Q3 2020 Omega Healthcare Investors Inc Earnings Call
Third quarter 2020 earnings call.
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I would now like to turn the conference over to Michelle Riva. Please go ahead.
Thank you and good morning with me today are Omegas CEO Taylor Pickett see Oh, Dan Booth, CFO, Bob Stephenson, Chief Corporate Development Officer, Steven in South American crop senior Vice President of operations.
Comments made during this conference call that are not historical facts may be forward looking statements such as statements regarding our financial projections dividend policy portfolio restructuring rent payments financial condition or prospects of our operators contemplated acquisitions dispositions or transitions in our business and portfolio outlook generally.
These forward looking statements involve risks and uncertainties, which may cause actual results could differ materially. Please see our press releases and our filings with the Securities and Exchange Commission, including without limitation. Our most recent report on form 10-K, which identify specific factors that may cause actual results or events to differ materially from those.
As described in forward looking statements during the call today, we will refer to some non-GAAP financial measures such as they re upped that FFO adjusted EPS, I, FFO Fad and EBITDA.
Conciliations for these non-GAAP measures to the most comparable measure under generally accepted accounting principles as well as an explanation of the usefulness of the non-GAAP measures are available under the financial information section of our website at Www Dot Omega healthcare Dot com and in the case of neighbors I phone and adjusted EPS I felt in our recently.
I guess you press release in addition, certain operator coverage and financial information that we discuss its based on data provided by our operators that has not been independently verified by Oh, My God I will now turn the call over to Taylor.
Thanks Michelle.
Good morning, and thank you for joining our third quarter 2020 earnings conference call.
First and most importantly, I again want to thank our operating partners other stuff of care for the tens of thousands of residents within our facilities.
I would also like to recognize and thank the federal government and the states for their support for the skilled nursing and assisted living communities.
The allocation and distribution of additional government funding.
Long with the communication and the evolution of clinical protocols, that's the critical and protecting saving lives as we come back this unprecedented definitely pandemic.
Turning to our financial results.
We're very pleased with our third quarter earnings our adjusted EBITDA fell 82 cents per share and our funds available for distribution of 78 cents per share allowed us to maintain our quarterly dividend of 67 cents per share.
Payout ratio further improved 82% of adjusted EPS itself and 86% of funds available for distribution.
Additionally for the third quarter, we collected virtually all of our contractual rents.
Our second quarter consolidated coverage, excluding cares Act funding was 1.05 times right.
This highlights the resiliency of the skilled nursing facility industry in the face of an unprecedented 800 basis point drop in occupancy.
Our broad geographic and operator diversity has resulted in widely different results among our operators. That's COVID-19 hot spots I've moved throughout the country.
Importantly.
As we've seen high infection rate geography upbeat we've.
We've also seen operator expenses dropped and related cash flows improve.
This dynamic the ebb and flow of infections and the ability of our operators to respond control the virus and flex their care delivery model provides us with cautious optimism that once the pandemic is controlled recovered operating environment with appropriate new infection control protocols will rapidly.
[music].
In the meantime, as we think about getting from here to there.
Federal and state government support will be critical for the skilled nursing and assisted living care setting.
The latest round of cares act funding, which request providers to detail revenue shortfalls and increased expenses is an important step in targeting operators that have been disproportionately impacted by the pandemic.
We remain hopeful that a vaccine will be available soon.
I appreciate the government focus on delivering the first round of vaccines skilled nursing and assisted living residents and their frontline caregivers.
This will be a crucial catalyst returning occupancy cash flows to pre called at levels.
I will now turn the call over to Bob.
Thanks, Taylor and good morning, I would like to start by also thinking or operators and their employees for their continued heroic efforts. During this pandemic as Taylor said they are saving lives every day and they were providing a sexual care to a portion of our elderly population.
Turning to our financials.
<unk> after that though on a dilutive basis was $15 million or six cents per share for the quarter as compared to $163 million or 72 cents per diluted share for the third quarter of 2019.
Our adjusted EPS that though was $192 million or 82 cents per share for the quarter and excludes several items as outlined in our adjusted EPS that though reconciliation to net income found in our earnings release, and our supplemental and on our website.
In the third quarter in consultation with our auditors, we determined we will no longer record lease related revenue on a straight line basis for operators that have reported substantial doubt regarding their ability to continue as a going concern we.
We had three operators communicate to Omega going concern disclosure, primarily as a result of COVID-19 as a result, we recorded revenue for each operator, when a cash basis and wrote off as a reduction to revenue. They were previously recorded straight line receivable and lease inducements totaling $142 million.
This accounts for nearly 100% of the difference from a revenue reported for the second quarter revenue for the third quarter was approximately $254 million before adjusting for the nonrecurring write down all the straight line receivables and other non recurring revenue items.
The revenue for the quarter includes approximately $8 million have noncash revenue.
