to imply nor should it be construed as meaning that the enzyme group inc. has direct operating assets employees or revenue or that any of the subsidiaries are operated by the end zanker.
Also we supplement our GAAP reporting with non-GAAP metrics when viewed together with our GAAP results. We believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of gap reports a GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-Q.
And with that I'll turn the call over to very Port Arthur CEO Barry.
Good morning, everyone. We want to begin today's call by thanking our operational leaders and their frontline teams.
Are there inspirational efforts that require more than most could ever imagined.
As they care for our countries, most fragile and vulnerable in the most intermittent health care settings.
They continue to show up to work each day donning an uncomfortable mask down I protection, another personal protective equipment to do some of the most challenging but important work during what are the most difficult times in our industry's history.
We think each of them from the bottom of our hearts for doing so with the utmost professionalism and selfless dedication.
Our local leaders caregivers, another frontline staff or deserving of all the praise that we can muster.
Appropriately, we often devote a lot of energy into acknowledging first responders and hospital workers for her Roque work amidst life threatening circumstances.
Our sincere hope is that we as a nation begin to similarly recognize workers in the post acute setting with that same accord.
The challenges presented by the ongoing Kobin 19 pandemic have been and continue to be significant.
But because of the unselfish dedication of our talented leaders and the hero serving alongside them. We're optimistic that we can continue to thrive through this uncertainty.
They're heroism and dedication over the last several months has been truly inspiring.
We're pleased to report that in spite of continue unique challenges presented during the globe current global pandemic the operational momentum we experienced in the first quarter continued into the second quarter, where we again achieved record breaking result.
For the second quarter ROE, we achieved our highest adjusted earnings per share in our history of 78 cents, an increase of 100% over the prior year quarter and slightly above a record setting first quarter.
The strong results came from quarter over quarter improvements and skilled mix across same store transitioning a newly acquired operations cost saving initiatives improved collections sequestration suspension.
And improved Medicaid rates in certain states.
We also continue to implement a number of actions to respond to the impact and uncertainty caused by the pandemic, including incurring additional cobot 19 related labor expenses.
And the ongoing act acquisition of unprecedented levels of P.P. and other equipment.
We announced yesterday that a similar to a few other well capitalize health care providers in June we began returning all of the cares Act provider relief fund that we received.
These funds were meant to cover lost revenue an increase expenses tied to the cobot 19 pandemic.
And we want to underline again that our results do not include any benefits related to those distributions.
As you all know most of our revenue comes to US from sources that are funded by taxpayer money and as stewards of those funds. We know that there is a high degree of responsibility that accompanies government reimbursement.
In addition, as a for profit operator, our organization paid tens of millions of dollars the year in taxes.
After taking a hard look at our balance sheet, and our liquidity, including our strong relationship with our lenders and landlords and after gaining a better understanding of our financial performance. After several months of operating in the covert environment.
We determined that it was not in the best interest of our organization to accept funds from rounds, one two or three of the cares Act at this time.
If there are additional future grants available, we'll reevaluate the purpose and needs of those grants specifically considering the potential costly testing requirements or other newly mandated regulations.
Overall, our company is not being overwhelmed by Kelvin 19, However, as you might expect similar to what the country as a whole is experiencing the impact has varied market by market and building by building.
More recently as expected our portfolio has experienced an increase in covert 19 cases in our buildings, where the number of cases in the community overall are increasing such as parts of Texas, Arizona and California.
As of August Threerd 2020, the company's 226 affiliated operations across 13 States had 909 confirmed covered 19 patients in house also as of August Threerd 19 operations had over 20 covered 19 positive cases.
46 operations have less than 20 cases, and 161 operations had no confirmed cases of cobot 19 in house.
To add some additional context.
Four of our operations at the requested a local health care community proactively and intentionally dedicated their whole building to the care cobot positive patients.
And 20 of our operations have dedicated entire wings to covert positive patients.
It is also important to clarify some details regarding the spread of covered 19 in nursing homes. According to recent independent studies by researchers at Harvard Medical School brand University, and the University of Chicago. The primary drivers of covert 19 outbreaks or a function of location of facilities.