We collected over 99% of our contractual rent mortgage and interest payments for the third quarter. Excluding of course rental payments due from DAYBREAK, which is under a forbearance agreement and has not been making payments in 2020.
Our DNA expense was $9.3 million for the third quarter of 2020 in line with our estimate a quarterly DNA expense all between 9.5 million and 10 and a half million dollars.
Interest expense for the quarter was $51.8 million with the $1 million decrease over the second quarter of 2020, resulting from lower average daily outstanding borrowings on our credit facility.
On October 7th we issued $700 million of 3.375% Senior notes due February 2031. This transaction was a leverage neutral transaction. However, we anticipate our quarterly interest expense to increase approximately $1.8 million as proceeds from the offering were used to.
We paid $625 million of LIBOR based term loan debt maturing in 2021, and 22 and $58 million of LIBOR based credit facility debt.
Replacing them with a slightly higher fixed rate treasury based debt.
Our balance sheet remains strong it throughout 2020, we continue to take steps to improve our liquidity.
At September Thirtyth 2020, we had $171 million have outstanding borrowings under our $1.25 billion credit facility and had approximately $36 million in cash and cash equivalents alright.
Alright, Tobar bond issuance repaid $683 million of short term LIBOR based maturities, we have no bond maturities until August 2023.
In March we entered into $400 million of 10 year interest rate swaps at an average swap rate of <unk>, 0.8675%. These swaps expire in 2024 and provide us with significant cost certainty when we refinance our 2023 bond maturity.
While we believe our actions today provide us with significant liquidity and flexibility to weather a potential pronounced a prolonged impact to our business. We continue to evaluate any additional steps that may be necessary to maintain adequate liquidity.
At September Thirtyth, approximately 88% of our $5.2 billion in debt was fixed and our net funded debt to adjusted annualized EBITDA was 5.25 times and our fixed charge coverage ratio was 4.3 times. It's important to note EBITDA on these calculation does not include any revenue related construction.
Auction in process associated with two newbuilds scheduled to become operational within the next 12 months.
When adjusting to include a full quarter of contractual revenue for new investments completed in the quarter as well as the two newbuilds and then eliminating revenue related to assets sold during the quarter, our pro forma leverage would be roughly 5.12 times.
It's important to note we have lowered our leverage four consecutive quarters with a goal of returning our leverage to less than five times.
I will now turn the call over to Dan.
Thanks, Bob and good morning, everyone.
As of September Thirtyth, 2020, Omega had an operating asset portfolio of 957 facilities with over 96000 operating beds. These.
These facilities were spread across 69 third party operators located within 39 states and the United Kingdom.
Trailing 12 month, operator, EBITDARM and EBITDAR coverage for our core portfolio increased during the second quarter of 20, 21.84, and 1.48 times, respectively versus 1.68, and 1.32 times, respectively for the trailing 12 month period ended March 31st 2020.
These numbers were negatively impacted by a number of external factors affected by cobot 90, including a significant drop in patient census, and a dramatic spike in operating expenses, particularly labor costs and P. P.
And which were offset by the positive impact of federal stimulus funds.
During the second quarter, our operators cumulatively recorded approximately $175 million in federal stimulus funds as a result of the Cures Act.
Without federal stimulus monies being included trailing 12 month, operator, EBITDARM and EBITDAR coverage would've decreased during the second quarter up 20, 21.61, and 1.26 times respectively.
EBITDAR coverage for the Standalone quarter ended June Thirtyth 2024 core portfolio was 1.87 times, including federal stimulus and 1.05 times, excluding the $175 million of federal stimulus.
Operator performance as the spread was significantly affected in the second quarter of 2020 and will continue to be affected in the foreseeable future.
On the negative side of the equation cumulative occupancy percentages for core portfolio went from pre covered rate of 84% in January up 2020 to a low of 75.1% in August of 2020.
Based upon what Omega has received in terms of occupancy reporting for October to be occupancy has rebounded slightly to 75.6%.
It's important to note that the impact on a specific facilities occupancy correlated closely with a number of concern covert positive residents and employees in any given facility.
Some heavily affected facilities have seen occupancy erosion up 25% or more while relatively unaffected facilities in non hot spots I've seen only minimal occupancy declines or in some cases, none at all.
In addition to Covance negative effect on occupancy. The virus is also caused a significant spike in operating expenses, particularly labor costs and personal protective equipment for pp.
Per patient day operating expenses for our core portfolio increased approximately $25 from January 2020, the June 2020, but.
But decreased about $2 per patient day as of the end of August the latest stats available.
While too early to confirm and absent a significant kobin spike we expect PPD expenses to decline in the coming quarters based upon our ongoing conversations with our operators.
As previously stated our combined coverage for the second quarter ended June Thirtyth 2020 on a standalone basis was 1.5 times without taking into account the benefit of the approximately 175 million in federal stimulus funds recognized in the quarter.
It is not hard to envision the financial devastation. The virus would have had on so many operators have the cures act not been implemented.