As it relates to geographies geographic prevalent.
Asymptomatic spread.
And availability of testing not quality ratings infection citations staffing or for profit or not for profit status.
That said, we continue to learn and find ways to help defend against outbreaks.
And prevent the spread of Cobot 19, and we believe we are prepared to operate effectively in the cobot environment for the foreseeable future.
Our local leaders and caregivers with the assistance of their service Center resources are methodically acquiring unprecedented levels of pp another supplies and equipment and are providing the latest in best practices in both clinical protocols and safety measures assets at a significant expense.
As our local operators have responded to the needs of the healthcare community. Our operations have seen an increase in the number of higher acuity patients, including covered 19 positive patients as a number of cobot 19 cases in the surrounding communities. We serve having has increased especially in Texas.
Arizona and California.
Our state and County Health leaders and local hospital systems have looked to inside affiliated operations to care for all varieties of high acuity patients that can safely be admitted.
Two or remain under our care.
We continue to learn a great deal through this process and our local leaders are proactively preparing.
Preparing for and executing on plans to provide care for all patient types, whether covance positive negative or unknown.
As previously mentioned our operations have that the requests in the local community dedicated entire buildings and wings to care for covered 90 patients, which are generally skilled patients that need high levels of nursing care.
These efforts very building to building in market to market and are being done in partnership with local and state public health officials to ensure compliance with infection prevention protocols.
And the comprehensive recommendations provided by the CDC and other public health authorities.
We reported yesterday that the vast majority of the decline in occupancy is we've experienced began in the latter half of March due to governmental stayed home orders a pause on vital procedures in the hospitals.
And overall lower hospital occupancy is all of which directly impact patient referrals into the post acute setting.
As Koby cases began to decline in late May and June we saw an increase in occupancy in a slight decrease of skilled mix.
As the needs of higher acuity patients for fewer.
More specifically between mid May to mid June same store in transitioning occupancy increased 5.4% and skilled days decreased by 1.1%.
However, the recent influx of covered 19 cases in several key states.
At resulted in occupancy is that have begun to decrease slightly while skilled mix improved as the number of high acuity patients increased.
More specifically between mid June in mid July combined same store in transitioning occupancy was down approximately 1.9% and skilled mix actually increased by 8.1%.
As you can see we see it pattern emerging when covered cases in the community increase occupancy is are negatively impacted but skilled mix improves.
As we compare these numbers with what we see happening more broadly it is clear that our operators have remain flexible and shifting capabilities to respond to the needs of the local market.
When the number of very sick people into community increases and as hospitals need assistance with higher acuity patients, including covered patients we see skilled days increase.
At the same time occupancy decline as that extra precautions are taken on new admissions.
When cover to retreat occupancy begin to recover in skilled mix begins to normalize.
While occupancy is or lower.
Then they were a year ago at this time, the fact that occupancy levels have remained relatively steady over the last few months combined with the comparatively strong skilled mix demonstrates the resilience of our model.
And our local leaders ability to adapt to achieve the to changing circumstances in their local health care markets.
As we said last quarter. This pandemic arrived at our doorsteps at a time when our organization has never been stronger clinically and financially our local leadership model is shining through in these results and our local approach is the reason why we were able to report such a strong quarter as.
We've said before in signed was born in times much like these and our model is not only design to survive, but to thrive and grow in the face of uncertainty.
Our current health combined with our culture proven local leadership strategy healthy balance sheet and the norm enormous potential in our newly acquired transitioning and same store operations gives us confidence that we are well positioned to manage through these unusual times and to rebound to our pre Kelvin path.
As we've said today, we've seen and we expect to continue to see a significant impact from the pandemic on our results throughout the remainder of our year.
But.
With several months of Covance behind us.
And following two record quarters in a row, we're raising our annual earnings guidance, two $3 to $3.10 per diluted share up from our previous guidance of $2.50 to $2.58 per diluted share and we are affirming our annual revenue guidance of 2.42 billion.
Two 2.45 billion.
We're confident that we can provide this guidance for several reasons, including are better than expected results in the first half of the year.
The operational adjustments being made by our local operators and the benefits we've received from regulatory waivers rate adjustments and the other continued efforts already mentioned.
While the pathway to achieving these results has and will differ significantly from what we expected when we gave guidance prior to the pandemic. We're confident that we are well positioned to operate in the current environment, but more importantly to regain much of our pre cobot momentum as the flood patients continues to normalize over.
Time.
As the year progresses, we will continue to evaluate the impact of coven 19 across the portfolio and readjust as necessary and with that I'll ask Chad to give us an update on our recent investment activity Chad.
Thank you Barry.
The company paid a quarterly cash dividend of five cents per share of enzyme common stock.
Due to our strong liquidity, we're pleased to continue our longstanding practice of paying a dividend to our shareholders.
And as a reminder, enzyme has been a dividend paying companies since 2002 and have increased the dividend each year since 2002.
There are currently no plans to suspend future dividends.
Just a few days ago, we announced the acquisition of the real estate and operations of a post acute care retirement campus located in Tempe, Arizona.
Includes Tempe post acute 62 bed skilled nursing facility.
Desert Marigold senior living of Tempe, a senior living center with both seven with 72 assisted living beds and 90 independent living units.
This was one of the several acquisitions that we had in the works when Kobin appeared on the scene and as the first closing we have had since the pandemic started.
Our transition process was a little different this time, but we're confident in our customizable clinical and operational plan that will allow us to selectively acquire and the current environment.
With this addition are growing portfolio is now comprised of 226 skilled nursing operations 24 of which also include senior living operations and other ancillary businesses across 14 states.
Enzyme now owns 93 real estate assets 63 of which we operate.
This portfolio of owned assets took less than five years to acquire as compared to the 15 years. It took us to acquire the 94 assets, we spun out to CRT and 2014.
I also wanted to give a brief update on our growth prospects as we indicated last quarter. We had several deals in the pipeline that we halted temporarily as we responded to the covert threat.
A handful of those operations are now slated to close this fall while others will require a fresh look later this year early next year.
We're also beginning to see the deal flow start to pick back up after essentially coming to a complete hall between March and June we're now seeing sellers begin to resurface again.
In some cases some of the deals that we expect is.
Expected to see this year had been delayed as the cares Act funding has provided additional capital to provide temporary assistance to undercapitalized are struggling operations.
However, we anticipate that there will be a significant influx of older and newer deals that come out of this pandemic.
As these current and future turnaround opportunities present themselves, we are doing more to refine our decision making process to ensure that we are choosing the best available opportunities.
While we are always very selective with each potential acquisition opportunity and pass on the vast majority of the opportunities that are presented to us we will be even more selective in the coming quarters in order to be sure that we have plenty of dry powder in 2021.
Whether we are acquiring to real estate or entering into long term lease arrangements. The health of our balance sheet will remain Paramount our approach to acquisitions will continue to be based on paying fair and reasonable prices using historical performance not on pro forma our future results that we will create through our performance.
Most of the operations, we accrue acquire start out with lower occupancy is and lower CMS star ratings, and we build that into the purchase price.
But when occupancy is go down we have significant cushion that's built into our model.
Lastly, as a brief update we began the process of an off of unlocking some equity value and seven or eight of our 73 owned an unlevered real estate assets. We have selected a few of our own assets that have built up significant equity value to take to HUD for very attractive long term fixed rate debt.
Yes.
This process can take several months and will not be completed until next year, but we are preparing now for a wave of new acquisitions that we see on the horizon and 2021 and.
And with that I'll pass the call over to Barry for some more detail around operations very thanks Chad.
We're very pleased to report that we're seeing some very promising outcomes across the organization as we have seen improved clinical results amongst our patients. The vast majority of which are able to recover and returned to home while simultaneously limiting the spread of the virus, reducing the pressure on local hospitals in doing so.
In a cost effective manner to further benefit the overall cost to the Medicare to Medicare and Medicaid programs.
Well this is a dangerous virus, we have toiled day and night to continue to develop effective care plans that have resulted in above average outcomes, which is only added to the confidence of our local health care community.
To help illustrate these results we would like to offer a few examples.