It should be noted that initial guidance from the department of health and human services or HHS on revenue recognition for money is received via the Cures Act has resulted in omegas operators reporting and recognizing the stimulus funds on an inconsistent basis.
He's in Consistencies have resulted in unrealistic and unsustainable coverage ratios after applying and recognizing the federal stimulus funds associated with the Cures Act. However, we believe that newly released HHS guidelines will help operators achieve a more consistent methodology for the recognition of revenue in the coming quarters, thus, resulting in coverage.
Is that on average resemble those coverages reported prior to the pandemic.
Turning to new investments.
The third quarter of 2020, Omega funded capital expenditures totaling $22 million.
Year to date Omega has made new investments totaling approximately $163 million, including $93 million for capital expenditures.
Turning to dispositions during the third quarter of 2020.
Megan divested six facilities via six separate transactions for total proceeds of $61 million.
Year to date as of September Thirtyth 2020, Omega has divested a total of 19 facilities for $117 million.
Lastly, I would once again like to applaud our operators tireless selfless efforts, particularly those employees on the front line.
Thank you for your unwavering commitment to the health and welfare of our nation's most frail and vulnerable elderly population.
I will now turn the call over to Megan.
Thanks, Dan and good morning, everyone.
Since our last earnings call additional support has been provided by the camera Soc under 175 billion dollar health care Fund detailed.
Details of the second targeted distribution to Medicare certified nursing homes, a $5 billion that was announced July 22nd have subsequently been formalized the first $2.5 billion with paid on August $10000 per facility, that's $1450 per certified bad equating to approximately 100.
$60000 purposefully.
Second $2 billion will be payable in five monthly payments starting in October based on each nursing homes performance for the month prior and one payment for the aggregate performance in terms of its rate of infection being below the county infection rate and its death rate being below national performance threshold for nursing home residents there.
The remaining $500 million is likely to be based on infection control collaboration I suppose for Covance specific units.
In September HHS announced that assisted living facilities would be eligible to apply for up to 2% 2019 patient revenues under the phase two general distribution allocation, which I previously only been open a Medicaid and chip program providers.
Willingness of HHS to establish a portal for license assisted living facilities is a giant step in the right direction in terms of much needed support for that sector.
In October HHS announced a new $20 billion phase three general distribution for which an application process has opened three November six.
Available to all health care providers previously eligible for payouts, So Smith and EPS will be able to buy.
After all applications have been submitted and reviewed payouts will be based on some yet to be determined percentage of change and net operating income related to patient care.
Additionally, the repayment of advance Medicare payments originally the start in August over a 90 day period has been extended out to one year from receipt of payment March or April 2021, and won't be payable over an extended period of time, which represents a 25% agreements are the first 11 months it.
50% over the following six months and any remaining amount be a lump sum.
The testing key to the control the virus part of a vaccine CMS in August mandated the regular testing of nursing home employees weekly by weekly or monthly based on the positivity rates in the county, each nursing homes located.
And with the accessibility to test at reasonable rates key to that mandate as well as the visitor casting giving advice visitation guidelines CMS is also bolstered its initiative to provide access to tap.
In early September CMS announced that it had contracted with Abbott to provide nursing homes with an initial 750000 antigen rapid tests were no machine is needed with additional tests expected to go out and regular Interpol throughout the remainder of the year, including two assisted living facilities.
These tests can be purchased at $5 per test H.
H S also announced in October that it has signed agreements with Cvs and Walgreens to provide vaccines to nursing home residents likely as a priority group once the vaccine is available.
The study continued support of the government both financially hands on the testing front for the long term care industry has been critical in providing operators the ability to control. The virus that is unlike any other that the industry faces today.
There's no rest for the weary as it relates to the battle against covert 19th and continued government support into 2021 is necessary to combat, but the long term and short term effects of this virus on the industry and the population that serves each and every day.
I will now turn the call over to Steven.
Thanks, Megan and thanks to everyone on the line for joining today.
In conjunction with Maplewood senior living we have completed work on our Payless memory care high rise at second Avenue, and 90 Threerd Street in Manhattan.
The opening of the project is pending licensure by the New York State Department of Health. The final project cost is expected to be approximately $310 million.
The COVID-19 pandemic pose a certain challenges unique to senior housing operators, including increased cost the challenges of managing cobot positive patients and meaningful practical limitations on admissions.
Well they very much appreciate the help they have received private pay senior housing operators have not seen a level of government support provided to other areas of senior care.
We saw challenges to our senior housing census throughout the second quarter with variations tied to when and where cobot outbreaks run counter.
However, we've seen evidence of stabilization in strengthening of census in markets, where admission freezes have been lifted by example, our maplewood portfolio, which is concentrated in the early affected Metro New York Metro Boston markets.
Saw meaningful census, a Russian early in the pandemic with second quarter census, hitting a low point of 80.4% in early June.
That said their portfolio occupancy has returned to 84.5% by the end of August.
Well anecdotal this experience provide some evidence that the pent up demand during admission freezes can translate to faster than typical fill rates in the months that follow.
Including the land and sea IP at the end of the third quarter Omega Senior housing portfolio totaled 1.6 billion of investment on our balance sheet all.
All of our senior housing assets or a triple net master leases, excluding our investment in our New York City development approximately one third of our investment isn't maplewood assets, which are in one master lease a third is in the UK with two master leases one for gold care assets in health care homes assets, respectively, and a third is intermixed with SNF assets.
Various master leases.
Our overall senior housing investment comprised of 130 assisted living independent living and memory care assets in the United States in the United Kingdom.
As expected this portfolio on a standalone basis had its trailing 12 month EBITDAR lease coverage fall to 1.16 times in the second quarter of 2020.
We've covered outbreaks affecting different markets. It various times. It is reasonable to think that coverage may see additional downward pressure during the course of the pandemic why we remain constructive about the prospects of senior housing to COVID-19 outbreak has warranted a far more selective approach to development.
Well, we make further progress on our existing ongoing developments, we continue to work with our operators and strategic reinvestment in our existing assets, we invested $22.3 million in the third quarter in new construction and strategic reinvestment 12.6 million of this investment is predominately related to our active construction projects the remaining nine.
Point $7 million of this investment was related to our ongoing portfolio Capex reinvestment program.
I will now open the call for questions.
Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys so.
To withdraw your question. Please press Star then two.
Our first question today comes from Omotayo Okusanya with Mizuho.
Oh, yes, good morning, everyone I hope, you're all keeping well and keeping a my first listen a good part of just on government reimbursement, obviously I think the the the rent coverage, which should indicate that that's been a big help but question is for.
How much longer do you think that ends up supporting a the species specific I mean, what are you expecting him sums up another round of stimulus.
And even with some of the current stimulus and so the things to programs that are temporarily they do you expect things to keep going or do you end up in the one day expired yet, but the government kind of stop supporting them to just kind of curious number allotment for the government support.
Good morning.
A couple of things remember, there's still $30 billion.
Unallocated Cares Act.
Sellable.
And.
At some point.
I would expect that.
Sure.
At a math, it's consistent with what we see in prior grouse.
And I think ultimately we will see.
Another round of stimulus.
Politics gets settled out it just doesn't make sense to provide it.
Supported by.
Today.
Just stop.
That goes back to Jim.
The nature of this business.
Piece with a continued so our expectation is that there's a lot of money in the system not all of it at that.
Yes, there's more forthcoming I think at some point, we'll have another round of students.
Okay. That's helpful. My second part on that is I guess some of your tenants that have to go rent coverages.
I mean, they're all current on rent, which is great but is there any risk bill kind of lease restructuring happening.
One down the road if you continue to get a significant government stimulus and support.
Yeah, I think that's always a risk, but the one thing I'd point out.
Oh.
I pointed out in my comments earlier is.
You see the hot spots move around the country, So you'll see Strauss.
With the hot spots that obese and.
So it's very difficult to predict.
Long term the operators that have ongoing stress, but we've seen operators rebounded pretty rapidly as well so I think.
The possibility is out there I don't think its broad.
[laughter] be much more targeted from our perspective, we had those discussions today.
We ultimately do.
Anymore.
Rapidly would be in the form of deferred rent.
Because ultimately we know the backend of this.
Steve the return and seasoned markets is as viruses abated.
[laughter].
Gotcha, Okay I'll yield thank you.
Our next question comes from Nick Yulico with Scotiabank.
Hi, Good morning, everyone. Just a question on skilled nursing occupancy I mean, you did talk about how it's been a bit of a challenge for occupancy to come back for operators. Maybe you could just talk about you know what you're hearing from from your top operators about you know what why that delays happening.
We have seen elective surgeries picking up again in the U.S. hospital system and yet it doesn't seem like that's really creating a a bigger flow discharged to skilled nursing post acute rehab yet.
So the first thing that we did see was kind of a flattening of the occupancy trend right. It's been going down quite a few months, we think it.
Bottom if you will in August of this year, we have seen it creep up as you know in the past market driven obviously, some some areas have seen it come up faster than others.
Our conversation what the operators you know what they're looking for to see as a rebound.
<unk> term care.
That's the one that has a much longer length of stay but the admissions of those residents at a much slower store, maybe one two maybe three.
A month in a given facility so [laughter] lower.
Paul back if you will to righi three.
Free Tobin occupancy levels.
On the Medicare side.
Yes, we have seen a pick up in occupancy and acute care hospital, they're certainly not back anywhere near what they were before come in but I think people that are doing elective surgeries or.
I'm really more of your healthy folks that have put these elective surgeries off and not the type of patients that would go from an elective surgery into a nursing home.
Those would be more youre 80, plus year old red.