As the KOVA 19 outbreak began in suburban Washington State. We had an early view from our operations is that how to defend against coven entering our facilities prevented spread and cases valve breaks initiate clinical practices to improve outcomes.
Our model facilitated the sharing of best practices among operators clinicians and medical directors.
One excellent example of this is sunview respiratory and rehab and Youngstown, Arizona.
During the early weeks of the pandemic CEO, Sean Hill, and COO Marlette Sanchez together with the Arizona resource teams tirelessly prepared for the eventuality of cobot in their facility.
They participated in covered education rigorously applied CDC guidance, and CMS regulations and obtain mask downs another recommended PB.
Under the direction of their medical director Dr. Omar Hassan. They also developed it covered 19 focused clinical program and provided proactive training to their nursing staff and care staff.
Unfortunately in June covert entered Sunview and we Universal testing was conducted many residents in numerous staff were quickly identify discovered positive.
The Sunview team was prepared and immediately went to work executing their response plan, which included enhanced assessment monitoring and implementation of high acuity clinical interventions and practices normally carried out an emergency departments of acute hospital settings.
In order to us to sustain the enhance interventions and elevated staffing levels.
At this type of care required send you utilize the benefit waivers approved by CMS as well as their existing managed care partnerships to qualify eligible beneficiaries for skilled reimbursement, which also allows them to implement an aggressive treatment plan without intrusive transition between two different healthcare settings.
As a result of these actions the facility not only the facility only had to transfer a handful of residence to acute hospitals during the entire outbreak this not only benefits our community through keeping care access maximize that our acute hospitals, but also improves the quality of life of our residents since they can receive.
Many of the same services. They would have received at the hospital without leaving some view.
This aggressive treat in place prong approach has yielded incredible clinical outcomes as well as of today Cenveos covered free nearly all affected residents have recovered, resulting in a covered mortality rate of only two 2.3% by comparison CMS reported that the.
The rate for skilled nursing resin residents nationally for the same time period was 26% to 30%.
Another example, seen at south on living in Norwalk, California.
They showed us how many of our facilities have provided skilled services to high acuity patients, while allowing the local acute hospital to maintain bed availability and simultaneously reducing risks related to moving frail patients under the direction that flake CEO and shoney's LPL our COO.
Cellphones interdisciplinary team began a rigorous program of change of condition monitoring along with early clinical intervention. The objective was to elevate the level of care at the facility to address emergent clinical needs in house as a result of these efforts Sauflon had 60, 66%.
Decrease in transfers to the acute setting for the same period.
In the prior year, despite an increase in medical frailty in both their new admissions and long term care residents.
By applying the lessons learned across several geographies and by providing the local leadership with tools and resources rather than directives are affiliated facilities have been able to achieve prevalence in mortality rates far below the national average.
It really is in times like these that ensigns unique operating model really shines.
Our leadership and our operating model are the reasons why we have adapted and we'll continue to adapt during this unprecedented time and it's one of the reasons why we have seen or acuity and outcomes improve as our leaders have appropriately utilize the skill on plate place approach, we have saved CMS millions of dollars an unknown.
This every hospital observations days fewer life, threatening transitions of care and lower and mortality rates. These savings.
Are the direct result of early intervention and enhanced clinical treatments that are possibly there possible only as a result of the waiver for the three day hospital stay in select managed care relationships.
Rather than attempting to rollout a one size fits all approach across many markets with varying local restrictions, our CEO caliber leaders and their.
Clinical partners with the support of a World Class Service Center are very carefully working with local governments hospitals and their managed care partners to be a solution for this pandemic.
Now ill pass the call over to Suzanne to provide more details around our quarter end guidance Suzanne.
Thank you Barry and good morning, everyone detailed financials for the quarter are contained in our 10-Q and press release yesterday. Some additional highlights for the quarter include GAAP net income was 40 million an increase of 95% over the prior year quarter. Adjusted net income was 43 million an increase of 99%.
The prior year quarter consolidated GAAP revenues were 585 million, an increase of 19% over the prior year quarter.
Same store occupancy for the quarter with 73.7%, which is down 5.9% from the prior year quarter.
Same store skilled mix, Dave was 31.4% an increase of 100 basis points. The same store Medicare days were up 16%.
Transitioning occupancy was 76.1%, which is down 3.8% over the prior year quarter transitioning skilled mix days was 25.5% an increase of 360 basis points and transitioning managed care revenue was up 12%.
The company's liquidity remains strong for the six months ended June thirtyth with cash generated from operations.
$174 million and free cash flow of 147 million.
As July 31st we had cash and cash equivalent of approximately 100 million and 329 of available capacity under revolving credit facility.
As Todd mentioned, we also are 93 assets 73 of which are unlevered with significant equity value that provides us even more liquidity.
In March 2020, the federal government began to undertake numerous legislative and regulatory initiatives designed to provide relief health care providers during the carbon 19 pandemic, including the labor as a three day call. Thanks day care, Zack which provides among other things provider relief funding and an accelerated advance payment program.
For Medicare, which equates to approximately 100 million for us.
More specifically the company received directly and indirectly approximately 110 million of the provider release funding under the Cures Act, including rounds, one Kieran free.
Today I'll provide a relief funds have been return.
In addition, the cares at temporarily suspend the automatic 2% reduction of Medicare claims reimbursement otherwise Nancy Krejsa attrition for the period have may 1st 2020 through December 31st 2020. This suspension FC question, Pat and we'll continue to have a positive impact on our revenue that Matt.
Initiative, which will depend on how the pandemic affects our Medicare census for the remainder of the here.
The federal government also increased as Matt by 6.2%, which depending upon the state will provide an increase Medicaid rate the temporary increase in funding and the timing of payments varies by state, but eight every state in which we operate hover ready approve increasing and several others are looking to do you still as well.
As Barry mentioned, we are increasing our previously announced 2020 and those Adam Q3 dollars to two $3.10 per diluted share up from our previous guidance at $2 into two cents $2.58.
We are maintaining our previous annual revenue guidance of 2.42 going to 2.45, Brian.
The midpoint of this 2020 guidance represents an increase of 56% over our 2019 spin adjusted result.
Our 2020 guidance is based on diluted weighted average common shares outstanding of approximately 55.5 million I'll pass rated 25% the inclusion of acquisitions closed to date.
Exclusion of losses associated with startup operations, which are not yet stabilize the inclusion of anticipated Medicare and Medicaid reimbursement rate increases that are providing shacks.
Surgeons.
No resurgence of Kevin 19, pandemic with a primary exclusion coming from stock based compensation.
Additionally, other factors that could impact quarterly performance include variations in reimbursement system delays and changes in state budgets seasonality occupancy and skilled mix the influence of the general economy on our senses and stopping the short term impact of our acquisition activities.
Creations and insurance growth the resurgence of Kevin 19 from Dennis and other factors and with that I'll turn back over to Barry Barry.
Thanks, Suzanne before we move on to questions. We just want to reiterate again that our optimism expressed today is based entirely on our confidence in our local teams and our proven model.
Our success has and will always be due to their daily commitment and sacrifice and their ownership of our culture and organizational mission.
We are grateful to our shareholders for your confidence and support we cannot adequately adequately express our appreciation to our colleagues in the field and its service center for making US better every single day.
Thank you all in with that we'll now turn the time over to Q anyway.
Operator can you please instruct the audience on acuity procedure.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, we've compiled the Q and a roster.
Our first question comes from a line of Frank Morgan of RBC capital markets. Your question. Please.
Good morning.
I guess with the guidance update you provided today it looks like sort of the implied guidance for the second back half of the your could be as much as $1.50 for the second half of the year is there anything we should be thinking about in terms of the cadence there between the third and fourth quarter I know theres.
Normal seasonal pattern from Twoq to Q3, but anything that we should be mindful level, we think about just sort of the cadence in the second half.
Yes, I'll, let suzanne filling the gaps here Frank.
I look I think we expect the kind of the.
The general path that we've seen over the last few months to continue through the third quarter and our hope is that we start to see a recovery in the fourth quarter in terms of overall occupancy, but there are some things that will cause some fluctuation.