Residents with co morbidities. So a lot of these elective surgeries, there not being discharged to.
<unk>.
Never I've been in the past and they're not now so I'd say sort of the last piece of the hospitals, having elective surgeries comeback is these elderly population right now who is I think just quite frankly, we are going into the acute care setting and ultimately paralysis skills.
Skill sets.
Okay. Thanks. That's helpful. Second question is just on the acquisition market right now I mean, there or are you seeing much in the way of your opportunities and you know I mean, how how is how to how does underwriting deal work in a covert world for working.
Looking, particularly the Bard city skilled nursing.
Oh, yes, it would've been an uptick in the.
And the acquisition environment, we've seen some deals underwriting.
Is challenging depending on how hard you know what we're looking at it's been here we of course look to.
Horrible levels pretty close.
Try to bridge to get back to those levels, but.
But it is challenging well we have seen an uptick we are going to be opportunistic if we can we see.
Deals that present themselves, we will look at them very very hard.
Hey, any pricing changes that you guys are saying, yeah. I mean is it an attractive time, if you army buying skilled nursing others have talked about that pricing has gotten more attractive on the senior housing so what about skilled nursing.
I don't think we've seen enough trades in skilled nursing to really decide I mean I think.
We're going to price it where we see it.
And maybe that will dictate where pricing ultimately comes out but there has not been enough deals consummated.
This point.
All right. Thanks, a lot.
Thanks.
Our next question comes from Conor similar scheme, which bear in Burke.
[noise] good morning, everybody. Thanks for having me first question on skilled mix I mean, it seems to be sequentially, improving still and a little unsure of how to look at this going forward. So I mean is this a trend that has just been exacerbated by the pandemic or is it something that we should expect to moderate over time.
Yeah.
Yeah. So we have seen an uptick in skilled skilled mix and it really is because of the.
The ability to facilities to skill in place. So you have a.
That that.
Why not Medicare eligible isn't factored with kolon, they automatically skill and do a skill resident.
So that's really behind the big upswing and.
The QMX going up and so.
You can only expect that to continue as you know as long as you've got carve it out there in a common outbreaks.
We would we would think that would moderate overtime ASCO as the current cases the decline.
Okay. Thanks for that and then one other looking at EBITDAR coverage above one times during Q2.
And then given some of the occupancy declines we'd seen maybe worse in some markets than others. I mean could you help build the bridge here and then maybe outline some of the factors that were supporting coverage during Q2.
Well some of the things that we're supporting obviously there was not much stimulus federal government stimulus. There was also the states.
Oh I in many instances increased their funding about through map and some just covered related.
Increases in rates.
As we just talked about the ability to scale in place has favorably impacted our.
Right.
The impact of the 2% sequestration going away that was favorable [laughter].
And you had some positive things happened during the quarter.
[noise], which.
I think bolstered coverage this to some degree.
Right now in the short run.
In the next few quarters, we don't see a lot of folks move around these buckets too much.
[noise] unless they change the methodology is I alluded to about how they record federal stimulus.
I think that's going to be the big driver.
So how people move amongst these different partners.
Okay, then and one last quick one for me.
Looking at some news in regard to state budgets reduction in tax revenues and a lot of cases is this a a concern for you guys. How many you have izod and just made.
Maybe offer some color of how you plan to navigate 2021, if this issues to persist.
Yes, so we always obviously pay attention to state budgets and think about it.
Excellent.
On our operators revenue streams, but I will say that when you think about how medicaids funded and the fact that there's potential federal match up.
Often times three times the amount of the state beds.
Oh.
Very rarely do you see states confront it with bugs.
Budget constraints, where they're cutting Medicaid rates, because the federal matches a multiplier.
So yeah. So.
Historically seen states, where budget issues, a whole Medicaid rates flat.
Just frankly in this environment I think would be okay.
All right that's all for me thanks very much.
Thanks Scott.
Our next question comes from Daniel Bernstein with capital one.
Hi, good morning.
I was just trying to.
Thinking about you know if we go post code and I know this is more theoretical <unk> horton harder to predict but what a skilled nursing going to look like.
You know, it's just going to be.
Much higher acuity, Medicare and more Medicaid mix going forward than what it was pre Kobe that just trying to understand.
How you guys might or thinking about what skilled nursing might look like post kobin.
So I don't know that.
Covance, obviously, we accelerated a lot of.
Other.
Changes and shifts other industries, particularly technology I think as it relates to skilled nursing.
You're probably right in that scene, the last decade, a shift into higher acuity Medicare higher acuity Medicaid frankly.
I think that shifts just continues I don't know that cove it accelerates it.
Lastly.
But you know given as as.
As we all know that the demographics that push wall.
That shift will be welcome in terms of not overwhelming the limited supply of this system, but.
But I think that's what it looks like.
We get to that we get post code you have what you just said continued higher acuity on the Medicare side.
At a Medicaid base that's how.