Some of which are relatively known others of which are are fairly unknown. We are receiving some some temporary medicaid rate enhancements at the moment some of those will burn off.
There might be some offset to that from from just regular state reimbursement increases.
Yes, the length of the three day stay waiver is a fairly unknown quantity there, though we expect it to run through.
We ended the third quarter and hopefully into the fourth.
So those are some things that are impacting is and can you think of others that are no. I think you covered I'm really while Barry I.
I think that as we've been talking about near the end of the state of emergency Declaratory. That's basically end of October and with that follows a lot of theirs.
Matt.
Thanks funding continues so there are some relief there for additional cobot expenses that we expect to incurred during Q3 day actually be offset by those.
Okay funding that just on Medicaid Sunday, and then I would take our overall rate increase from Medicare that their standard one that I'll kick in in Q4, and then all the states standard increases.
Filter and at the end of Q3, and then Foley imports in Q4, and so you've got that and then just the skilled in place and we do know thats going to be it looks as being placed our country, but that number or not thank you for depending upon the declaration of the stands for much yes, let me just add to that to this is Chad I mean.
Obviously with occupancy is as we described in the prepared portion of our remarks.
The co bid.
The prevalence of covered in the communities were in is also something to Watson and that impacts both occupancy and mix as Barry described and so that clearly can impact things as well.
So it almost sounds like Threeq, you might be better the fourq I mean, it sounds like with a lot of the continuation of these programs is that fair way to think about it or.
I think it could be fairly equally weighted between them.
Yes, I don't think we expected to be better Frank I.
If anything it might be the same or slightly down.
Okay from Q2.
Okay, but well keep harping strike definitely keep our being stronger.
We're trying to we're trying to we're trying to give clarity, though through the whole remainder of the year, it's really difficult to do quarter by quarter.
Now I understand so net net of lot of the programs that may run into the third quarter.
It is those wind down at the rate increases if we don't might turn for Medicare Adnan.
Fourth quarter, and maybe higher occupancy would make a.
Slightly better potentially theoretically.
In terms of the states that have these special funding I know you've talked about a number of states that have actually pass through that map increase.
Are these big important stage two you like how would you.
Right the magnitude or the benefit you're getting through the to the temporary map increase.
Yes, that's a great question, Frank you know when we kind of think about what.
It's actually have that at snap program in place anti Calin, California has.
Very strong program say, Texas has a very strong program in place.
And.
Arizona has had they're a little bit different on their programs. They have they have a strong program, but it's more of a.
A full a whole dollar program versus California, and Texas had a daily rate program in place and so the all of our larger states have these programs in place.
California, and Texas, specifically have their programs in place to the end of the emergency.
Based upon how they've laid everything they start to go through at least we expect them to entered in the Mercy based on everything we've been talking.
Gotcha, and then interesting commentary about the M&A and then also the the.
Financing that financing on some of your unencumbered assets.
Any kind of early read on like how much equity you could pull out of those buildings and.
And maybe how we could extrapolate that across the rest of your unencumbered portfolio.
Yes, it's a great question Frank.
We've been consistent and trying to point out that we have a lot of untapped value in those owned real estate assets.
One thing I'll, just point out as we talked about those.
93 owned assets have been acquired in the last five years. So a good portion of those are newer assets at least to enzyme and a lot of them are going through that transition phase that we talk about.
As a key part of our model. So a lot of those are I would say are not kind of bit at full value so to speak.
But that said I can give you some sense on the HUD loan is one of one tool that we have to basically take some of that equity off the table and use it to fund future growth.
We're looking at under 10 assets.
HUD programs are pretty specific and how they're structured but if you're looking at a 70.
75% loan to value on those assets represents around 120 million in loan proceeds.
So if you could maybe look to that as a way to say.
What what.
Again, eight or nine of those assets would be worth.
So that gives us some sense, but but.
Tendered necessarily extrapolate that across all those owned assets because again so many of those are still.
And the transition phase as newly acquired are transitioning assets, but.
It's definitely a great question and something we look at and talk about all the time and.
We're also still evaluating.
Ways that we can.