As more co morbidities that existed.
Okay, [laughter] does that kind of vision allow you to underwrite assets I know its very difficult you guys ever but due to it being difficult but.
You know if you can go this is probably what is going to look like.
Can you underwrite assets or is it just so varied by property by property or portfolio that that that is just too much of a generality to go. This is how it's going to look like that's underwrite it.
[noise] well one component of the underwriting is is the.
The structure of the physical plant.
And you know we see.
Well most almost the complete elimination of three and four bed type rooms, I think that gets completely accelerated.
We've covered nights you see have to at least underwrite the physical structure, knowing that you see.
To have at a minimum semi private rooms, and then obviously the ability to control infections within those facilities and so that goes.
Those kind of dynamics, so I think retrofit buildings from the 19 sixties, that's a lot tougher I think about that purpose built facilities.
Yeah.
Okay.
And then the last question I have is just trying to understand portfolio performance in the skilled nursing industry itself.
Mr and knowing that Cobi, geos, where it wherever it geographically cobot was was it was high it makes a difference.
Did you see any difference between urban suburban facilities rural facilities your portfolio in terms of performance and then may be again.
Where are the facility started off with skilled mix.
Just trying to understand where the differences in performance are occurring within the skilled nursing industry.
Well I mean in our portfolio certainly what we saw in the urban markets first and hardest.
Okay.
We see the biggest outbreak was in the New York City areas, Connecticut, New Jersey.
That was.
Quite large although quite frankly, we don't have much in that region, but obviously, we didn't see it get that very hard and its skilled nursing facilities art and also in southern California quite our and then all you just go around the country and it got bigger urban spots in those areas a lot of that work.
Yes, Detroit Chicago.
So and then the roll Aries.
Not near as much and there were some isolated hot spots.
Well they were pretty isolated we saw yes roll taxes, not really get hit at all for many months and still pretty clean down there. So.
It didn't matter a lot where you are at it didn't matter, whether or not you had a hot spot in that community. So you're that community was was hobbled go but.
It almost always carried into the nursing home within a week or two.
So performance wasn't so much focus on like there was a Medicaid heavy facility versus a Medicare facility. It was.
If you have covered or not.
That's correct.
Okay, all right I appreciate it up off thank you.
Okay.
Your next question comes from Nick Joseph with Citi.
Thanks.
A handful a tenant a cash recognition and had the straight line rent write off so I'm wondering if you view that more as one time or would you expect additional tenants to express going concern and have additional write offs going forward.
I wouldn't want to sit here and say its one time, but you know it is driven by accounting.
Well folks report their accounting.
So to the extent that you have operators that.
Haven't reported wage at Asus Geno recorded.
To date.
Good day chains shore Ah, that's possibility I, but I.
I think it's just is like.
Likely that well continue to report.
But remember it really this is really driven by an accounting disclosure.
That requires us to think in a different way about how we book our revenue.
But there's nothing from a facility standpoint with those tenants that here I know the rent is being collected but there's nothing from a facility standpoint that you're seeing different with those tenants that you walk through the rest of your portfolio today.
The general answer is no nothing different.
Great. Thank you.
Our next question comes from Rich Anderson with S. NBC.
Hey, Thanks, good morning, everyone. So.
To that counting disclosure issue that is that what you're talking about when you mentioned the inconsistent basis or the inconsistent recognition from HHS stimulus and it can you give me a two to two sentence.
Definition of what that could mean I'm, just I'm, just a little bit.
Yeah, the inconsistent recreation of stimulus money and nothing to do with the write off.
Straight line.
So it's just that the guidance initially was not.
Not crystal clear so some of our operators didn't recognize any stimulus money, even though they took in hand.
In their facility level financial statements some of them attempted to apply it based upon I think what the.
What they were intending to do which is applied to the lost revenue and increased expenses.
And they are different operators use different forms of that and then some operators quite frankly divide it by a quarter and ended up in three equal payments. So it was all sorts of different methodologies and that's what I meant by inconsistency is because of all of our our bigger Jude radically different.
So that we do.
Right now in the in the third quarter in part, but more than likely in the fourth quarter.
Where we're so your whatever coverages you you disclose will be.
Yes, you'll have a lot more.
Comfort with I guess is that is that correct.
Yep Okay.
So.
This is all great that stimulus is coming in and expected to continue and it's great that you said your coverage on averages above one even without it but you obviously have a wide range as you discussed so in the aftermath of Cove. It I'm wondering is there going to be some kind of reset the where the government says okay. We help you served.
Through this.
Now you're you're on your own not on your own but you know.
We have to scale it back a little bit and so there's going to be some winners and losers and the aftermath of all this and my question is you mentioned the you know the good payout ratio and on your dividend do you think that there is a reset among your your tenants within Omega such that you'll have to okay really.
To reset the bar across the board.
Excluding stimulus because we're now in a more comfortable place regarding the virus and that there will be a fair amount of.
Tenants will you'll have to have a conversation about rents in coverage and all that sort of stuff such that the dividend could also have to be reset is that is that a two.
Too farfetched of a scenario or is that a is that a possibility in the aftermath of this.
No I think it's unlikely in the sense of.
You have to look at just the context of our role.
With 5% of the skilled nursing facilities in the country and think about the other 95%.
And.
Part of.
Our under underwriting is.
Upper quartile type performers. So you have an environment, where you say all right we're going to just change the overall reimbursement of this industry and we're going to drop.
But lower quartile performers are not going to survive.
And you think about the government support of this piece of the care delivery continuum.
And the idea that you drop rates.
Force supply out of the system, the lower court top performers.
Yes, the upper quartile performance.
Going to survive, but you take so much supply out of the system.
That work.
It's a cross current work against yourself, So I think its.
Well you can never predict.
Where the government false, but the long term ramifications.
Art art good public policy.
But that doesn't mean that we would obviously.
Obviously, we have such a big portfolio, there's going to be component.
It's going to be at that lower core tile, but not much well I guess I'm not talking so much about.
Cutting Medicare reimbursement or attacking P. D P M or anything like that it's just stay status quo pre cove it without stimulus. Your your starting point in that in that environment is going to have a fair amount of.
Operators that are under water from relative to the rent payment I'm, just saying, leaving everything else alone all else being equal do you think that you know there is this kind of a a reset that happens within your portfolio, even with a market basket of 2% and everything else. That's involved typical I don't think so I don't think so I think if you.
Look at where we were pre cove, it and the trend of our coverages as a trend of occupancy.
We returned to that state.
There was not there's very little pressure and they are in the portfolio at that point in time so right.
Okay, I take it might there might be a period of catch up to get.
Occupancy back up to that pretty Tobin rate and.
Definitely yes, definitely yes, you have a gap.
It's got to be temporary and you deal with it but I don't think you deal with it.
In the form of a permanent step down I mean, that's just not.
The nature of.
How we deal with our tenant relations.
Right.
Fair enough. Thanks, very much I appreciate it.
Good.
Our next question comes from Lukas Hartwich with Green Street Advisors.
Hey, good morning, you touched a little bit on this earlier, but I just want to ask the question a little bit differently do you think that the election outcome next week impacts the odds with continued financial support for the skilled nursing sector.
[noise].
I actually don't I I think that.
However, you know whatever comes out of the election.
May affect the timing.
But I think the odds are very very high.
Okay, and then on the dispositions this quarter do you have a sense of how the pricing on those transactions compared to where they were treated pre kobin.
I think most of the deals were struck pretty go but I don't think the pricing moved at all.
Okay, no retrading in that case.
And then the last just a quick housekeeping question, what was the 8 million a nonrecurring revenue.
Oh, yes, it's really two components there it represents cash received related to a contractual or repayment of a lease inducement as well as non cash revenue related to.
Long acceleration of up below market in place lease asset resulting from transitioning.
A couple of facilities to a new operator so.
Really two components.
Okay. So some some cash and non cash so.
That is correct.
Okay.
Great. Thank you.
Thank you.
Our next question comes from Jon Petersen with Jefferies.
Oh, great. Thanks, maybe I'll ask another election question, but you know obviously the elections next week, but it kind of seems likely that we probably won't see any stimulus passed or go into effect until next February when you know after everybody put into place I mean it.
I guess, what does that what does that mean for your sector is there enough of a bridge of funding right now that that everybody can smoothly get to that point next year until the government steps and again.
I'm not sure if it's everybody, but up substantially everybody because remember we mentioned earlier there still $30 billion on Al Qaeda Cares Act money and there's 20 billion and this latest rap.
Okay, so that made but no distributions of yet so you have 50.
$50 billion that hasn't yet been distributed.
That.
Think about us near 30% of the whole cares Act pool we.
Yes, three months to get.
Into 2021.
Got it Okay. All right. That's helpful and then or I know you guys said in your prepared remarks, and second Avenue is can clean air I think just waiting for a kind of approval to get open I guess whats the timeline there like D. Do you want to open it right now or is it better to wait given the environment, just maybe give us a little more details on what we should expect there.
Yeah. That's a good question Steven you want to take that sure I think the short answer is we would open it as soon as the state provides us licensure license to do so which to your earlier point, it's probably sometime in.
The next week or so till year end dish, you're in a funky environment as you all know, it's a very tough environment in which to push the department of public health given what's going on we did see a building in.
Brooklyn get licensed in the last few weeks. So we know the survey as we're out there we're working communicating state, but yet as soon as possible.
Got it and then maybe just one more bigger picture question. I think you guys have alluded to adding even in today's call talked about longer term. The demographics are positive for your industry and there is a potential shortage of of beds down the road I guess is the current environment.