Illustrated and show that value.
To our investors because it is a significant source of liquidity as both us as Dan and I mentioned.
And it's really nice to have.
Sure and I'm, assuming those 10 assets that youre financing those would be.
Some of the more mature those assets that are closer to sort of that.
In an equilibrium.
Steady state elements that than those that were not.
Ramp up I would assume there.
Yes, Thats right that's exactly right.
Okay and then so now that you've got this money in the M&A opportunities you see out there I'm just curious I mean, you talked about the.
The revamping of the interest of doing things now.
Like.
Opportunities you're seeing today are these mostly turnaround assets or would these be assets where people were just.
Just don't want to deal with Cobot don't don't want to deal with a win today or any way you could characterize the opportunities that you're seeing now.
Yeah. That's a good question I would say we have some of our typical sellers that are just.
For one reason or another they're just looking to exit the building.
Exit the industry, maybe it's a family owned business in the next generation doesn't want to continue.
Orders, maybe is there some private equity investors that are looking to.
To liquidate their interest and things like that so we have sort of the kind of standard non pandemic related sellers that are out there.
I, but but that said I think theres definitely.
A group of sellers that because of co bid and and even just sort of.
PDP and which is not something that we've talked a whole lot about but just the continued.
Regulation and everything that it takes to run a skilled nursing facility, we're seeing a lot of those folks that are.
Getting through it right now because of some of the cares Act funding that that's helped.
Immensely, but that is that burns off will will be very interested in selling so we're seeing a little bit of both but but in both categories.
It does represent a very healthy pipeline for 2021.
Got you.
I'll hop back in the queue. Thanks.
Thank you again to ask a question. Please press star one on your Touchstone telephone again Thats Star one on your Touchtone telephone to ask your question.
Next question comes on the line of Scott Fidel of Stephens incorporated your line is open.
Hi, great. Thanks, good afternoon, everyone.
First question just interested in terms of what you're seeing more recently around occupancy rates from some of the lower acuity.
Patient cohorts and then what type of.
External or engagement activities, you might be undertaking to.
We ramp up.
Occupancy around lots in the lower acuity individuals.
So maybe just on the occupancy and every credits and numbers.
As there as very went through out looking kind of mid may.
Mid July we were down 1.5, but our skilled mix.
Six 6.9% I mean, I think what we have seen when we analyze our numbers of.
As part of it comes into specific area that we actually see that occupancy Guardian him.
The overall occupancy down Im so really it's a lower skilled patients that were actually seeing that occupancy and your both private and Medicaid to occupancy gap and as we have Kevin come into that area than we actually see that's building scale up and sense, because we're scaling in place or.
Passing are going over the three day product line, we refer the stay at the hospital, we're actually seeing that includes hopping around the overall system in that area, taking does higher acuity patients and so it's kind of never really.
Equal to how heavy kill that is impacting that specific area of how we're seeing this is a very building by selling specific I don't know if I answered your question, but.
Very hard thing to say.
Yes.
And Scott I think I think.
One thing to maybe remember is some some of the reductions you see in occupancy are somewhat deliberate.
Both on the part of the.
Kind of the hospital system, but also just.
Again, elective cases being shut down and so.
Those things are naturally temporary phenomenon I can tell you also that as we look at.
Kind of the world of outbreak buildings that we've experienced so far.
Where which we have quite a bit of experience acquire across a wide range of geographies.
As you look at those and you see kind of the path as they they went down.
When when covert enters you see a pretty sharp reduction in occupancy.
And you see covered kind of work its way through things and then resolve and then you see a natural path back upwards to kind of more stable occupancy and again as we look back at our own experience in our in our outbreak buildings that path is clear and every single building.
They're all happening at different times across the entire portfolio and you have new new outbreaks happening and new new challenges new challenges emerging.
But as you as we study those trends across our portfolio. It gives us some.
Pretty high degree of confidence that as things begin to normalize which they most invariably will in terms of volume through the health care system.
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We feel like the portfolio overall will will kind of follow a similar path that we saw.