Add to the put more of a spotlight on the skilled nursing sector does it does it help kind of alleviate those problems do we see more construction more approvals stuff like that like further down the road I know, we're all very focused on the cobot environment, but if we think you know three to five years down the road do you think anything is changed.
[noise] I don't know that anything is changed.
I don't think so I think the supply constraints that we see and the time lags a stage responding.
To lack of supply.
We're always fairly big so I.
My guess is.
We will continue to see the dynamic that we saw recall that for the next 567 years.
All right. Thank you appreciate it.
Thank you.
Our next question comes from Joshua Dennerlein with Bank of America.
Hey, good morning, everyone I'm, just a follow up question on acquisitions.
Our sellers just not putting assets on the market right now or is pricing just are there assets on the market and pricing, it's just too far apart between buyers and sellers to get trade done and if.
It's the latter what's what's the big difference between buyer and seller underwriting.
You know I think.
There is a has been a pick up in deals in the market, but you know, it's all relative right compared to the last two quarters, which was nonexistent. It's picked up you know there's a difficulty with underwriting and then there's a difficulty with due diligence do you know.
It's hard to go into a building in interview employees.
You know kick the tires bring in third party.
Contractors et cetera, do environmentalism and.
Restaurants on on Capex needs. So it just makes it a much more challenging environment and I think the operators as a whole or just.
You know, they're just trying to.
Minimized the effect of Oh that where it stands today I think there's a perception that if they were to put a facility on the market today that might seem like.
A little bit of a fire sale. So I think that's slowing things down a little bit it's just a challenging environment to do to do deals.
Okay. Okay. Thank you and then maybe one other one it was brought up in the opening comments.
Mentioned like the faster than normal fill rates have been made Paypal portfolio.
Could you maybe elaborate on that like how much faster than normal so up what's going on.
Stephen one yeah sure just bye bye and again, it's anecdotal but.
In early June as I had mentioned in my prepared remarks, they they hit a low point there.
Their portfolio of just slightly over 80% the month of June was actually their highest move in rate.
[music].
In the past 18 months in the <unk>. The point I was trying to make was just that the there was pent up demand that we saw in that portfolio.
I can't quote you exact moves and move out rates in that portfolio.
But it was about three acts for that month, what they typically saw which is what we found encouraging.
Okay. That's all that's great color I appreciate that thank you.
If you have any further questions. Please press star and then one to join our Q.
Our next question is a follow up from the only time I could find young with Mizuho.
Ah, Yes, a b.
Stuff will impact.
No move to classic counting.
Just let us know what that number is.
And what kind of what will be going forward as a kind of a model that's 2021.
Oh, Yeah tires. So if you look at it covers.
It basically you remove the straight line component of those two operators most of that was removed in the in the quarter there was a little bit of residual.
That was not removed in the third quarter or roughly about $2 million straight line related to both the timing of Oh about Genesis and a gene, but when we put it on there, but that's going to get offset by.
Oh make what receiving their temporary certificate of occupancy so from it.
AFFO standpoint, you'll see very little and from that standpoint, you won't see any.
[laughter] perspective is that how much how much was it <unk> how much of that the quarterly impact.
The third quarter had roughly $2 million Oh shrake line related to.
Gino and Genesis.
Okay. So it's like 8 million annually okay.
That's helpful and then Steve again, I missed that but for maplewood.
I mean could you talk a little bit about what right, but kind of underwritten and what kind of new stuff was underwritten. When this project was started and kind of what your expectations are now that it's about the open.
Yeah, our expectations I think the only thing that's changed the expectations is is the timing, but the timing.
For.
Carried in the past what has increased the delay in timing what does increase the overall cost because there was some additional accruals.
There was also some additional construction cost, which I alluded to last quarter's call, but the yeah the deposit level.
Has maintained fairly constant.
Maplewood has not stopped their marketing, but that said if you look at the list of people who are on the deposit list today you wouldn't be the same list that was.
In early April as you might expect given the frailty of the population I don't think it's practical to think there when we underwrote. It we were expecting a 36 plus months sell up.
Well that fluctuate a little bit I I'd, rather not handicap it because I don't know when we're going to get the license but.
I don't think it's materially comp I won't kind of what kind of rank them by expected for that.
It will be charged to rather than on the spot.
<unk> I'm, assuming that it really does that impact what kind of rent you expect to get from the upgrade of the building.
No I don't think so I, we're not seeing any degradation in there.
I call sort of revenue per occupied room in their Metro New York properties today.
There's been very little if any resistance to pricing during the marketing we think it's going to be a mid to high teens average.
Call It monthly fee because as you well expect some of that that is a base, meaning some of its value add health services, but.
There's no indication that the market.
So we need that kind of care has really been altered.
Great. Thank you.
This concludes our question and answer session and I would like to turn the call back over to Taylor Pickett for any closing remarks.
Thank you thanks, everyone for joining our call this morning.
Please feel free to contact.
Sure Bob with any follow ups.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.