All of our individual buildings go through on a building by building a market by market basis, I think thats kind of reemphasize by like how that if you look and see what's the man's Kara seen for utilization right now that they're projecting that in key in second half 2020, they're projecting an increase in their utilization and.
Thank.
Very plant, that's really how for mirroring as their their.
Okay increases in their utilization increases and said as ours and said really looking at that.
Consistent top land pattern that we're seeing.
Yes, I understood and maybe could you gather side.
The patient backs and clearly.
The strong acuity shows during the second quarter, and we certainly see that and significant increases your average daily rates and then of your margins as well.
Understood just to the extent you can parse for us.
Even before the cobot crisis that began you had already been showing that increase in acuity.
And.
At the translating into some of the stronger pricing stats as well.
Surely you've had this bolus of cobot patients come again that also impact that too in the second quarter.
Is there anyway that you could sort of give us some more insights into sort of drilling down between.
Let's call it the non non coded higher acuity patient mix in terms of how the trends may have been impacted there and then obviously, we know that you've seen the new cobot patients as well I driving up the acuity.
So I think is that when it is one of the easiest way to see this pattern and pathway is looking at.
I had a small little area that we have been breaking up for last couple of years as that no. Other skilled on we talked about that they are sub acute and our higher acute and and really what that that group.
Paris boils down to is it really high Q clinical patient.
And really that's where the testing ground of all of you know some of the complex clinical staff started.
Hi over the last year in the preparation for PD PM. We were talking any previous talk about this expansion of these highly complex clinical care pathways that we're developing and putting in place and so.
I think what you see on with the last kind of quarter through Q4, Q2, Q1, and then Q2 is that continued expansion of clinical care pathways, which then has resulted in higher complex clinical management and higher complex medical management, which is one of the key conditions that as you look through PDP.
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That nursing focus the nursing delivery has really been something that we've been able to execute on and so I think is that continuation of that growth and.
Let Kelvin does is it actually Paris and partners right into those higher clinical care skill sets that we've been developing for the last year and a half tiers.
Okay and then just one last one for me just interested in your thoughts on final Medicare sniff rates and policy changes for 2021.
Came in at 2.2% not that far off the last couple of years just in terms of the rate itself and then some of the policy changes that CMS included in there.
Hi, how you're thinking about that was relative to what you're expecting to say thanks, Greg.
But you know comes in Accupoint Q consistent with what we are expecting the proposal is that 2.3 really diving in on looking through some of the changes that are encompassed in there not a significant amount of changes that really impact how we pull this roll through if anything some slight positive for us that allow.
Lets to capture some of the things that we're already doing.
I'll allow that the right now really captures as additional clinical procedures that we already had in place and so.
If at all it's somewhat positive to some of those additional.
Things that we weren't doing all right caught up in the rate that really really pleased with the rule Im pleased with the relatively light number of changes that are outside the rate itself.
But the fees that are in there are positive for us.
Okay, great. Thank you.
Thanks.
Thank you.
We have a question from the line of Frank Morgan RBC capital markets. Your line is open.
You actually almost answered it in that last comment how was wanting the PDP of update.
I think you hit on most of that.
But yes, it's particularly in light of cobot, but any other thoughts that's fine if not.
Good.
Yes.
I can just you know did just clarify a little further and that a little more color.
Prior to co bid, we saw pretty even split between kind of what I would call a rehab type patient and a and medical management type patient, which is more of a coven.
Related diagnosis more nursing heavy and during that pandemic, we've seen that shift to more where you've only got less than 20% of rehab focused patient and somewhere around 60% to 70% on this medical management kind of high complexity type patient profile.
So so I mean, that's what the shift is look like as far as our patient profile and as far as PDP and performance goes we continue.
At to cater towards that more complex.
Patient type.
We have spent a lot of time not just learning the PD PM system, but continuing to do we've done for the last.
I would say 10 years, which is to be.
You know that.
Of facility that can take the higher acuity patient and drive the kind of outcomes that that you would expect and so for US that continued transition continues to go well for us.
Thank you.
Thanks Frank.
Thank you at this time I'd like to turn the call back over to CEO very poor for closing remarks, Sir.
Thank you achieve and thank you everyone for joining us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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